There are numerous how-to articles on app monetization but as I reviewed them I found most lacking in some way. <\/p>\n
Some are very thin in terms of content, others are just a list of ad networks, and many are a couple years old which in this space means they could just as well be written with charcoal on a cave wall. Still others reach too far for content, adding in items like watching your user retention. That\u2019s solid advice, but it\u2019s not direct monetization advice.<\/p>\n
So I decided to keep a list here that is intended to be a living document, updated as needed to keep it current as the industry changes. This article is positioned as app monetization, but all of these methods can be used (with greater or lesser degrees of difficulty depending on the method) on mobile web sites as well.<\/p>\n
This post is intended to be exhaustive, so if I\u2019ve missed a method drop me a note<\/a> and I\u2019ll remedy that.<\/p>\n By far the simplest monetization model is to charge a user for downloading your app from the app store. Because of that simplicity, it was the very first business model that powered the app economy.<\/p>\n Pros: Simple, easy to execute<\/p>\n Cons: \u200bPlaces a huge burden on the app store listing to convert users, limits your user base, can be a limited monetization method unless combined with other methods<\/p>\n The app world has changed dramatically since then and today relatively few apps<\/a> use this monetization method. Most apps are free<\/a> these days and the vast majority<\/a> of app downloads are of free apps.<\/p>\n The reasons for this are pretty simple. Given the choice, users prefer to look at ads<\/a> than pay even $0.99 for an app. The consideration process for an app purchase is also very short and littered with competition. If you as an app developer want to sell your app, that sales process usually starts and ends with your one-page app store listing. If you don\u2019t seal the deal with that listing, you don\u2019t make the sale.<\/p>\n That last point is why the freemium model has flourished. By removing all monetary risk and making the app free to download you can significantly increase your downloads and give users a free trial before they later purchase in the app.<\/p>\n There are still cases where developers find it logical to charge for apps (though there\u2019s a solid case<\/a> to be made that you should never charge an upfront fee for your app). Those cases are premium\/VIP versions of an app and niche apps that provide a high functional value that isn\u2019t easily substituted.<\/p>\n There are still many examples of apps that either offer a separate version of the app with more functionality or a zero-ads experience for a fee. This is really just a different\u2014and less elegant\u2014technological solution that largely amounts to freemium.<\/p>\n The other case that remains viable is niche apps that offer a lot of utility. In certain categories<\/a> like Productivity, Medical, and Business you can still charge for apps because of the value on offer. A super-niche example at a high price is this app for piano tuners<\/a>. Another is catering to people for whom a $1,000 app<\/a> is a bargain.<\/p>\n However, even with high utility niche apps, developers are moving toward freemium. This bar exam prep app<\/a> used to be paid and it\u2019s now free, though you can see on the left that the in-app purchases are on the pricey side.<\/p>\n All in all, collecting an upfront fee for your app is a dying monetization model. Freemium is just a much more flexible monetization model and it offers a huge benefit to the marketing of your app.<\/p>\n Freemium means that the user can download the app for free and the monetization happens later, inside the app experience, through in-app purchases.<\/p>\n Pros: Very flexible, no cost barrier for new users, allows heavy monetization of the best customers, premium features can keep expanding, pricing can change on the fly<\/p>\n Cons: Requires support of free customers, you have to come up with features people will actually pay for, requires a lot of conversion rate optimization to work well<\/p>\n Freemium can take many forms and it is constantly evolving. Below I\u2019ve listed some of the versions that are common right now.<\/p>\n Aside from advertising, this is the<\/em> model that is driving the app economy right now. It\u2019s the monetization engine of the freemium strategy. You make the app free to download and use in its entirety. Users have the option to experience the whole app without ever paying at all and in fact, it\u2019s typical for the vast majority of them to do just that.<\/p>\n But the small number of users who buy virtual goods fund the whole operation. And within that pool of paying users will be a small slice of \u201cwhales\u201d that pay large sums for virtual goods. There are different categories of virtual goods that you can offer in your app:<\/p>\n Currency<\/strong> \u2013 The process usually starts with the app user buying some amount of a \u201chard\u201d currency, that is, a currency that was exchanged for real world dollars. Once that happens, the real world dollar value has been transferred to the virtual world of the app and cannot be extracted. It must all remain within the app from that point forward. That \u201chard\u201d currency can then be spent within the app on other \u201csoft\u201d currencies used to advance the app experience or spent on other kinds of virtual goods.