How To Successfully Monetize Your App
Mason Carter wrote this article
No matter how great your app idea is, there is one fatal flaw that I see time and time again with upstarts.
Where is the monetization strategy?
Essentially, how is your app going to make you money?
At Chop Dawg, we believe you shouldn’t start building your app until you have a monetization strategy in mind.
Remember, an app is only as powerful as the business model that powers it.
If you don’t have a business model yet, you might be too early to start building.
As you start planning for your app, reflect on the following:
1. What is the purpose of your app?
2. What are your business goals?
3. Who are your potential users? Is there real-world demand?
4. Do you have any competitors?
Using data collection to monetize your app
In the era where everyone thought that they could make it rich by data mining (buying and selling data), the monetization question seemed to have a simple answer.
But too many entrepreneurial upstarts I have encountered lately have clung to this fantasy that Facebook not only pioneered but simultaneously monopolized. That, being:
1. Create an app that doesn’t have any direct way of making money but tracking and collecting user data.
2. Sell the users’ data to interested buyers or hope to get acquired by a big tech business for said data.
While for some, this strategy has worked.
But for many, it hasn’t because only some data is valuable.
A lot of data isn’t that valuable on its own. The value comes in analyzing the data and how much of it is useful for buyers.
Believe me, companies like Facebook make a lot of money selling your data as a product to its advertisers.
They have a very advanced advertising product and the data they own is incredibly lucrative to its buyers.
But that’s not the case for every company, and if the data collected isn’t useful to buyers, then it’s inherently worthless.
And now, there’s a new kink in the armor for this monetization fantasy.
The emerging public backlash against data mining
Users are getting more savvy and they no longer want to be sold for profit.
Moving forward for data mining businesses, there is also going to be increasing backlash towards advertising.
The reality is, what makes a lot of data valuable for buyers right now is using it for targeted advertising.
But with more users keeping their guards up towards advertising and installing more adblockers, I believe this social shift is inevitably going to shrink the possibilities for data miners.
Any ads users are presented with will have to be embedded content, hyper-focused, and relevant. Otherwise, risk drawing people’s general ire (or in the worst-case scenario, forcing them to delete the app).
All this means is that you are going to need to think about more sustainable revenue sources as well.
So, let’s brainstorm how we can monetize your app in other ways!
How can you successfully monetize your app?
Advertising is still a revenue source to use, but remember, the amount of money you’ll be paid is only as valuable as your users’ data. You can see how data mining and your ad dollars are interconnected.
So, I’d like to challenge you to think about your business model over your app.
Thinking about how your app operates as a part of your business model would be a good place to start.
– I recommend that you answer the question from the bottom-up. Before you even decide that you want to make an app, come up with the business model first.
– Then ask yourself, does the business model require an app? Or is an app more of an accessory to that business model? Or is the app the business.
– Look into the different subscription models out there, such as free, freemium, paid subscription, etc.
The reality is, app users today are less likely than ever to pay for apps up-front.
In fact, according to a report by The Manifest, only 33% of mobile app users paid for an app in 2017.
And when App Annie surveyed 1,200 app developers to see how companies currently price their apps, the results still show that in-app purchases and in-app advertising lead the pack.
I do see the tide shifting a bit. I do believe that you should think beyond just advertising when it comes to your app’s monetization strategy.
Should you integrate advertising into your business model?
With ad blockers, it’s way easier than ever before to live an ad-free existence.
This directly impacts the revenue stream of many apps that rely on ads. Ads, of course, are one of the simplest ways to monetize your app.
But with growing hostility towards ads (or at least a certain willful blindness towards them) you need to consider a different approach to advertising in your business model.
Luckily, I do have some suggestions on how you can best incorporate ads.
– In-app ads should be relevant to the app. Don’t go with an ad network that is simply going to offer any generic banner ad that no one wants to click on. And most of all, because of ad blockers, I would suggest going with native ads. With native ads, you can incorporate relevant ads into the fabric of your app.
– Rather than using a plugin that uses an ad network to serve ads, you can create your own ad framework that is immune to ad blockers. I would suggest that you work on your direct relationships with businesses relevant to your app’s users, even going so far as to say that you should acquire company sponsorships.
When you use advertising for app monetization, remember to keep the user experience in mind. If you have to sacrifice the user experience in order to serve ads, look for another way to monetize.
This screenshot above is from a native ad network called CommuteStream. CommuteStream offers native ads to transit apps. Transit apps who want to monetize can work with CommuteStream so that ads can be seamlessly integrated into the app into various formats.
– What’s especially cool is that a lot of the ads are for local businesses that are close to the stops.
– Native ads are best when they are relevant to the app experience.
I think that an app that integrates native ads well into their app is HelloFresh.
You can see here the difference between a banner on the left and a more native ad on the right. I’m mostly judging this comparison on aesthetics rather than relevancy, but I think that this shows how seamlessly integrated a native ad can be made into the user interface.
But I also suggest that you think about how compatible ads are to your app experience in the first place. Think about relevancy like with the apps that are supported by CommuteStream.
Do you really want people to become less engaged with your app because of an ad?
– Mobile users are less likely to see native ads as regular digital ads. Native ads can be designed in multiple sizes and implemented differently on different media.
– They can offer a lot of customization options. Native advertising can be adapted for every screen and app design to look like a natural part of the app. That means higher CTR (click-through rate) and less annoying user experience.
I mentioned the idea of direct sponsors before.
This type of advertising requires a large user base. So this is not something that is all that possible in the short-term unless you have a specific audience already that is compatible with the sponsor’s niche.
But with this model, you get a few specific advertisers on board. Your sponsors could be presented in various ways on the app — you can really get pretty creative!
The truth is, users are looking for lighter apps that don’t have intrusive ads
The reality is, people do want a clean experience.
