The ultimate guide to app monetization
This guide is everything you need to know about app monetization. We'll breakdown different strategies and look at the pros and cons of each. You'll learn how to optimize and generate impressive revenue from your app.
We'll also look at app revenue trends as well as hybrid monetization. So strap in and get ready to monetize your mobile app audience.
This is a full-length guide and therefore will take a while to get through. Luckily we've added some useful links throughout to help you navigate to the relevant sections.
This guide is relevant to all app owners and developers. Whether you have a free app or a paid app. Some of you will be in the early stages of app monetization journey. Some will be experienced hybrid app monetization experts. This guide is for anyone who wants to generate revenue from their mobile app.
Either way, we hope this guide leaves no stone unturned in your quest to understand what is app monetization. You'll learn how it works and how to make sure that you get the best revenue from your mobile app.
First of all a definition - what is app monetization?
In one sentence - App monetization is the process of converting your app users into revenue.
This process involves multiple strategies. Some categories of apps are more suited to certain app monetization models than others. Some apps focus on one particular area of app monetization, others incorporate multiple aspects.
As a developer, you'll need to generate revenue from your app. In the app economy, it can be difficult to stay afloat. Unless you have secured a nice amount of funding it's important to read the advice in this post.
Follow our implementing guide and make sure that you ask any comments at the very bottom.
Why is app monetization important?
App monetization is important because it has become more common to find that apps are free at the point of install. The app business model, therefore, needs to be adjusted to account for this.
Developers must shift their revenue model to generate cash after download. This is where your strategy comes in. It's crucial to take the time to make one that ensures these two things happen:
- Your app generates growing revenue.
- You keep your users and the user experience relatively intact.
A lot of people forget about the second point. It's just as important to look at how app monetization affects the app experience as it is to maximize revenue.
Why is user experience important?
Experience is crucial to a successful app monetization strategy because revenue requires happy users.
Monetization mostly has a negative effect on the app user experience. This can be mitigated and reduced, but it is still there. Lowering the user experience causes some users to be turned off.
Monetization revenue is generally calculated based on the number of active users. As this figure is directly affected by user experience, it's important for developers to consider this when deciding an app monetization strategy.
Stats and figures around app monetization
There's one stat that shows the importance of app monetization in today's mobile world.
In 2015 global app revenues reached $70 billion. By the end of 2016, this had risen to $88 billion.
That's a significant rise in a single year. But if we look at predictions, by 2020 the global revenue from mobile apps is set to hit $190 billion.
Now that's a significant market for developers to tap into. But let's dig deeper into app monetization.
What can we learn from this?
Advertising is still the most popular app monetization strategy. But it's interesting to see that it is decreasing per user. The main reasons for this could be the fact that revenue per user is decreasing as more apps look to get into advertising. This causes a race to the bottom in terms of revenue per user. But more on that later.
Another point to make is that pay per download is on the decrease. As more and more apps look to monetize after the point of purchase.
Finally, subscription models are becoming more popular. Pay monthly models are working in so many other industries. Look at Netflix, Spotify etc. App developers are catching on and realising that a subscribing, engaged user is worth more than a single paid user.
We'll discuss all of these points in more detail as we look at the different app monetization strategies. We'll also talk about the issues and patterns that occur in the app monetization world in the later 'trends section.
The app monetization strategies - a complete overview - how will your app make money?
Now for the part where we get down to it. What app monetization strategies are there? Which ones are most effective? Which generate the most revenue for your app?
App monetization strategies can be complex. There are many different ways that you can generate revenue from your app. Some developers focus on one, others take a hybrid approach.
Take the time to familiarise yourself with all of these methods. We've tried to include which app categories work best for each monetization method.
As we previously noted, this is still the most popular amongst app owners. It generally generates a lot of discussion. There is no simple one size fits all approach to in-app adverts. Each app implements advertising differently. But there are some general tips for advertising in apps.
- Benefits - quick to implement, simple app monetizatoin process.
- Concerns - can affect the app experience, only generates large figures if you have a large app audience.
The short truth is this - without in-app advertising and mobile ad networks, a lot of apps wouldn't exist.
So let's look at the different types of in-app adverts that are common.
