Top 5 App Monetization Strategies

In 2015, the number of apps downloaded on to smartphones and tablets surpassed 179 billion. Almost 93% of those applications were downloaded for free. The situation looks even scarier if we consider market segmentation and study the Android Stats. Two years ago, paid apps comprised only 2% of Google Play’s top downloaded mobile software. In a world where mobile users aren’t willing to spare $ 0.99 on a great app, going free is a smart decision. But how do free apps generate revenue?

Get rich with an app: best monetization strategies

Natasha Starkell, a tech blogger at GoalEurope, conducted a curious survey back in 2014. She studied the download stats for Apple Store’s top 50 free apps and compared their daily profits – to unexpected and quite astonishing results. It turns out that an application may see over 200 thousand downloads a day and earn…nothing. Most vendors take the cut-and-try approach to find out which app revenue model suits their needs.

  • Freemium. Developers launch two versions of the same application. The free version reveals the app’s basic features, giving a glimpse of what’s to come. The paid app, on the contrary, offers high-quality content, extra storage place and advanced functions (visibility management, search options, profile upgrades). Obviously, users must be given a strong reason to pay for the software.

Successful freemium = high-quality product + clear benefits

The freemium model is perfect for mobile games, workflow management tools and marketing solutions. Rovio, the driving force behind Angry Birds, charges players who want to “juice up” their birds or move to the next level. Although the game is no longer a chart topper, in 2014 Rovio generated over $ 170 million in revenues. The Dropbox free application offers 2GB for file sharing and backups. If you want to extend storage space up to 1TB, you have to pay $ 9.99 per month.

  • In-app purchases. Again, mobile software developers craft two apps. If users aren’t satisfied with the stripped-down version of an application, its functionality can be enhanced through one-time or ongoing payments.

Multiple in-app purchases = real value + addictivity

The method is primarily employed by mobile game vendors like King.com whose Candy Crush Saga reportedly makes over $ 630 thousand a day. The trick is to design a really addictive application with numerous in-app purchase options. Gamers spend money on extra lives, special currency and profile upgrades; once the first transaction is processed, it’s impossible to stop paying. The strategy can also be implemented by non-gaming developers. Tapbots (famous for its Tweetbot application) launched the Calcbot calculator app back in 2010. Its current version has several paid features, including a powerful convertor engine for measurements, speed and temperature, as well as enhanced memory options.

  • In-app advertising. App owners partner with iAd/Admob/other network to place advertising in their application and get paid for either clicks or impressions. Profit depends on several factors, including number of downloads, ad format (videos do better), country and OS. Android applications usually earn less due to smaller CPM (cost per thousand impressions) rate and peculiar user behavior.

Profitable advertising = cooperation with multiple ad networks + smart ad placement

There are actually two ways to earn money with in-app advertising. The first one is clicks and impressions. In 2014, Facebook developers successfully employed well-targeted advertising and increased ad revenue by 151%. However, small companies often get less downloads and may end up earning $ 2 a day. In fact, ads may alienate application users; that’s why developers tend to smoothly integrate banners into app environment. Some vendors also introduce the “Remove Ads” paid service; however, the option doesn’t bring much money on its own, especially in Android applications.

  • Cost per install (CPI). Vendors integrate third-party software into their app; the revenue model is similar to in-app advertising. In the middle of the game (app session) users are offered to download another program for a special price (via banner or pop-up window).

High CPI rates = similar applications + perfect pop-ups

Some promising CPI stats come from the Chartboost, Playhaven and Fisku platforms. During the first half of 2014, the CPI rates for Android and iOS apps increased by 30% and 56%, respectively. Superdata also notes a 37% increase in CPI costs in the USA; ad conversion rate, on the contrary, decreased by 4%. Although the affiliate monetization strategy is relatively new, one cannot deny its potential.

  • Sponsorship. Mobile app developers with decent download rates advertise more prominent companies in their applications and get paid for clicks.

Beneficial sponsorship = associated goods + thought-out delivery

The RunKeeper fitness app partnered with Kiip to display relevant brand offers to its users. RunKeeper opted for a clever marketing strategy: since random banner placement may distract users from their in-app activities, incentivized ads come as… rewards. The notifications naturally fit into the app’s environment and help users sustain motivation. Currently the app has over 34 million users worldwide.

Most vendors implement several monetization strategies at the same time. RunKeeper, for example, is a freemium by nature. Its paid version (RunKeeper Go) is available for $ 9.95 per month. Certain companies ship free apps along with paid gadgets or valuable content (like the Paper handwriting app with its stylus).

In the near future only 0.01% of all mobile applications will be commercially successful (at least that’s what Gartner says). No one knows for sure how free apps generate revenue. However, some developers take risks and achieve great results. So why not try?