On the heels of Facebook’s acquisition of WhatsApp, it seemed like a perfect time to discuss the core mobile app strategies we see in the marketspace today. Despite a mobile app market expected to reach over $25B this year, there are only 5 mobile app strategy models that define the market (4 depending on how you define free vs. freemium apps). Here’s what you need to know about these strategies so you can position your app for a piece of the $25B pie.

Mobile App, Mobile App Strategy

What’s your mobile app strategy model?

Model 1 – FaaB: FaaB is a term I’ve coined that stands for free-app-as-a-business. This app model is most prevalent with startups like SlideIdea, Any.Do, Pulse (before LinkedIn acquired it), Flipboard, etc. FaaBs focus on organic, rapid growth and have a user base made up of mostly early adopters. These apps ride the market momentum until one or both of the following opportunities to monetize arise:

1) The mobile app is purchased by a recognized brand because it either threatens or acts as a complement to the brand’s business. (i.e. Instagram, Pulse)

2) The user base is large enough that it offers prime real estate for advertising (i.e. Foursquare) and or investors. Early investors provide the funding for app developers to define or fine-tune their business model.

Clearly, it’s much harder to convert free apps into revenue generators. However, the common theme with these apps is they do an excellent job of delivering on the core mobile app pillars: utility, efficacy, usability, and return value (delivers value each time the user returns to the app).

KPIs to watch: Adoption Rate, Engagement Rate (DAU/total installs), Uninstall Rate (Retention)

Model 2 – Freemium: The most popular of all app models is freemium. These are free to use for a certain set of features and functions and require the user to pay for an upgraded or premium version. Freemium models monetize the app by creating one or more user revenue strategies:

1) Convert (upgrade) a user via one-time payment or subscription to the premium version of the product. (i.e. Life360)

2) Provide tiered subscription plans that upsell the user for access to more premium feature sets.

3) Many gaming apps follow this model and focus on a revenue-per-user strategy by requiring users to make small in-app purchases for access to features that enhance the gaming experience. This is a great mousetrap because the purchase only provides an upgraded experience for a limited time — at which point the user must continue to make purchases to retain or obtain additional gaming features.

An important piece of data to keep in mind comes from a Business Insider chart which shows freemium models accounting for 98% of Google Play revenues and 92% of Apple App Store revenues.

KPIs to watch: Adoption Rate, Conversion Rate (Free to Paid), Engagement Rate, Penetration Rate (paid user/free users), Average Revenue Per User (ARPU), Customer Lifetime value (CLV)

Model 3 – Channel Substitute: A channel substitute is built specifically to provide the user somewhat of a proxy for the web product or service offering. We see many of these models in shopping, social networking, and cloud storage apps. The app is intended to offer a mobile channel that allows users to accomplish the same goals via mobile device as they would if using the web product or service. The strategy here is to retain users and improve CLV by providing multi-channel accessibility. Some of these apps can also fall into the next segment.

KPIs to watch: Adoption Rate, Conversion Rate (if applicable), Engagement Rate, ARPU (if applicable), CLV (if applicable)

Model 4 – Complementary: Complementary apps can be part of an ecosystem (Evernote’s Skitch and Penultimate apps or Amazon’s Kindle app) that act as extensions of the brand’s core product or service. Complementary apps are meant to drive retention and capture improved CLV by providing different modes of utility that enhance the perceived value of the core product or service. This is a similar strategy to Google’s ecosystem approach where all supporting apps and systems are free because they enhance the value of its core ad business. One company that does this well is Lookout Mobile Security which offers 6 complementary apps in addition to its freemium mobile security offering.

KPIs to watch: Adoption Rate, Engagement Rate, Conversion Rate (if applicable), ARPU (if applicable), CLV (if applicable), Secondary App Penetration Rate (the number of users who have adopted more than one app)

Model 5 – Paid: Paid apps are risky because the user will expect immediate return on investment. Developers take this approach when trying to cover costs up front instead of down the road. While paid apps are a dying breed, TechCrunch noted the top categories that still see fairly high-performing paid apps are: Productivity, Medical, Business, Healthcare & Fitness, Navigation, Catalogs, Lifestyle, Photo & Video,Travel, and Weather. But also keep in mind the highest average price of paid apps across any app store is only $.50 cents. So make sure your strategy is air tight before pursuing this alternative.
KPIs to watch: Total Revenue, CLV

The mobile app models mentioned above are simply meant to provide a framework by which to formulate your app strategy. It’s quite possible your app will fall into multiple buckets as the business model matures and it moves past the early stages of the adoption lifecycle.