Free apps do make money! This is something that we should bear in mind. The right question is: how do they make money?
Recently, two companies specialized in mobile app revenue and intelligence have joined forces in a thorough study of the app industry economy, analyzing data produced directly by the app stores. Their research has revealed some fascinating figures regarding developers’ earnings, which can shed some light on market tendencies and monetization strategies. Here are some interesting finds:
- A total of 1,887 app developers have achieved the mark of $1 million in revenues from a combination of app purchases and in-app purchases in the last 12 months.
- 78% of these millionaire app developers are making their money from games, which means that the gaming category leads in bringing most of the revenue in both the AppStore and Google play.
- Despite what others may have thought, an estimated 45% of 2015’s $5 billion total revenue came from apps outside the Top 100, meaning that succeeding in the mobile app industry is definitely achievable, even if you are not one of the top players (yet!).
- Research states that over 75,000 developers make more than $10,000 per year from their apps.
- Furthermore, approximately 20,000 app developers have made over $100,000 in revenues – or $8,333 per month – from their apps in 2015.
It is undeniable that the app economy is exponentially growing year after year. To better understand how developers are optimizing their revenue opportunities with their free apps, check out some interesting monetization tactics and choose the one that better fits your needs!
Here we go:
1. “Freemium” Strategy
Freemium apps are one of the most popular forms of app monetization. These are available for free on the app stores, but include optional features or items for sale. By offering a solution that is initially free of charge, app publishers can attract a wider user base at a faster rate, since many users can be reluctant about paying upfront before download. Users then have a chance to try the app before committing to a purchase. Extra features are optional and available to those who wish to acquire them using an in-app purchase function.
In-app purchases are made directly from within the app and are usually a very simple process. IAPs are typically used to access special contents or features such as boosts and power-ups, restricted levels, virtual money, extra characters, etc. Most of the revenue goes directly to the publisher’s developer account.
This is an interesting strategy of converting your already existing non-paying customers into the paying users category without being too intrusive.
Sponsorships are one of the less commonly used monetization methods, but can still be an interesting strategy. Similarly to websites, publishers should consider sponsors whose target audience is the same as the one being addressed by their app. Creating a list of companies, brands and organizations who could benefit from this partnership is a good starting point. The right sponsor would then publicize the app along with their brand without much extra efforts, since the audience is virtually the same.
Subscriptions can be a very useful monetization strategy. Publishers may choose to offer free content on their apps for a limited amount of time and then charge users for a subscription fee that will allow them to access full content without restrictions. A commonly used tactic to convince users to subscribe to an app is to offer them a free trial period and then charge the subscription fee to those who wish to continue to access the app content.
Apple is paying extra attention to this monetization strategy and is about to make significant modifications in how app subscriptions work. In the new model, Apple will maintain the usual 70/30 revenue split for the first year of subscription. After one year, a new 85 percent/15 percent revenue share per subscriber will be implemented. The new format was made to encourage developers to sell their apps for a recurring fee instead of a one-time cost. Another significant change is that the method currently only available for apps classified as news, cloud services, dating apps, or audio/video streaming, will soon be applicable to all app categories. Let’s stay tuned to how this rolls out.
4. Email Marketing
Although relatively under-used, email marketing can be quite powerful when it comes to publicizing and monetizing apps. This strategy works by requesting user email during login and consequently reaching them with email notifications. Collecting all user email addresses in a database may be very helpful in certain situations. For customers who haven’t used the app in a while, for instance, reaching them via email may be an interesting tool to approach and retain them.
5. Affiliate Marketing
Affiliate marketing involves promoting a third party product or service as a way to optimize revenue opportunities. In mobile apps, this network marketing strategy mostly works by advertising other apps for a considerable share of revenue based on number of clicks or installs. Affiliate Marketing can be easily integrated depending on the publisher’s chosen ad network.
6. Amazon Underground
Amazon Underground is a relatively new way for developers to monetize their apps. Separate from the main Amazon App Store, Underground acts as a stand-alone store where neither ads nor in-app purchases are allowed. If the app contains in-app purchases, publishers must agree to waive their fees before making them available for download. On Underground, users are able to access an unlimited amount of IAPs without actually paying for them. Instead, Amazon pays publishers $0.02 per minute of use, per user. This innovative strategy can be especially interesting for developers with apps that have a high average session length, but fail to monetize via in-app purchases.
7. Selling Merchandise
Another innovative approach is selling branded merchandise as a monetization method. Items such as t-shirts, toys, cell phone cases, etc. can be a successful alternative to boost revenue. The physical products can be sold directly from within the app or via email marketing. To assist developers interested in this strategy, Amazon has launched a service called Merch by Amazon, which allows developers to create their artwork, upload it to their platform and promote products. To make things even easier, the company also handles payment and delivery of items.
Last but definitely not least there is advertising. Known as one of the most popular monetization methods, advertisements can be easily integrated to the app source code as a way to generate income.
Whether developers are being paid per click (each time a user clicks on the ad), per visit (each time a user visits the ad) or per install (every time a user installs the app shown in advertisement), ads provide a wide range of monetization opportunities. These are some of the techniques used by ad networks to aid in this process:
(i) Interstitial Ads: These are pop-up ads in full screen that appear on mobile apps. Interstitials are programmed to show up after a specific time frame or after user has lost a game, for instance. They can either close the ad or can click to browse the app and download it later.
(ii) Banner Ads: Banner ads are found mostly on the top and bottom of the screen of devices. These stay for a longer period on the screen and are less invasive.
(iii) Video Ads: Video ads are commonly displayed either while the app is running or during or after some intervals. An interesting approach to using video ads is via video rewards. With this method, the user can choose to watch a video ad in exchange of some sort of prize. After watching, users can receive coins or app currency, extra lives to continue playing, etc. This format sets itself apart from others since it is optional and can provide benefits to the app user.
(iv) Native Ads: This type of ads is specially built according to the destination site or app page. To avoid user aversion, native ads are made to be a more natural and less aggressive than other methods.
With so many available alternatives to monetize your free app, it is important to note that each method has its pros and cons. Trying out some of these tactics and analyzing what competitors are doing may be an interesting starting point. The app requisites, structure and target audience should also be taken into consideration before choosing the strategy that better suits your business. It all comes down to finding the best combination for your app.
What should you do now? Browse the app stores, do a market research, check what other successful developers are doing and try to figure out the right monetization strategy for your app.
Have you had any experience with one of these methods? Feel free to share your thoughts with our community in the comment section below.
David Meyer is a senior app developer & analyst at CSSChopper, who holds competent knowledge about his field of work. He passionately writes blogs and research-based articles on the topics that are of general concern of his community. All his write-ups have been widely appreciated for being informational and concerning.
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