Mobile App Monetization Models [Whitepaper]

Virtually all mobile apps are developed with revenue in mind. For most companies, the app will serve as an income stream, but there are many, many ways to achieve this objective. In fact, there are over half a dozen mobile app monetization models, with new ones arising periodically. But, there is no one-size-fits-all solution, and choosing the wrong mobile app monetization model can cause you to lose users and money.

This begs the question, what are the various mobile app monetization models? And how do you find the one best suited to your unique needs and goals?

Examining the Different Mobile App Monetization Strategies

The right mobile app monetization model will vary depending on factors such as:

• The nature of your app;
• Your users’ mindset;
• The demographics of your users;
• The perceived value of your app;
• Your app’s platform; and
• How users interact with your app.

The various app monetization strategies differ in terms of what the user is paying for and the point in the app interaction when they make a purchase. Not every app involves a purchase, of course, which means monetization may take a different form, such as advertising or partnerships/sponsorships.

One-Time Fee to Install the App

This is where mobile app monetization gains its roots, as developers opted to charge a one-time fee to install their app. It’s a revenue model that remains effective in many niches—but not all.

There appears to be a direct correlation between device type and whether your users are willing to pay for an app (and if so, how much). A 2016 study found that iOS users are 2.5 times more likely to pay for an app. The only exception was with utility apps, which Android users purchase more frequently. The study attributed this finding to iOS’ more robust platform, where tools such as launchers, memory boosters and multi-tasking utilities just aren’t necessary.

That same study found that, on average, the typical iOS user spent $1.08 per month on apps, whereas for Android, the average was $.43 per user each month.

The user’s willingness to pay for an app is directly connected to their perception of the app’s long-term value. In other words, if a user feels they would only use the app a few times, then they’re unlikely to buy it. Conversely, if a user believes they’ll use the app regularly, then they’re far more likely to pull the trigger.

There’s also the matter of simple economics. Are competitors offering a similar app for free? If so, users are less likely to pay for an app. On the other hand, if your app is a true one-of-a-kind, users will be more willing to purchase it. The same is true of apps with competitors that also charge for a download.

Generally, this monetization model is most suitable for apps that offer inherent value, such as a game or a utility. Shopping/customer loyalty apps, social networks and applications with in-app purchases are not well-suited to this model.

In fact, if you charge for the app, there is an expectation that the user interface (UI) will be ad-free. Therefore, if your app lends itself to paid advertisements, then it may be more lucrative to use an ad-based monetization model. Many developers make the most of both models by offering a free ad-supported version and a paid ad-free version.

Free Download With In-App Purchases

An increasing number of developers are offering free app downloads while charging for in-app purchases. There are many apps that work well with this monetization strategy, including:

• eCommerce apps
• Apps that involve a paid membership or subscription (such as a dating app)
• Service apps, like rideshare applications

In addition to considering the type of app, you’ll want to give some thought to your user base when evaluating the viability of this monetization strategy. For instance, a significant iOS vs. Android differential exists for in-app purchases. A 2016 study, which evaluated 100 million users across over 1,000 apps, found that the average in-app purchase was $12.77 for iOS users and $6.19 for Android users. Hybrid apps, of course, allow you to get the best of both worlds.

Monetizing With App Subscriptions

A sub-type of in-app purchase, subscriptions and memberships are a wonderful option for applications that provide information or a service. The beauty of this monetization strategy is its recurring nature, which, over time, results in higher revenues. In general, users are more likely to make a monthly micropayment and less likely to make a single large lump sum payment.

Subscriptions or memberships can work for many types of applications, including dating apps, exclusive social networks, music and movie streaming apps, games, tools and utilities, and professional services such as virtual psychotherapy apps.

When leveraging this monetization model, you also have the flexibility to offer several different membership/subscription levels, which will determine which features or opportunities are available to the user. In addition, you can offer a free membership or free trial period, which serves as an opportunity to prove the app’s value and engage the user, ultimately converting them into a paying member or subscriber.

The Freemium to Premium Mobile App Monetization Model

This mobile app monetization strategy is one of the oldest, and it’s suitable for many types of apps, including utilities, tools and games. With this approach, you’ll need to develop two versions of your application: a “lite” version that has omitted the best features and a full-featured one with all the bells and whistles.

With this approach, the user can install the lite version for free. In order to gain access to all the features, the user must purchase the premium version. You may even offer a free trial of the premium version to prove the app’s value. Although this free trial strategy could backfire if a large portion of users only need to use the app on one or two occasions; this is where knowing your user base and understanding why and how they’re using your app is essential.

Keep in mind that this model can be tricky, as you must find the right balance—the free, lite app version must be useful, but it cannot include the most sought-after features. Those premium features must be available only via the paid version of the app.

Free Apps With Ads, Partners or Sponsors

Ad-supported mobile apps are still common and sometimes, they can be quite lucrative. It really boils down to whether the advertisements complement your app and interest your users. If your users simply aren’t interested in the ads or they draw users away from your UI (or worse, attract them to a competitor), then you’re unlikely to see good results.

Ads are a bit inconvenient both from a design perspective and from a branding perspective, as you risk people associating your brand with the companies advertised on your site. While some companies manage their own advertising program, others use a third-party mobile ad service provider. The latter is easier, but it affords the developer with less control over what’s advertised on the UI.

Also, ads can disrupt the user experience (UX), although some developers do this intentionally. They use the individual’s annoyance to their advantage by offering a free ad-supported version and a paid ad-free premium version.

For mobile apps that are not well-suited to traditional advertising, a partnership or sponsorship may be more fitting. A sponsor or partner’s logo and offerings can be prominently featured and overtly promoted in the app. This gives the developer greater control, and these partnerships can pay off, particularly when two brands nicely complement each other.

Taking a Cut of the Profits

If your mobile app involves private sales (think eBay) or a service (such as micro-jobs, grocery delivery or rideshare), then it may be easiest to monetize by taking a portion of the profits for all goods and services sold through the app.

Some developers may offer an alternative too, such as a membership or subscription that entitles the user to X rides per month or 10 sales transactions per week.

The possibilities are limitless when it comes to app monetization. The key is to understand your users and the manner in which they’re interacting with your app. Only then can you determine which monetization strategy is right for your unique needs and goals.

At 7T, we develop a range of app interfaces, from social networks to enterprise apps, predictive analytics engines, sales tracking interfaces, MLM apps and more. We invite you to view our portfolio to learn about our past creations. Our team can leverage the latest cutting-edge technology, from augmented reality and virtual reality to artificial intelligence, to craft something truly innovative,

7T is based in Dallas, although we have regional offices in Houston and Austin. But we’re not limited to the Texas Triangle; our development team works with clients across the nation. Contact us today to discuss your mobile app development project.