These are the original app advert. These were more common when apps had a free and paid version. A quick way to generate revenue was to have an ad-free version. But, the fact that people were happy to pay to not see any banner ads kind of illustrates the problems.
What's so bad about app banner ads?
Let's just focus on the UX. They are ugly and intrusive. They divert the user's attention from the app experience.
I could go on about how damaging the look of banner ads are for your app. But there are more negatives I'm afraid.
The ads are generally so small on a mobile screen that the advertiser doesn't get much value from using the space. This means that they are generally not willing to pay much for the privilege. They have low engagement rates. For these reasons, the CPM is pretty bad.
The short of in-app banner ads - people don't interact with them. They annoy the user and you won't even get paid much for using them.
Well, perhaps that's why they are dying out then.
Developers are looking at alternatives to bad in-app advertising, such as banner ads.
The main problems with banner ads are the size and the fact that they are intrusive. One potential solution to this problem is to take the same ads and show them as a full-screen ad to the user. This occurs between separate user flows. Hense the name interstitial.
To get the most out of this strategy requires you to fully understand your app users and how they use your app. Make sure that you don't inadvertently ruin the user experience.
The best time to deliver an interstitial ad is at the end of a flow. For example, when a level is complete in a game app. It's also a good idea to utilize interstitial ads when the app is loading. This gives the user time to understand the ad and think about its content.
Native ads are essentially ads that have been adapted to the feel of an app. The ads integrate seamlessly into the app. This usually involves a feed of some sort, where the ad looks like another post in the timeline.
More common amongst publishers as well, native ads are definitely a step in the right direction. They do little to affect the user experience when applied correctly.
Native ads have a higher engagement rate. This is probably due to the fact that they 'blend in' with the app features. This does raise some questions about the effectiveness of the ads. If the ad is essentially tricking the user into clicking as they think it is an organic part of the app, this will have a negative effect on user experience.
The key is to make the native ad look and feel 'native' whilst also providing a clear indication to the user that the content they will land on is an advert. Twitter does this well on mobile.
Affiliate ads is a method of app monetization that allows apps to generate commision from other apps, products and services by advertising them through your app.
Affiliate ads work because people like to be referred to something. If they trust the source then this method can be quite effective in converting.
Again the key thing to remember is the experience. Try and link the advert to appear at relevant points in the user journey. Perhaps when the user is in between levels, the ad could suggest an app that is similar to the situation the user finds themselves in.
App reward ads are popular where users spend a lot of time in the app, such as games. In this scenario, users are offered a reward to engage with content.
So for example, in a game, you may be offered an extra life if you watch a 30-second advert.
For this to work, you have to get the ad and the reward right. Try and keep the content relevant to your user base. Make sure the reward is delivered at the right moment and is valuable for the user.
Summary of ads
Generally, more developers are becoming concerned about how advertising affects the app experience. A broader conversation is emerging. Developers are asking - which is the best ad format to protect the UX?
We've come a long way since the early days of mobile banner ads. Mobile app advertisers have realised that protecting the user experience is important to ensure the survival of apps.
Subscription and freemium model
Many apps are now looking at subscription models as a way to generate app revenue. It's becoming more popular amongst developers for a variety of reasons. Again, we have the fact that users are more used to not paying to download apps as the reason for this.
A subscription model means that the user can download the app for free. They then get access to all or some features of the app for a certain time period. Once this period is over they will need to pay a recurring fee to keep using the app.
It's easy to see why this app monetization model is becoming so popular. The developer gets a constant stream of revenue. It's easy to predict. In some cases, it can bring in much larger revenues than other strategies.
This is because once a user pays to use your app service they will invest time in the app. If this requires input, they are unlikely to want to stop paying for access.
The app subscription model works best alongside a compelling app with a clear function and user experience.
- Benefits - steady, reliable income. Little effect on the user experience. can significantly drive engagement.
- Concerns - requires a lot of investment to create a great product and a seamless experience to get users to part with cash.
Apple loves subscriptions
Apple realised the benefits of apps that keep the customer for longer periods of time. They have offered developers on the app store a better revenue share on income from the subscription apps.
