App Monetization - A Complete Guide

Publift
June 18, 2021

For app developers working in the current digital eco-system, it can be difficult to stay afloat, particularly if they don’t have access to large amounts of external funding. As of the first quarter of 2021, there were almost 3.5 million apps available for download from the Google Play store, with a further 2.22 million iOS apps available through the Apple App Store. With such vast competition, app developers and publishers need to stay abreast of the latest monetization strategies to ensure they stay afloat in an increasingly competitive market.


Number of Apps per App Store 2021 Source: Statista


What is Mobile App Monetization?

App monetization is essentially the process of leveraging your app user base to create a revenue stream. For app owners, developers and publishers, this is an essential method of creating income from your app without the need for external funding. There are several monetization models available to app publishers, all of which should be evaluated to determine which best suits your application, app functionality, brand and user base.


Why is App Monetization So Important?

As it has become more and more popular for apps to become free at the point of install, developing a mobile app monetization strategy is essential for app publishers looking to generate revenue and stay afloat in an increasingly competitive mobile marketplace.


App Monetization Strategies

In-App Advertising

When the growth of mobile sales took off in 2008, followed by the launch of the Apple App Store and Google Play store, digital advertising as a monetization method was already well established across the World Wide Web. App developers quickly pivoted to move this monetization strategy to the mobile format, with banner ads having to be adjusted for the smaller real estate of mobile devices. 

Since then banner ads for mobile advertising have evolved to include several options specifically for the mobile environment, including interstitial ads, video ads, native ads and text ads. 

Interstitial Ads

Interstitial ads are one of the most popular forms of mobile app advertising. They are full screen ads that pop up at certain points throughout the user experience, without breaking the flow of the app.

Interstitial ads can be an extremely effective way to monetize your app, particularly if implemented at the right times throughout the gaming process. In between levels or while a new element of the game is loading are both perfect, as they give the user time to think about the ad’s content without being frustrated by interruption to the flow of gameplay. 

Native Ads

Native Ads for App Monetization Example Source: Instagram


Native ads are becoming an increasingly successful ad format when it comes to app monetization. Native ads are designed to integrate seamlessly into the app, appearing as another post in the feed and are best suited to news sites and social media. 

In App Advertising- Benefits

In app advertising is still the most popular app monetization strategy, however there are certain things to consider when employing in app advertising as a form of generating revenue.

There are three types of ad revenue for an app developer to consider when implementing mobile app monetization strategies:

Cost per Thousand Impression (CPM)

Cost per Click (CPC)

Cost per Action (CPA)


CPM is often the preferred method amongst free app developers as it doesn’t rely on the user clicking the ad in order for them to generate revenue.

Benefits of mobile advertising include:

In app ads are quick to implement

In app ads are a simple app monetization model and with a large user base can generate significant ad revenue

In app advertising offers advertisers advanced targeting options

App publishers remain in control of the advertising content, with the ability to blacklist advertisers they feel are not a good fit for their audience

With Publift’s Fuse technology, we provide mobile marketing automation to take the hassle out of in app advertising.

Fuse is powered by a single piece of code that brings together the essential elements needed to maximize programmatic ad revenue on your app.

Our ad management system can be managed remotely, taking the guesswork out of keeping across all the latest technology, industry changes and partnerships so you can focus on what you do best – creating great content.

Fuse is conveniently built to function after a one-time implementation. Set up your tags once and stay optimized for a lifetime. Once your tags are on the page, our expert team will be able to test, analyze and optimize your setup to maximize revenue. New partners, new demand, new technology and new ad layouts can be added with just the click of a button. You won't need to change the code on your page from an advertising perspective ever again.


Subscriptions: Freemium and Premium

Many app publishers are now looking to the subscription model as a method of app monetization. 

Subscription models generally function in the following way. Users are able to download the app for free and access some or all the features of the app for a specific period of time. Once this period of time expires, app users must then pay to continue using the app.

Of the different monetization strategies, this is one of the most popular with some statistics quoting as high as 94% of apps using this method to increase their number of paying users.

Apple describes subscription apps as follows:

‘Auto-renewable subscriptions give users access to content, services, or premium features in your app on an ongoing basis. At the end of each subscription duration, the subscription automatically renews until a user chooses to cancel it.’

There are two different types of subscription model; the freemium and the premium, which differ slightly in their app monetization models. 

Freemium

 Premium Ad Source: Spotify


The freemium subscription model is somewhat similar to the above, however, the freemium model allows users to access the app for an unlimited amount of time, but with limited features. 

With the freemium model, users then have the option to unlock certain features by paying a certain amount, usually a fixed fee per month. 

Spotify is perhaps one of the best examples when it comes to freemium apps. Spotify, a music app that was developed in Sweden in 2006 was started as an alternative to the pay-per-song model of ITunes and the illegal pirating of downloaded music that was proliferating at the time. 

Spotify offers many of its premium app features to its free users, however for a monthly subscription fee, users are able to unlock premium features, including an ad free version. 

Spotify is undoubtedly the king of the freemium model when it comes to conversion. While most freemium apps see average conversion rates between 2-5%, research shows that Spotify converts an astronomical 42% of users who start with the free version into paying subscribers.


Spotify Freemium Business Model Source: https://www.strategyzer.com/


But why is it so successful and how can other developers leverage this app business model to generate app revenue for themselves? A study by the Harvard Business Review purported that Spotify’s strength lies in its focus on data analysis. By constantly experimenting, A/B testing and focusing on their users, Spotify are have been able to create a ‘dynamically changing user-interface, behavioral prediction algorithms, and an ever-expanding catalog of music’.


