The 7 Mobile App Monetization Models

app monetization

Something I typically ask my startup clients is “how do you plan on making money?”Sometimes, I get a stunned silence in response. They’re so caught up in their idea that they never think about the monetization model. This is especially true for startups that include an app as part of the business model. So, if you are at the napkin stage of your next app venture, here are seven app monetization models to give you food for thought.

1. The Price of the App

The most obvious way to make money is by selling it on the app store. On the Apple App Store, the price can range from $.99 to $999.99. Both Apple and Google take 30% but have pretty good systems that will deposit the funds directly into your bank account.

Although from what I’ve observed, putting a price on your app is often a barrier for people to download your app. We had a client that had a fairly successful app with thousands of downloads a week (as a free app). As soon as they charged 99 cents for their app, it went from thousands of downloads to forty. If your goal is to make a profit, my suggestion is to figure out how to monetize a free app. However, if your app solves a business problem and there’s a definite ROI (Return on Investment), then you should charge accordingly.

2. In-App Purchases

Typically, in-app purchases for a free app allow users to:

  • Unlock features

  • Purchase a subscription

  • Buy virtual goods

  • Purchase additional content

Just as in the price of an app, Apple and Google Play take 30%. If you look at the top grossing apps in the Apple App Store, the top 30 apps are all free but offer in-app purchases.

3. Mobile Advertising

Mobile advertising nears $100 billion in 2016. There are 6 mobile advertising models and I discuss them in this article.

4. License

Essentially, if you build an app that solves a problem, you can license it. A good example is event apps. There are a number of companies with an app template that will create custom apps for organizations in need of an event app. They typically charge a setup fee and a monthly subscription. This follows a SaaS (Software as a Service) model.

5. Improving the Business Process

Although this isn’t exactly a monetization model, effectively implementing a mobile app can substantially improve business revenue. A good example is Fandango. Their revenue increased by 57% after they launched their mobile app in 2012. If you have an existing business or startup, implementing a native app that improves your business process may be a way to increase revenue.

6. Deliver a Service  

Uber is a great example of service delivery via a mobile app. In 2015, their revenue was estimated at $1.5 billion and they currently have a valuation of $62.5 billion.  Other examples of delivering a service via a mobile app are TaskRabbit and Doctors on Demand. For developers, one of the most requested types of apps is an Uber-style app. Essentially, the model involves connecting a resource to a demand, handling the transaction, and then taking a percentage of the transaction.

7. User Acquisition

If you look at WhatsApp and Instagram, they practically had no revenue model before getting acquired. What they had were a lot of users. At the time of their acquisition, WhatsApp had 600 million users and Instagram had 30 million users. Their apparent strategy was to acquire a lot of users then get acquired. WhatsApp was acquired for $19 billion and Instagram for $1 billion. Not bad for businesses with no revenue model.

If developing an app is part of your business strategy, then hopefully this article has helped you consider the right monetization model for your business plan and pitch.

 

By Rich Foreman, CEO / Apptology and Director of Startup Grind Sacramento. Rich co-authored the book Tap into the Mobile Economy and his blog has been listed in the Top 20 Mobile Marketing Blogs of 2014.  Follow Rich on Twitter at@ApptologyCEO or attend a Startup Grind Sacramento Event.

4 Ways to Make Money from a “Free” App

It seems counter intuitive that a free app is the best way to generate revenue.  When advising clients who intend to make money from their app, I recommend they don’t charge for the app.  In my opinion, the price of an app often becomes a barrier for people to download it.  For example, we had a client that had a successful app and it was getting thousands of downloads a week.  As soon as they charged 99 cents for it, the app dropped to a meager 40 downloads per week.  So how do you make money from a free app?  That’s the multiple billion dollar question.  I’ll cover 4 ways to generate revenue from a “free” app:

In-App Purchase:   the In-App purchase is what is described as the “freemium” model.  The app is free but there is an opportunity for the user to purchase additional services.  In terms of generating revenue from the app store, this is the biggie.  If you look at the top 20 grossing apps in the Apple App Store, all of them are free and use Apple’s In-App purchase mechanism (note:  Apple retains 30% of the revenue generated from this mechanism).    Some examples of In-App purchases are:

  • Unlocking “Pro” Version of the App:  This is typically a try it before you buy it model and there are several variations of this including:
    • Unlocking features of the app
    • Allowing the app to work after a trial period
    • Disabling ads
    • Some combination of the above
  • Purchase of virtual goods:  This is where you buy virtual goods with hard Clash of Clans Gem Boxcurrency.  Typically it’s used for games.  For example, Clash of Clans is currently the highest grossing app.  In this free app, you can buy a treasure chest of gems for the bargain price of $99.99.
  • Content:  The app has additional content like a song, video, story, game level, etc.
  • Subscriptions:  Typically used in content app like Zinio or for magazine apps in Apple’s Newsstand.  When the user buys the app, there’s typically some sample content and the user has the option of subscribing for additional content for some set amount of time.  Another example of a subscription can be seen in Pandora where you can upgrade to Pandora One for $3.99 / month.