<\/p>\n Upgrades<\/strong> \u2013 This can be any feature that improves the app experience, though commonly it would be something like improving the strength of a game character.<\/p>\n Items<\/strong> \u2013 This can be anything within the app that is persistent once purchased and you can look at it. Players in some games are willing to spend a lot of money to get very rare items that can be seen by other players, status items basically. It\u2019s also common for items to confer an upgrade as well, making them worth the money to players.<\/p>\n Consumables<\/strong> \u2013 This refers to any benefit within the game that disappears once used. The most common example is anything that speeds up the game play. Time is the most valuable commodity anyone has, so paying to advance a game more quickly is a very typical mechanic and one that some games rely on as the only real monetization mechanic.<\/p>\n This is a freemium model in which you charge for extra features that are not included in the base app. Probably the most common example is an ad-free experience, though relatively few people (~4%<\/a>) are willing to pay for that. There are more innovative examples though, and it\u2019s a good way to monetize an app.<\/p>\n You can set the gate at any point in the experience, so the user gets to try out the app and hopefully get addicted to it before you ever show them the pay button (potentially). It also gives the app time to create a need for those features that you\u2019ll later charge for.<\/p>\n Another riff on freemium where you\u2019re gating content instead of features. Publishers charging for article content is a good example, so are added levels in games. My favorite example of this, which was super lucrative for the developers, is the Walking Dead game.<\/p>\n It had a model that was very different from most games, you viewed the content in episodes and had to pay for bundles of episodes past the first few. I admit to having bought them all, at a cost of $20, and I did so in one purchase because it was clear after the first couple that I\u2019d want them all. $20 per person starts to add up to real money after a while.<\/p>\n For many years, there have been offer walls that grant users virtual currency or virtual goods in exchange for doing something of value to the advertiser. There are a few forms of this that are common within apps.<\/p>\n Pros: Very flexible, free for users, far more profitable per unit than standard advertising<\/p>\n Cons: The inventory is more limited than standard ads, can be harder to integrate than ads, requires more of the user’s attention than standard ads<\/p>\n The most common form of value exchange is for users to watch a video or play a short game demo in order to earn virtual currency. It’s easy to inject watching a video into the app experience and there is plenty of demand for this type of ad format. <\/p>\n The downside is that the user has to watch the full video (or get even farther down a funnel) for you to get paid and the payout–while higher than standard banners–isn’t as high as the other options below.<\/p>\n Paying users virtual currency to complete polls is a fast growing option for monetization. I think it hits a sweet spot in terms of payout versus user requirements. Polls tend to pay less than offers but far more than rewarded video views. The user never has to enter credit card info so the barriers to completion are lower than for offers. The user is essentially being paid for their data and their opinions. This is another fun and easy option for monetizing users who want virtual currency.<\/p>\n The last and least common method is offers. With videos and polls, the user is basically getting paid for their attention. In this case, they are getting paid to be a lead. Signing up for a free trial of Netflix used to be a very common example of this, though users don’t always need to give out credit card details. Filling out a lead form for a high value purchase can also work. Offers usually pay very well but it’s much harder to get a user to do that than watch a video or take a poll.<\/p>\n These methods used to be known as “incentivized” actions but that has become a bad word. It has been replaced with the euphemism “value exchange” or “rewarded” which sounds less sketchy but means exactly the same thing. And there\u2019s nothing wrong with this at all, it\u2019s exactly the same idea as credit cards issuing membership reward points for using their card.<\/p>\n There are now easy ways to add a rewards system to your app, SessionM<\/a> is a company that can drop a whole reward system right into your app. <\/p>\n As with the internet in general, advertising in apps is one of the main ways of monetizing your app. In-app advertising is often more profitable than mobile web advertising for the same number of impressions so it’s an even better opportunity than advertising on web sites. There are many types of advertisements you can run in your app, but they will largely be some version of one of the types below.