Deciding which monetization model best suits your branded application depends on many factors
Like the moneyed prospectors who raced northwest to the Yukon’s Klondike region in the late 1800s in search of fortune in the form of gold, the modern equivalent of the gold rush may be the desire of businesses and independent developers to create a new revenue stream via a mobile application. But like the Klondike gold rush, not everyone will end up hitting the jackpot.
Conceivably, finding a way to make money from a mobile app is similar to the plight of social media marketers to generate sales through the use of compelling content, in that it comes down to a question of user engagement.
There are different ways to generate revenue through a mobile app. Deciding which model to adopt and what to charge your targeted audience may be the most taxing call you will need to make. But here’s food for thought: according to research by Statistica, the most profitable option is the in-app purchase. In 2012, global in-app revenues were an estimated to be US$2.11 billion and are predicted to rise to $36 billion by 2017. However, the in-app model may not be the lucrative windfall for all types of apps, with about 15% of smartphone users making such a purchase.
Four App Monetization Models to Consider
In general, apps have four major channels available for generating revenue. Determining which model you should employ depends largely on the type of app you have or intend to build, and what your expectations are for user engagement:
- Charging to download it from the Apple App Store or Google Play.
Provided your app offers something of value to your customers, then you can monetize it by charging people to download and use it. However, you should also know that Apple and Google will take approximately 30% of every sale or download, and the cost you can affix to your app must be based on either Apple’s or Google’s pricing scales.
- Using mobile ads banners and offering an ad-free version of your app.
Instead of charging your users to download and use your app, you can sell advertising space in it like many newspaper companies do, and subject your users to mobile ads banners within the app. You can also charge your users for an ad-free version of the app, but know that Apple and Google will take 30% of what you charge your users for an ad-free version of your app.
- In-app purchases.
While allowing your app to be downloaded for free, in-app purchases are purchases your users make inside of your mobile app. The items they purchase could be to access additional features of the app, or for virtual items to use within your app. For instance, many gaming apps provide in-app purchases so their users can buy special characters or abilities within whatever game they’re playing. It is currently the most successful way of making money with an app. You should also be aware both Apple and Google will take 30% of all in-app purchases.
- mCommerce or mobile commerce.
Whereas we refer to selling products and services online as “eCommerce”, selling goods or services via a mobile device is known as “mCommerce”. The good news with mCommerce is neither Apple nor Google will impose a 30% cut for whatever products your users buy via your app. However, a mobile app with mCommerce functionality also requires a backend server for things that can’t be done solely on-device, such as sharing and processing data from multiple users, or storing large files. You will also need a payment processor to facilitate debit or credit card payments.
Other App Economic Options
There are a couple of other options to consider for your app: the freemium model, and the use of a paywall.
The freemium model is often found on gaming apps such as the wildly addictive Candy Crush, which allows users to play for free, and offers gamers the option of purchasing in-game features or an interruption-free version of the game. You’re not obliged to purchase anything in this game, but it will impose a short-term time-out on its users after they hit certain game milestones. For gaming apps, the freemium model has proven to be the most successful type to date, suggests data from mobile marketing and engagement firm Swrve.
The other option – one that’s typically used by newspaper and magazine publishers to generate subscription revenue – is the paywall. Similar to the freemium model, paywalls let users access a fixed amount of content for free before restricting access, and asking them to buy a subscription. The problem with the paywall model is unless you’re in the publishing business, it may not apply to your company or industry.