The standard split is 70/30 (Apple takes 30% of app earnings, the developer takes 70%). But Apple now offered an 85/15 split for subscriptions that last over a year.
This is now common in both app stores. Fuelling the drive toward subscription models for app developers.
We talk about user experience a lot when talking about app monetization. That's because it's crucial to keeping your app audience engaged with your app. Without an engaged audience, it's impossible to sustain effective app monetization.
That's why data monetization can be one of the most effective methods of app monetization.
Large app audiences can be valuable for many different reasons. One of these is that whenever a user interacts with your app they generate a form of data.
This information can be anonymised and then quantified. It can then provides valuable insights into customer behaviour. This is known as big data. It is used for many things - from how to build smart cities to deliver better and more personalized advertising to users.
Why data monetization?
There are three main benefits to data monetization, both that apps developers should consider.
Higher CPM - on a per-user basis, the amount of revenue generated through data monetization is much higher than any other app monetization strategy.
Monetize your entire audience - with other methods, app monetization requires the user to be in the app for monetization to occur. With data monetization, this happens in the background. This means that you can still monetize users that haven't used the app for a while. With other strategies revenue from these users is lost.
It protects the user experience - data monetization occurs in the background. This leaves your app experience intact. With no intrusive ads or need to pay at certain stages, the app experience remains consistently high. This keeps users in your app and more engaged. it also allows you to grow your audience significantly quicker, leading to more revenue.
Aside from these main two benefits it also means that you are not held to account financially by the platform that your app exists on. The revenue is generated externally. That means that there's no commision with the app stores. There's no worrying about which platform your app is most prominent on.
How to get started - make sure you find yourself a valuable monetization partner. Ensure that they can abide by the relevant opt-in processes. Privacy and security is important without a data monetization strategy.
In app purchases, virtual goods and currency
This is a method that has become more popular with games apps in recent times. Apps generate money by selling virtual or physical goods from within the app.
One way in which app developers have cleverly tapped into new revenue streams is to allow the user access to a virtual currency. Users purchase this currency with real cash and it used for various means within the app.
Usually, this currency is used to get ahead in the game or redeem certain features and services that would usually take a long period of time to unlock.
There's a balance to strike here. The user must feel that they are getting value for their hard-earned cash. But they must also keep playing the game in order to pay more money. That's why it's important to keep the game or app interesting for non-paying users as well. If other users that aren't willing to get their wallet out stop playing then paying users will also decrease if there's no one to play with.
Physical product or service
There's a lot of variety in-app monetization. If your app us a subset of your business then in-app purchases are going to be a large part of your app income. In exchange for your physical product or service, users can pay quickly and simply using the build in payment structure.
There's not much to say about this strategy apart from that your physical good or service must be top quality if you want to increase your revenue.
Apple and Google both take 30% of every in-app purchase through your app.
That must make you wonder how the large service apps like Uber and Airbnb manage to make a profit on the back of that 30%. Well, they don't pay 30%. If you're big enough you have the power to negotiate individual commision rates with the app stores. Unfortunately, for most apps, this isn't possible and you'll have to abide by the rules.
This method is kind of a pivot of existing marketplace methods. For apps that have a marketplace or if they include audience transactions of a significant kind, this is a good way to monetize app users.
The main benefits of this method is scale. If you can keep growing your audience and the audience activity within your app then this app monetization method will scale alongside this growth.
The idea is that you take a percentage of a transaction between two users on your app. For example, when someone sells an item you take a percentage of the amount. This is communicated upfront, but the difference to traditional marketplaces is that the seller doesn't pay a listing fee. This encourages users to use your service.
An emerging breed of mobile apps that use transaction fees to monetize is financial apps. These often offer the conversion of currency (think Bitcoin) or the option to trade in shares or other markets. Every time the user makes a transaction the app makes revenue. A good example of this is the Bux app, where they take a percentage of each transaction that occurs in the app.
This app monetization strategy provides scalability. It also gives developers the ability to accurately predict revenues based on users and numbers of active users. You can also increase revenue directly by investing in engagement and new users. This gives you better and more stable metrics to manage your app business.