<\/p>\n Pros: Easy to implement, money starts flowing immediately, requires no direct payment from users<\/p>\n Cons: There is a cost to the user experience, requires a lot of users to make real money, can be complex to optimize, bad ads like redirects can be a horrible user experience<\/p>\n A sponsorship is when an advertiser works with an app to deliver an ad experience that is richer than a standard banner campaign. That could simply mean that on a given day, all of the standard ads in the app are for that one advertiser (that\u2019s called a \u201ctakeover\u201d) or that a virtual branded item is given away in a game or a branded location is made available in a game. It could also mean that an article is published in the app that was written by the advertiser. <\/p>\n As you can see, the parameters of a sponsorship are limited only by your imagination and technological abilities. Sponsorships also tend to pay far better than other forms of advertising. However, you\u2019d typically need a direct sales force to sell sponsorships and a lot of users to see them in order to execute them.<\/p>\n Standard banners are still the fuel that powers the digital ad economy. Whatever you have heard about the demise of banners is probably overstated. However, the standard 320×50 mobile banner probably will be the first format to die just because it\u2019s a small, awful branding tool.<\/p>\n It remains the case that by far the easiest way to start earning money from your app tomorrow is to drop a standard banner at the bottom of the screen in your app. Unless your app gets a ton of usage you won\u2019t get rich this way, but it is a very easy way to go from making zero dollars to making something. Once you start optimizing the performance of these banners the world suddenly gets very complicated, but you can cross that bridge when you come to it.<\/p>\n Interstitial is the ad industry term for a full-page, interruptive ad unit. After standard banners it\u2019s the second most common unit. Because it takes up the full page, it usually performs far better for the advertiser (higher click-through rates). There is much more space to explain the product being advertised and convince the user to click through.<\/p>\n It\u2019s also fairly easy to accidentally click through, which accounts for some of the higher click-through rate. As a result of all this extra performance, they also tend to pay a lot better than standard banners. Most apps will only be able to show a small fraction of their total ad inventory as interstitials because they are a relatively aggressive unit. It\u2019s a very valuable fraction though.<\/p>\n Video is an interesting space. It can take a lot of different forms, fitting into different sized boxes and different user experiences, but it\u2019s still hard to fit it into most apps in a way that isn\u2019t annoying to users so it often runs inside the aforementioned interstitial units. Along with that supply constraint you have an incredible tidal wave of demand for video inventory. There are a few reasons for the huge demand for video ads:<\/p>\n 1. Companies that run TV ads already have lots of video assets and would like to re-purpose them for mobile ads.<\/p>\n 2. Video is a great format for making a brand impression, which is why TV ads have long been so popular.<\/p>\n 3. Video is also a great mechanism for drawing high-quality users into new apps, which means all the big gaming companies are also interested.<\/p>\n There\u2019s currently a massive imbalance in supply and demand, which means you can make a lot of money if you can figure out how to show video in your app.<\/p>\n Native ads are ads that match the form and function of the page. They are not interruptive; they are designed to blend in, and hopefully even offer some utility to the user that they wouldn\u2019t get otherwise. The ads you see in the Facebook news feed are a great example and they make billions for Facebook.<\/p>\n Outside of Facebook, Google, etc. they are becoming increasingly popular though they haven\u2019t reached the same critical mass point yet because they are harder to standardize outside of a single platform. The IAB (the governing body of the digital ad industry) defines 6 types<\/a> of native ads:<\/p>\n 1. In-feed units<\/strong> \u2013 Like Facebook\u2019s ads.<\/p>\n 2. Paid search units<\/strong> \u2013 These have been around for a very long time. The way Google presents their paid units\u2014i.e., looking exactly like non-paid listings aside from a slightly different background color\u2014is a classic native implementation.<\/p>\n 3. Recommendation widgets<\/strong> \u2013 Those \u201cyou might also like\u201d ads you see virtually everywhere on the internet. They are considered native.<\/p>\n 4. Promoted listings<\/strong> \u2013 Product ads placed on a site like Amazon are also considered native. People are there shopping, so showing product ads is native to the experience.