Premium Mobile Apps

Premium Mobile Apps are paid apps that run via the subscription model, however they require users to sign up for a fixed fee immediately upon download. This means revenue is directly tied to the amount of downloads. Paid apps have been shown to have higher user engagement and customer acquisition.


In-App Purchases

In app purchases are another of the app monetization methods gaining momentum in the digital eco-system, particularly in the gaming arena. Gaming apps are the perfect app category for in-app purchases, for several reasons. 

In-app purchases allow users to use real money to purchase features or items while playing a mobile game. 

Depending on the game type, this can be anything from free lives, to extra coins, to the ability to unlock hidden or previously unachievable levels. 


In App Purchase Example in iOS Mobile Apps Source: World Beast War


While the option of an in-app purchase can be introduced at any point in the game, the smart way to monetize your app in this way is to analyze user behavior and strategically offer in-app purchases at points throughout the gaming experience when users need help. 

The process of setting up payment for in-app purchases is also extremely simple. When a user signs up to the Google Play store of iOS App Store, they have the option to add a credit card to cover any in-app purchases, and other app related costs. When a user decides to procure an in-app purchase, it is simply charged to their credit card, with app stores taking a commission (usually 30% unless you are a mobile app that is successful enough to be able to negotiate a different commission schedule).

That being said, in-app purchases are not a one size fits all proposition. There are four main categories of in app purchases available to app developers, each with its own unique features and techniques. It is important for app publishers looking to use this monetization strategy to understand the different types of in-app purchases and which is most appropriate for their specific type of mobile games. 

Consumable

The most common type of in app purchases in mobile games, consumables refer to items such as in-game currency, bonus health, or power-ups. As the name suggests, once these in app-purchases have been used they disappear, but can be purchased again at any time. While most games offer a certain amount of these consumables for free, consumables are a great option for users who don’t like the hassle of waiting to gain these items and are happy to pay to save time.

Non-Consumable

Unlike consumables, when users buy non-consumable in-app purchases they have permanent access to them. Examples here include unlocking hidden levels and bonus characters. 

Auto Renewable Subscriptions

In app subscriptions refer to regular payments users make to access premium content (somewhat akin to the freemium model mentioned above). In mobile gaming, subscriptions can be set up to last for varying periods of time and to unlock everything from exclusive gameplay items to premium versions of the game.

Non-Renewing Subscriptions

Non-renewing subscriptions act in the same way as renewable subscriptions, except that mobile users must manually renew their subscription.


Affiliate Marketing 

Many major technology companies, including Google, Apple and Microsoft have affiliate programs open to app developers. These affiliate programs involve promoting other mobile apps within your app. While the commissions offered in this app monetization strategy are generally not high, app developers do have the choice of which apps they wish to promote, which can encourage users to associate their app with similar brands. 


SMS Marketing

While SMS marketing may be considered a little old school in 2021 when written with style, smarts and a touch of humour, it can be an effective way to reach out to your users and offer them discounts on in app purchases or premium subscriptions. 

It is essential to ensure that the database of people you are reaching out to have explicitly given consent to use their data, and think carefully about the length of message and time you are sending it. Keep in mind nobody wants to read a novel about your app at dinner time. 

Email Marketing

Similar to SMS marketing, email marketing is an oft overlooked method for communicating with your app users about special offers. With social media channels flooded with users, 75% of millennials now use email to communicate with businesses. 

Again, it is essential that your email list gives explicit consent to use their data, and app developers should think carefully about how they will use this channel as an app monetization strategy. 

If you can’t spell out the how, why and when of your email marketing campaign, you probably shouldn’t be heading one up in the first place. 


Sponsorships

Another overlooked, but highly beneficial, of the app monetization strategies available to publishers is a sponsorship arrangement. If your mobile app has a large user base with high user engagement, this model may be ideal. Essentially it involves finding a single company to become your app’s investor/sponsor, giving them exclusive access to advertise to your user base. This can be done through your sponsor covering a bigger portion of the app’s interface with its logo, via a splash screen that is visible to your app users, or via push notifications.

When considering sponsorship as a way to monetize apps, developers should think deeply about their user base, and which products and services would be the best fit for their brand to further user acquisition.


Licensing

Licensing Privacy Policy Source: Waze


If your application sits in one of the app categories that by its very nature collects user generated data (think geo-locations), you may want to consider licensing this data as a monetization model.

Again, it is imperative that any data you collect and license has been explicitly signed off on by the users involved. 

Licensing can be a great route of app monetization, as it allows the users to access the app for free, while the app is paid for by the licensing. 

An example of this app revenue method can be seen with the highly successful traffic and navigation app Waze, who licenses its community driven data collection to businesses wanting to place location-based ads.


Crowdfunding

Crowdfunding platforms such as Kickstarter, IndieGogo, GoFundMe, and Patreon can offer app developers another opportunity for app monetization. 

However, particularly in an increasingly saturated market, this method can be unpredictable at best and a complete waste of time at worst. 


What Monetization Model is Best For Your App?

As with everything in digital marketing, there are several things to consider when deciding which of the different app monetization strategies you should use for your app. Often app developers will decide to employ several of the above approaches to generate app revenue. 

However, with advertisers pouring more than $240 billion into ad spend in 2020—up 26% from 2019, in app advertising is undoubtedly still one of the most effective, and profitable app monetization models. 

At Publift, our ad technology is smart, strategic, yet simple to implement for maximum return on your advertising investment. Contact us today to learn more.

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