Mobile Advertising:  The Mobile Ad Market is projected to reach $31.5 Billion this year alone.  Consequently, many mobile ad companies have sprouted with various revenue models.  Mobile Advertising can be used in conjunction with apps that have in-app purchase and consequently allows a free app to generate revenue even if the user doesn’t make any in-app purchases.

Deliver Service / Product:  This is where the free app is essentially a vehicle for the user to purchase a product or service.  Notable examples include:

  • Uber:  from this app, a user can request and pay for a ride sharing service.  Uber’s valuation at the time of this writing is $17 Billion.
  • Doctors on Demand:  this app allows a user to get a consultation from a licensed physician through a video conference for $40 for 15 minutes
  • Amazon:  this is pretty straight forward.   You can use the Amazon app to purchase pretty much anything that’s available through amazon.com

I would like to point out that if the app is to be used to purchase goods or services, you cannot use Apple’s in-app purchase mechanism, and you’ll have to use another mobile commerce vendor like PayPal or Authorized.net.

User Acquisition:  The poster child for this model is Whatsapp which was acquired by Facebook for a staggering $19 Billion.  On the surface, Whatsapp has no revenue model.  They don’t really have a subscription revenue model nor do they have mobile ads.  What they do have is a lot of users; 500 million by some estimates with 18 billion transactions a day.  Snapchat is also following the user acquisition model with no apparent revenue.  They have a reported 30 million users with a valuation of $10 Billion.  I think the model is get the users, monetize later; be it big data, advertising or something else.

Hopefully, after reading this post, you get the idea that if you want to develop an app for profit, “free” is the way to go.

The Three Basic App Monetization Strategies

If you are thinking about making money from developing apps, there are three basic app monetization strategies that you should consider:

1. Price: The most obvious way to make money is by selling it on the app store. On the Apple App store, the price can range from .99 to $999.99. Both Apple and Google will take 30% but they both have pretty good systems that will deposit the funds directly into your bank account. From what I’ve observed, putting a price on your app is a barrier for people to download your app. If your goal is to make a profit, my suggestion is to look at the freemium model. However, if your app solves a business problem and there’s a definite ROI (Return on Investment), then you should charge accordingly.

2. Freemium Model: The freemium model is where the user can download the app for free and monetization is done by using in-app purchase. There are typically three categories for in app purchases:

  • Trial version or limited function app where the in-app purchase unlocks the full functionality of the app
  • Virtual goods in a game (this got a lot of bad press when kids spent thousands of dollars on smurfberries)
  • Subscriptions for a newsstand app or content related app

Here’s a snapshot of the 27 top grossing apps on the app store. Only 2 apps in this group are paid. As such, I typically advise client to go the route of the freemium model.

3. Advertising: Mobile advertising is expected to balloon at a rate of 75% this year to $31 billion. Typically people think of banner ads. Facebook has done a superb job of monetizing using native ads. There are other creative adverting mechanisms like Kiip which rewards developer and users when they make an achievement in a game and AppEnvoy which puts the advertising in the push notification.

Everything Else

I also want to point out that the monetization strategies in this post does not include apps that deliver a service like Uber.  Another way to make money from your app is get acquired. WhatsApp is the entrepreneur’s dream when it got staggering $19 billion from Facebook. If I look at WhatsApp, I’m actually puzzled by their revenue model. They don’t have advertising nor do they really have a subscription base. My theory is that they somehow monetize from the user data; but since they don’t respond to my inquires (I’m kidding), we may never know.

Final Thoughts

So in conclusion, if you want to make money from your app, make it so that your app will get acquired for some staggering amount by Facebook or Google (if you figure this out, please call me). If that fails, my recommendation is to go the freemium route and then figure out whether you’ll use in-app purchasing, mobile advertising, or a combination of both.

By Rich Foreman, CEO / Apptology and Director of Startup Grind Sacramento. Rich co-authored the book Tap into the Mobile Economy. Follow Rich on Twitter at @ApptologyCEO or attend a Startup Grind Sacramento Event.