You have developed the app, now its time for you to make some money from the app. Here's our explaining the various app monetization models that you can adopt for your app idea.
If you are an App entrepreneur/developer/marketer, it is necessary for you to know the top 7 App Monetization strategies to grow your mobile app Business.
In this blog, we dive deep into the different app monetization models available. By doing this, we also discuss which app monetization models are popular among the world’s most successful apps.
1. PAID APPS
- This is the basic monetization model where you sell your app for a listed price on the app store or google play store. You need to choose a price from available price tiers which are anywhere from 0.99 cents to 999 USD. Most paid apps are under 10 AUD and there are few expensive apps. Agro Ezi app is one of them at 1599 AUD.
- The model works well for game apps and utility apps. Minecraft pocket at $9 per app made $326 million dollars in 2013 from paid downloads. Shiftworker, a calendar app for shift workers at $2.99 that topped the app store charts for a few months in 2015 is a good example of a paid utility app.
- The advantage of this model is that it provides quick cash flow. You get the money as soon as someone downloads the app but at the same time, it is not easy to convince people to pay as there are many free apps. Your App has to be really unique and top quality for users to pay for it. They are shrinking part of the app store with less than 10% of the apps being paid apps. App store and google play store takes 30% of the revenue made as a transaction fee and pays you only the remaining 70%.
FREE APP WITH IN-APP ADVERTISING
- In this model, you list the app for free and build a large audience. You then sell advertising space in your app using ad network like Google Admob, flurry, Inmobi etc. These ad networks connect publishers(you, the app builder) with advertisers and manage the whole process of placing and managing advertisements. They take a cut of the money paid by the advertisers.
- If you are big enough, you can also build your own ad serving platform within the app. This gives you the flexibility to decide the price and other terms of advertisement. But the hidden costs in building your own ad server can burn a hole in your budget.
- Facebook follows this revenue model and has its own advertisement management platform. Facebook’s quarterly ad revenue crossed $4 billion in 2015.
- Works well for social network apps and gaming apps where people essentially wants to kill time. It does not work very well for utility apps. It might annoy users when they are trying to get things done.
- In this model, you list the app for free and users can upgrade to a paid version or users can buy items (more features or physical goods) via in-app purchases. The premise is you engage the users, make them love your app and have them pay to get more.
- Works really well for gaming apps where users need to pay to access advanced levels or special powers. Example, Candy Crush Saga made $1.3 billion via in-app purchases in 2014 from 2% of its users. Dating apps are another example where you can browse your matches for free but need to pay to contact them. Tinder uses such a model.
- An advantage is a low barrier to entry for downloads but finding the sweet spot for paid features takes experimenting. Fewer features for free might create a high churn rate whereas too many features for free may not encourage the user to buy. App store takes 30% of in-app purchase revenue as well.
- The in-app purchase may also involve physical goods like clothes, accessories, etc. Since the app store account is used for payment, it makes the buying process really easy and quick for the buyer. Good news is at least there is no 30% transaction fee for physical goods.
- In this model, the user pays a monthly or annual subscription fee to use the app. Most of the time these apps offer a 1 week or 1-month free trial to allow users to trial the app before they subscribe.
- Best suited for business/enterprise apps like CRM, invoicing apps and media/entertainment apps like music apps, news apps.
- The advantage is high lifetime value of customers due to ongoing revenue. On the other hand, users expect great customer support, 100% uptime, and bug-free app as they pay a subscription fee.
- Dropbox, Xero, Spotify uses this model.
5. REVENUE SPLIT
- In this model, you create a marketplace, enable others to make money and then take a commission of the money they make. These apps are free to download and use.
- Uber and Airbnb are the 2 popular apps using this model. Uber takes a 20 to 25% commission of the money the drivers make. Airbnb charges 6% to12% of the money made by people renting out their property. This is the faster-growing revenue model because your users will do the sales for you to make themselves more money. The more money they make, the more you make.
- On the flip side, you need to ensure that the buyers are getting the service/product delivered. You can make them sign all disclaimers and protect yourself legally but if the sellers of product and service do not do the right thing, it will affect your brand. For example, Uber follows a very strict process before allowing drivers to use Uber. They check their past history, police clearance, the condition of their car, etc. to ensure the quality of the service.
6. BUILD AND FLIP
- In this model, you build an app and sell it for a decent profit in marketplaces to someone who can build further on it. Flippa.com, Chupamobile are some marketplace where you can sell your app source code to other developers.
- This model allows a quick return than other models but the opportunity is very limited. Low-risk low reward. People buy it to save time and money in development.
7. BUILD A BRAND AND SELL TO A STRATEGIC BUYER
- In this model, you build a big user base and sell the app to a big company. You build your app and take it to a stage where you have a lot of active users who love your app, use it frequently and would be very disappointed without it. Big brands who can create a lot more value with your app will knock your door.
- i.Microsoft bought Minecraft for $2.5 billion in cash
ii.Yahoo bought Tumblr for $1.1 billion
iii. Facebook bought Whatsapp for $19 billion
Knowing these 7 app monetization models, what do you think works best for your app?
Keep in mind, it does not have to be just 1 monetization model but also a combination of 1 or more monetization models.
Spotify has a free version that uses in-app advertising. But also has a subscription model for an ad-free premium version. They use the revenue to pay royalties to music artists and distributors while taking a 30% commission. A blend of 3 app monetization models.
We hope that this blog post helped you in deciding the right monetization model for your app.
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