<\/p>\n 5. In-Ad<\/strong> \u2013 These are standard banner ads that contain content that is contextually relevant to the surrounding content of the page. The advertiser gets a guaranteed placement and knows exactly where the ad will show so they can match ad content to the page. If you ask me, this isn\u2019t really native at all, but no one asked…<\/p>\n 6. Custom\/Can\u2019t be contained<\/strong> \u2013 This is a catch-all category for ads that are so native to the app\/site experience that the ads can\u2019t easily be categorized. If some native ad purist were to point out that this is probably the only category of truly native ads, I would not object very loudly…<\/p>\n Increasing common and popular is selling physical items within apps. Shopping apps have been appearing left and right lately. There are also ways to add this method to existing apps.<\/p>\n Pros: Value to user is crystal clear, can be more profitable than many other methods<\/p>\n Cons: Requires fulfillment, higher user support requirements, higher potential for refunds, not a great fit for many apps<\/p>\n If you\u2019re selling your own inventory, this was probably the original intent of your app, but it could be added on later as well. This is what many shopping apps currently do, and it\u2019s definitely a proven method for monetizing. The downside is that there are a lot of moving parts in a physical products business (shipping, returns, inventory, etc.) that don\u2019t usually apply to an app business.<\/p>\n Quite a bit easier is just merchandising your app. Programs like Amazon Merch allow you to pretty easily create items that are branded however you\u2019d like and sell them, then you just pay the fees and collect the profit without actually touching any merchandise.<\/p>\n To merchandise an app you need either a loyal following or you need to get creative in terms of offering merchandise that users would actually want.<\/p>\n One step further away from the sale and easier yet is to become an affiliate that pushes users to the storefront and collects a small percentage of the sales generated. Amazon\u2019s Associate program is a great example of this.<\/p>\n This is a very broad method that cuts across other categories. Other companies have products, goods, services, software, etc. that the users of your app might want. You refer your users to the products they need and you collect a commission for each sale\u2014simple as that.<\/p>\n An example of this is Clickbank<\/a> where it is common for product owners to pay 75% or more of the initial purchase price (for info products usually). There are also programs for getting commissions on physical goods, software downloads, SaaS products and much more. This is a monetization opportunity that can be combined with other methods seamlessly and can be a serious driver of revenue if done correctly. <\/p>\n We\u2019re not talking about selling people irrelevant stuff (that\u2019s pretty hard if you\u2019ve ever tried it). We\u2019re talking about adding value<\/em> by introducing people to products they would value if only they knew about them. And if that\u2019s the mindset you go in with, you\u2019ll also make a lot more money.<\/p>\n One of the oldest and best monetization methods is subscriptions. There\u2019s really nothing quite like recurring income. A famous example of this is the New York Times site\/app that allows you to read the first 20 articles per month for free and after that you have to pay a monthly fee. <\/p>\n My personal favorite example is the Profit Bandit app. It\u2019s a SaaS (software as a service) product that uses the app as the user interface. It\u2019s for people who sell products on Amazon that they buy in their local area. It scans the UPC code of any item and then shows the price they can sell it for on Amazon, factoring in a variety of fees that can be levied by Amazon.<\/p>\n For Amazon sellers out scanning products at Big Lots, a smartphone app is the perfect way to interact with the software and the service it performs is very hard to replace so users are happy to pay the required monthly fee.<\/p>\n Another example worth mentioning is that many apps package up premium features into a \u201cVIP\u201d offering and charge users on a subscription basis. This is common in the dating market. It’s worth mentioning because many apps can do this as a bolt-on monetization method, but the value has to be obvious to the user.<\/p>\n This is one of my favorite methods, and it\u2019s not nearly as creepy as it sounds. I\u2019m going to massively over-simplify this here and go into greater detail elsewhere.<\/p>\n A handful of dominant tech players (Google, Facebook, Twitter and others) have their own proprietary data on…nearly everyone. That gives them HUGE advantages in selling advertisements. All companies in the space who are not one of those leading companies also desperately needs that data to execute effective ad campaigns, and they are willing to pay to get it.<\/p>\n Now listen carefully, that data is not personally identifiable, they can\u2019t link that data to specific users. That would be illegal.