App developers create programs for a variety of reasons — community service, agenda-advancement, love of technology. But for most, the motivation behind the release of an app is the same as the majority of publicly-available products: to make money.
But where creators of tangible products follow — for the most part — traditional paths of revenue generation, app entrepreneurs often have to be a little more creative to claim big pay days.
Less than a decade after the explosion of the mobile app marketplace, a small number of monetization methods have emerged as the strategies most likely to achieve success among consumers. If you’re getting ready to throw your hat in the app store ring, you’ll have to decide which of these methods will make the most of your software’s potential.
The current king of the monetization options is the freemium model, through which the initial download of an app is offered free-of-charge, but only with limited functionality. Users who want to gain access to the entirety of a freemium app’s offerings will have to part ways with some cash, either by buying the full version, or via in-app purchases.
When executed properly, a freemium app can be a win-win for consumers and developers by giving a user the opportunity to sample a program without spending any money, which can significantly increase the number of people willing to give the software a try.
Perhaps the most attractive advantage of the freemium model is the flexibility it provides developers as they formulate their monetization strategies. Freemium app creators can incorporate several revenue-generating methods into their programs, including the aforementioned in-app purchases, as well as ads and subscriptions.
Despite its inherent benefits, the freemium model is successful only when it’s implemented intelligently. If too few features are offered in the free version of an app, users will fail to get a good feel for the program, and are unlikely to enjoy it enough to upgrade, or even to keep it on their devices.
Conversely, if a developer gives too much away in a freemium app, even users who like the program will see little reason to shell out any money to buy the full version, or to make in-app purchases, such as extra lives or power-ups. Would you pay for only a slightly better experience than one you’re currently enjoying for free?
The key to a successful freemium app is finding the sweet spot in the middle where users have access to enough elements to develop an affinity for a program, while also whetting their appetite for an enhanced experience.
There are several examples of successful freemium apps, including Clash of Clans, Angry Birds, and Candy Crush Saga. One of the most popular — and notorious — is Kim Kardashian: Hollywood. In that app, users are able to pal around with a digital version of the reality star while attempting to guide a wannabe celebrity to fame and fortune. Thousands of people downloaded the app for free upon its release, only to find that their fake Hollywood ascension slowed to a crawl without the injection of some very real money. A massive amount of users were all-too-happy to part with their cash, though, gobbling up in-app purchases with such zeal that the “free” app’s 2014 revenue was forecasted at $200 million.
Upgrades and in-app purchases aren’t the only ways to earn money from a program that’s free to download, of course. Many developers choose to go the old fashioned route and sell space in their apps to advertisers.
Like the freemium model, the inclusion of ads in an app enables entrepreneurs to offer the software for free while relying on the program’s popularity to produce revenue. As a developer accumulates more information about their users, he or she can sell that data to advertisers whose target audiences are of similar makeup to that of the app.
While many developers are still on the fence about including ads in their apps, the trend is showing signs of serious growth. Revenue from mobile app-based advertisements is expected to top that of on-screen PC ads by 2017, according to IDC, and should rise in all major mobile markets over the next few years.
Advertisements can be used in conjunction with freemium features, and often exist to incentivize users to upgrade to ad-free versions of apps for small fees. Ads can also be included in a program alongside in-app purchases to provide a dual-stream of revenue for developers.
As with any monetization strategy, the inclusion of ads have the potential to backfire. Advertisements on any medium have the tendency to bother some consumers, but this is especially true on mobile devices, where screen space is already limited. In some cases, ads’ drawbacks can extend beyond aesthetic annoyances, to interfere with functionality by causing inadvertent clicks due to their proximity to points of interaction. It’s up to an app’s designers to make sure that any ads included in the program advance a client’s agenda without turning off a significant portion of their users.
The simplest monetization strategy is to charge users for the initial download of an app. Paid apps are usually (relatively) inexpensive, and can benefit consumers by providing full user experiences free of ads.
Developers of paid apps can dedicate all their time and efforts to the UX components of their software, without worrying about making room for ads or deciding which features to hold back in order to pull in revenue via upgrades and in-app purchases.
Unfortunately for advocates of paid apps, consumers have made it abundantly clear that they prefer free or freemium apps — and it’s not even close. Demand for free mobile software has led to a dearth of paid apps, with approximately 90 percent of programs on Apple’s App Store available free-of-charge (at least initially) in 2013, according to Flurry.
In order to overcome this preexisting obstacle, creators of paid apps should place extra emphasis on the marketing of their programs, both on app stores — with screenshots, descriptions, and reviews — and through social media and web posts.
Typically used for content-driven apps like news and blog providers, subscription-based apps use paywalls to charge consumers for access to offerings like articles, videos, and podcasts.
Many subscription-based apps offer limited numbers of posts for free each month, then require payments before any further content can be accessed. Subscription apps are usually purchased in weekly, monthly, or yearly intervals, and target users likely to become loyal consumers of the type of content provided by the program.
Subscription apps provide steady streams of revenue for developers, but also require the constant addition of new and relevant material in addition to the normal upkeep associated with mobile software.
No matter what monetization method you choose, to achieve any significant success in the mobile marketplace, you’ll need to rely on a combination of expert-level development, savvy marketing, and a lot of luck. Few people will spend money to enhance a freemium app that isn’t great to begin with, and even fewer will pay to download a program without first being persuaded to do so by a top-notch app store post, marketing campaign, and/or positive word-of-mouth.
Also remember that the implementation of your revenue plan is as important as the features of the app itself. If you want to charge for downloads or subscriptions, make sure to research similar apps, and use that information to price your program accordingly.
If you’re going the freemium route, you also need to make sure your prices are based on market expectations, while at the same time, offering any in-app purchases and upgrades in a transparent fashion. This is especially important if your app is likely to be used by children, some of whom have run up huge wireless bills because they didn’t fully grasp the concept of the freemium model.
Regulators are focusing an increasing amount of their attention on freemium charges, so make sure you tread carefully when setting that kind of pricing plan in order to avoid potential legal issues and negative publicity that can come with unintended in-app purchases.