Head of Growth Marketing at TheoremReach
Whether you’re a seasoned software engineer or a would-be app developer, there’s one thing that every mobile app designer has in common. It doesn’t matter what industry you’re in, how many successful apps you’ve created, or how much experience you have when it comes to writing code or analyzing the potential market for your next creation. At the end of the day, every app developer has to ask themselves the same question: how can I earn money with my new app?
While there are literally millions of apps currently available for mobile users to download, you might be surprised by how many of them are offered for free. In fact, the vast majority of apps available via the Apple App Store can be downloaded free of charge. How is this so? Don’t these developers need to earn money from their free apps?
Believe it or not, earning money from a free app is completely possible. Free apps that generate revenue from inside the apps themselves actually account for 98% of app sales via Google Play.
The question, though, is this: how do you earn money from an app? What are your options? What’s the best way to go about it? What are some of the potential drawbacks associated with the various approaches to app monetization? And, for that matter, what exactly do we mean by “app monetization?”
We’ve put together this comprehensive guide to app monetization to answer all of these questions and more. If you’re trying to design an app monetization strategy, you’ve come to the right place.
Of the 19 million software developers working across the globe, nearly half of them (around 8.7 million) are mobile app developers. Hourly pay for these developers ranges from $26 per hour in India to $168 per hour in North America.
Looking at the above statistics, though, the numbers can be confusing at first glance. How is it that mobile app developers make up half of the software engineer workforce and earn upwards of $300,000 per year when more than 90% of apps are offered to end users for free? Surely the remaining 10% of apps aren’t creating billions of dollars in sales revenue, are they?
As you may have guessed, no, the small minority of paid apps aren’t responsible for the huge market share amongst software developers that’s associated with mobile app development. In fact, almost all of the revenue generated by apps comes from those that are 100% free to download, and which only manage to bring in revenue later on from their existing user base.
This is where app monetization comes in. When we talk about app monetization, we’re referring to the ability to earn income from an individual app without actually charging users for it up front. While traditional business models involve having a customer pay for an item before receiving it, the app market is different: it’s clear that the vast majority of revenue comes from users who initially receive a product for free, and later pay for some additional aspect or feature.
When you’re designing an app monetization strategy, it’s necessary to remind yourself that users will need to experience your free app on their own and evaluate it before they’re willing to offer you any kind of payment for it. This can be difficult to adjust to if you have previous experience in another industry. For many software developers, though, the idea of allowing a user to test out a software product before paying for it is easier to accept.
There are a number of approaches to app monetization, and we’ll look at each of them below. App monetization strategies include:
Has this ever happened to you? You download an app, evaluate its basic features, and then attempt to perform some kind of action that’s fundamental to your original reason for downloading the app. But, instead of being able to carry out that function, you’re asked to pay for it first. This is an example of an in-app purchase.
We’ve all been faced with this scenario, and it’s extremely common for all kinds of apps. In-app purchases can take a number of forms, too, each of which has its own advantages and disadvantages.
First off are in-app purchases with no expiration date, or which can’t be “used up.” In other words, once the user makes the purchase, the item or service they receive in exchange is theirs to keep indefinitely. An example of this could be a unique feature of your app that involves a one-time purchase.
Alternatively, users might be able to purchase something which they use and then have to purchase again. A good example of this is a currency unique to your app: it’s traded one-to-one for real currency, spent, and then must be replenished.
It’s also possible to offer your users something that’s a cross between these two: a purchase that lasts for a particular period of time, and must then be renewed. This subscription-based approach to app monetization is discussed below.
While in-app purchases can be effective at generating revenue, the reality is that only 5% of app users opt to make in-app purchases.
How many times were you interrupted on your phone by a mobile app today? More than you can count? It’s one thing to navigate to a website via a web search and end up barraged by mobile ads. It’s another to download an app that you’re hoping will serve a particular purpose, only to be faced by so many ads that it’s not even useable.
It’s fair to say that almost no one would claim to enjoy in-app advertising, right? So, why do developers opt to use it?
Well, plainly put, there’s a lot of money in the mobile advertising industry. In 2016, in-app ads generated over $50 billion in revenue. On the flip side, though, it’s important to note that almost all of the revenue that ends up in the hands of developers comes from in-app purchases, not ad revenue. In other words, a lot of the cash generated by ads isn’t going to developers: it’s going to the companies that furnish the ads.