Best practices for app monetization - how to improve the bank balance
It's all about the experience
Protect the user experience at all costs. You'll do more damage to your monetization by damaging the user experience. There's a two-pronged approach to this. Keep your experience clean and ensure that app monetization does no damage to your app experience. If you have to alter the experience in some way (ads etc), then manage this so that the impact is minimal.
The other side to this involves actively increasing engagement. Improving app engagement ensures more time spent on your mobile app. This leads to greater monetization.
Keep bringing in new users
To scale monetization you'll need to keep investing in user acquisition. Don't take your foot off the pedal here. You'll always have user churn. This requires you to actively seek new users to grow monetization.
Hybrid app monetization
It's perfectly fine to adopt multiple app monetization methods. In fact, it's recommended. App monetization methods can be implemented alongside each other. Just b sure that doing too much won't negatively affect the user experience.
Measurement and analytics
Measure your monetization, optimize and adapt - an important part of any app monetization strategy. Ensure that your monetization partner can provide in-depth insights on revenue, users and geography. Always be on the alert to fine-tune your strategy using data.
Keep up to date
Keep on the lookout for changes in policy from the major app platforms. This is important as it could change your strategy overnight.
For example, the decision to reduce the commission on app subscriptions changed many app's approaches to monetization. keep up to date with the latest blogs and resources. (Link to bottom)
Your app is unique
Don't take other developers use cases as proof that it will work for your app. Every app is unique. Just because something works for another app, doesn't necessarily mean that it will work in the same way for your app.
Test methods before fully implementing them and always focus on the differences between apps when looking at other use cases and statistics.
If you do go down the ad route consider placement and timing
The ad route is completely viable for many apps. In-app adverts can be successful, but make sure that you invest the time to consider the placement and timing of these ads. One wrong decision can cause you to lose a lot of users, so be completely sure that you get it right.
Trends in app monetization
App experience > app monetization
A common trend that we see emerging is that more developers are focusing on experience rather than pure revenue.
It's clear that keeping people engaged with your app will have a better effect on monetization. App owners will need to get balance right. More importance is being placed on experience with revenue from ads not going up anytime soon.
We see this in our research. Our survey of app developers showed that two-thirds of developers now think that focusing on the app experience or improving the app experience is more important than monetization.
Say goodbye to paid apps
Freemium and subscription-based apps are here to stay. Offering apps free at the point of purchase allows developers to get downloads easier. They can then educate the user on the benefits of upgrading or paying for premium features.
This also allows developers to increase session length and generate more engaged users. Alongside the change that gives better commission rates to subscription apps, we'll see a growing number of apps adopt these app monetization strategies.
Users will become dissatisfied if they have to spend a lot of money to get features
Just because you offer apps free at the point of the download doesn't mean that you can then get away with restricting all features o paid users.
Create a strategy that ensures you will get the right balance between the experience and revenue. This might mean allowing the majority of your users access to many of the app's features. But rest assured, if the experience is good enough, there will come paying users.
App subscriptions will look more like SaaS products
Apps that once had a single, one size fits all subscription model are becoming more complicated. This makes it a little more difficult for developers to communicate the benefits of upgrading. The apps that can get their premium model right will see a huge uplift in monetization.
Useful app monetizatoin links and resources
Mobile development digest - provides a great roundup of latest information for developers, especially around monetization.
iOS dev weekly - another great newsletter that often discussed app monetization.
Developers alliance blog - some interesting information for developers and they regularly post around app monetization.
Developer slack communities - there's a variety of slack groups that are incredibly useful to developers. Some have dedicated channels for app monetization.
Check out this course that helps developers to create viable app businesses. With tips on monetization and more, it's quite useful.
Of course, always keep an eye on our blog for everything mobile apps.
App monetization summary
- In-app ads are still a viable method of app monetization. However, more focus needs to be placed on the user experience.
- Users expect to get an app for free at the point of download.
- Subscription models are becoming more popular as the big app stores offer reduced commission rates
- Data monetization is a powerful way to generate revenue without affecting the user experience.
- Always plan ahead - it's never too early to think up your app monetization strategy.
- Hybrid app monetization strategies are effective - understand your audience and strike the right balance.
- Use data to inform your monetization. Keep learning, keep tweaking and generate money from your app audience effectively.