Ads gobble up people’s data. And they can also make apps run slower.
In fact, some apps monetize this annoyance by promising users to rid them of ads if they pay a one-time fee. I’ve seen this with many, many apps. One app that I use often helps me tune my banjo. It’s a very useful app, but ads get in the way.
This leads to a monetization model that I see a lot:
The app is free and contains ads, but the user has the option to pay a one-time fee to have the ads removed.
So, I paid $3 to eliminate ads forever for my tuner app. It was worth it to me, and I also felt good about sending a little money the app creator’s way.
The rise of subscription-based culture for app monetization
I’ve been using an app called Headspace recently since I’ve been trying to meditate. The download is technically free, but there is only a small amount of content available for free. After you go through that content, you need to subscribe to the app to access the rest.
The subscription strategy works here because the monetization is directly aligned with the intent. Someone who downloads the app intends to learn how to meditate. Learning how to meditate takes time, and it takes the training.
Consistency is key, too.
So, in order to receive consistent training, you need to pay.
I see a lot of potential with subscriptions:
– It gives you the opportunity to offer a free experience to get the downloads
– Clearly demonstrate the value then so that people stay.
– Subscriptions also offer a chance to receive recurring revenue.
There are many ways you can apply this model to your app.
An app like Headspace is offering a lot of pre-recorded content. And Headspace makes a lot of money doing it. I see a lot of education-based apps going this route, but really you can use this model for almost anything.
The pros of the subscription model is the financial predictability of it. With this model, app developers can offer multiple plans with options to upgrade, downgrade, or switch from one subscription plan to a comparable one.
Something savvy to keep in mind with subscriptions
Normally, Apple receives a 30 percent cut from App Store purchases.
This is true for subscriptions, but with one caveat. Apple offers a 15 percent cut once subscribers pass the one-year mark.
So, if you can keep subscribers on for longer than a year, Apple will take less of a cut. That means the goal for subscription app makers is figuring out how to keep users onboard longer than a year.
Another workaround is not to have the subscription transactions happen within the mobile app, but through a web app. The user can log-in on the app, but any payments or transactions are all done through the web app (think upgrading to Spotify Premium).
Therefore, Apple doesn’t see a dime!
How do I feel about in-app purchases?
You may have heard of the “freemium” model for mobile apps. Download the app for free, but pay later to unlock features and content.
This can be executed in a similar way to subscription content, except it allows for making more piecemeal purchases.
There are few types of apps that include in-app purchases:
– Download the app for free but you need to pay to access premium features or use in-app currency (needing to exchange real dollars for app dollars)
These types of in-app purchases are frequently seen in gaming apps.
I’ve been playing a lot of Words With Friends 2 recently. In the game you can purchase different things that give you an advantage over your opponent. I think that this model has grown a bit tired, though, since it makes the competition a little unfair.
– The app comes with all features and functionalities for free, but for a limited time. After that, you need to pay to continue using the app
I’ve seen other gaming apps that offer in-app purchases to unlock more levels, characters, items; you name it. I tend to prefer the purchases that don’t allow paying users to gain too many advantages. Monetization shouldn’t sacrifice the gameplay for everyone.
But I also see in-app purchases being used in more apps than games. Mobile e-commerce is being adopted more and more. In-app purchases are also becoming popular for social networks.
In my piece about the future of social networking, I wrote about an app called Wanelo.
Wanelo is a community for avid shoppers and includes all of the social aspects that come with it. Wanelo offers a customized, curated feed of shopping deals that might interest you, all people-based. Wanelo also allows you to buy products within the app.
How can you get people to purchase an app up-front?
It’s pretty tough to get someone to pay for your app up-front without trying it. People are just so used to apps being free.
If you plan to monetize your app using a premium model, I would consider developing two separate apps: a paid version and a free, or “lite,” version.
Professional apps do well with a paid model.
By professional apps, I mean apps that cater towards helping you with your job.
For example, there is an app called djay that is for professional DJs. To get users, they have a lite version and offer a free trial for their premium version. The premium app actually costs $50!
I can see the value proposition in this for DJs, though. Clearly, if you are a professional DJ you’ll understand the value too. For apps that offer something that is of professional value for specific, niche audiences, I can see them doing well with paid models.
This wouldn’t work if you couldn’t try the app first, however. That’s why, often, the best approach to take is to offer a trial first.
An app can be a way to direct users to other services and products
There are many apps that use the app as a vehicle to sell other services.
An example of this is Credit Karma. It’s free to download the app. It’s free to check your credit score.
But the app is able to connect users to many different financial products. They receive money on the back-end for referring you to these services.
Rewards apps from retailers are also becoming extremely popular. An example of a rewards app that is from a brick-and-mortar retailer is The Finish Line. As a way to expand its e-commerce presence, it has a “Winners Circle” app.
The app gives loyalty program members direct access to their accounts and reward offers.
It also showcases exclusive deals and store-related news. The app weaves its brick-and-mortar presence by linking between online and in-store sales with its product-scan function.
I also see the affiliate model as another way to generate revenue for your app. This would require an app that can weave content and purchases together. I see a lot of potential for this, particularly for the fashion industry.
Many eCommerce businesses have started using free applications to sell their physical products. Angry Birds is what I believe to be the gold standard for profiting off of branded products, but there are many others to do so.
One last thing to think about…
Moving forward, apps are not just going to be about phones anymore.
Apps will start to branch out from phones and become more integrated with other devices entering the market. Think about smart TVs. Think about smart homes, with Amazon’s Alexa and Google Home.
You can not only increase exposure for your app, but also open it to new revenue streams.
The roll-out of 5G into cities will also change the possibilities of how you can monetize your app. Apps will become more integrated within our environments and not just exist on phones. The possibilities are about to become truly limitless.