If you opt to make in-app advertising part of your overall app monetization strategy, there are a number of options available to you. Google AdMob is easy to set up and can sync with Google Analytics. Facebook’s in-app advertising is focused largely on user data. InMobi is a solid option if you want to offer your users the ability to provide feedback on your ads.
When we think “sponsorship,” we don’t necessarily imagine a fledgling developer teaming up with a small business to help support their app. Instead, the term usually brings to mind huge corporations offering sponsorship deals to high visibility events and entertainment.
To a large extent, that is indeed what sponsorship looks like these days. And, even when it comes to in-app sponsorship, some of the most noteworthy examples involve big companies and popular apps. There are some high profile examples, after all. Evernote partnered with 3M, makers of Post-it® Notes. RunPee, an app that lets you know when it’s a good time to head to the bathroom mid-movie, has sponsorship deals with AMC and Fandango. Subway sponsored a football-focused app during Super Bowl XLVI. The list goes on.
As a developer who’s new to the app world, though, sponsorships are still a possibility. You just have to think in terms of your overall app monetization model. If you can identify a particular subset of users that match well with an individual company’s target buyer persona, that company may be interested in sponsoring you. Consider approaching smaller companies individually with existing user data. You may be surprised by their willingness to partner with you.
That said, the opportunities for new developers may be limited when it comes to sponsorship. Without a solid track record, it can be difficult to secure sponsorship.
We’ve looked at a number of ways to monetize your app, including in-app purchases. As you might recall, there are three forms that this particular approach to mobile app monetization can take. Users can make a one-time purchase that never expires. They can purchase something that’s spent, and must be replenished afterwards. Or, you can present them with an option that’s a combination of the two: a one-time purchase that lasts for a fixed period of time.
The last of these models is commonly known as the subscription or “freemium model of app monetization. Freemium apps offer users the ability to use an app’s basic features in order to test drive it, and then subscribe to the app’s premium features later on.
Do you currently subscribe to any apps? Chances are that you do. Apple offers its own Settings section for in-app subscriptions, paired with dedicated customer support for users who have issues with their subscriptions. Simply put, subscription-based apps are a huge business. Many of us have “set it and forget it”-type subscriptions that we don’t even think about: Netflix, Spotify, Pandora, Amazon…the list goes on.
Without a doubt, a freemium app monetization model can be incredibly successful depending on your particular app type and customer audience. Here’s a statistic that may surprise you: right now, 98% of all app revenue in the Google Play store comes from freemium apps. You read that right: nearly all app revenue comes in the form of “free” apps. It might seem contradictory, but it’s true.
Remember, though, that only 5% of your app’s users will ever make an in-app purchase. So, while apps with hundreds of thousands of users might be earning millions of dollars from freemium purchases, that doesn’t mean that your app can follow suit right away.
What’s an offerwall? You may have encountered one before without realizing what it was called. Have you ever been using an app, selected a particular feature or option, and then been presented with an offer? If you complete the offer, you’re free to continue to the next step in the app. These offers can take all kinds of different forms, from signing up for a subscription service to downloading another app.
While companies like Offerwall offer monetization solutions of this kind for app developers, offerwalls aren’t perfect by any means. First off, they present users with the opportunity to navigate away from your app. Whether they’re downloading another mobile app or heading to a website to sign up for a service, there’s a good chance that they’ll never come back to your app. User attention spans are short, and sending them to another page or app is risky. And, just as importantly, offerwalls can come off as “pushy”: your users might feel like you’re forcing something on them that they don’t want.
We’ve looked at a number of different options for monetizing your app: in-app purchases, advertisements, subscriptions, and the freemium model. Each one offers its own advantages and disadvantages.
If there’s one approach to app monetization that works across the board, though, it’s the use of rewarded surveys. We believe that rewarded surveys are the future of app monetization.
With rewarded surveys, a developer partners with a third party company that acts as a bridge between app developers and researchers who are in need of data. The third party provides the app developer with surveys that they can insert into their app. When a user completes a survey, they receive an in-app reward of some kind. The researcher gets the data from the survey, and they pay a fixed amount to the developer. Everyone wins.
Rewarded surveys are powerful as compared to other forms of app monetization: studies have shown that they can actually increase your user retention by 300%. Plus, they’re more profitable for developers than traditional in-app monetization methods such as advertising.
Are you ready to implement rewarded surveys as part of your app monetization model?