<\/em> The industry acronym for that is PII (personally identifiable information), and advertising companies are not allowed to collect that info. And as an industry veteran I can tell you with certainty that all legitimate advertising companies are completely uninterested in PII. They only want information that allows them to show better (more relevant) ads. Users want that as well. In general, people don\u2019t hate ads. They hate irrelevant ads. And targeting data (like the fact that you\u2019re currently in the market for a car) is the key to delivering those ads. <\/p>\n Now back to the monetization opportunity. Your app has data on users that can be sold into this data marketplace, all apps do. The value of that data depends on scale (you need a lot of users to make serious money) and quality (essentially the legitimacy and completeness of the data). In my opinion, if you have a decent size user base and you\u2019re not doing this, you\u2019re just leaving money on the table.<\/p>\n Best of all, this method can be layered on top of any<\/em> of the other methods with zero conflict. It’s really just free money if you bother to pursue it.<\/p>\n If your app fulfills a need that is generalizable to a broader industry, you can potentially white label (their technology, your branding) the platform or even the user base and charge for it. An example of this is dating apps. The technology that allows people to meet and flirt with one another is repeatable in infinite variations. Additionally in this case, the database of users of the app can also be used to create other apps.<\/p>\n Say you want to create a dating app. Instead of writing all the code from scratch you could purchase a white labeled dating app and immediately offer an app full of flirting features like chat and people search. Furthermore, you could offer access to your database of users, filtered to fit the needs of the app.<\/p>\n You want to create a dating app that puts tech geeks in touch with other tech geeks? No problem! Just filter the larger database of users for geeks and use the same white-labeled app features. See how that\u2019s cool? That is but one example. Really any app that has been developed from scratch to meet a specific need can be white labeled. The possibilities are endless.<\/p>\n Does your app create data that would be useful to other companies? If so, you can charge other companies for access to your internal data and create a robust revenue stream. What that means exactly is so broad that I can\u2019t possibly list all the permutations. However, I can point you to this primer<\/a> that succinctly describes the potential in this area. <\/p>\n This is an option so I\u2019m listing it. If you\u2019re doing something humanitarian or truly charitable, by all means you should ask for donations. However, if that\u2019s not the case, then you\u2019re just begging and you should choose some other option from this article.<\/p>\n This is a very straightforward method of monetizing although it\u2019s obviously a one-time deal. I mention it both in an effort to be comprehensive and also because many developers probably don\u2019t really consider it as an option and there are a variety of circumstances in which simply selling your app is the best option. It\u2019s also a much easier option than in the past.<\/p>\n There are a few things to know about selling an app. One is that your app is probably worth less than you think. Everyone reads the stories of apps selling for huge money, like Instagram selling to Facebook for a billion dollars (a steal for Facebook in retrospect). The apps that sell for big money are the ones with a large and rapidly growing user base. If you have an app like that, you\u2019re likely not thinking of selling. You\u2019re more likely thinking of getting investors, as you should.<\/p>\n Everyone else needs to contend with the cold, hard fact that your app will be valued as a multiple of the money it makes. Web sites are typically valued at 2-3 times the annual net profit<\/em> of the site. Apps tend to have slightly better multiples, although fewer buyers know what to do with them so they can be a little harder to sell. I think both of those conditions will normalize over time, with the pool of buyers expanding and the multiples falling.<\/p>\n If this is of interest to you, there are brokerages that can help you with this process. It’s generally worth using them because they can facilitate the process and they also have ready access to a pool of potential buyers. If your app can sell for $25k+, then some options would be Empire Flippers<\/a>, FEI<\/a> and Quiet Light<\/a>. If it’s a smaller sale then you can use a self-serve marketplace like Flippa<\/a>. <\/p>\n But here\u2019s the thing, if your app currently makes $0, that\u2019s what it\u2019s worth. Doesn\u2019t matter how cool you think it is and it definitely doesn\u2019t matter how much time or effort you spent creating it. Buyers don\u2019t care about that. With few exceptions, it can only be sold for money if it makes money.<\/p>\n Aren\u2019t you glad you read this article?<\/p>\n","protected":false},"excerpt":{"rendered":" There are numerous how-to articles on app monetization but as I reviewed them I found most lacking in some way. Some are very thin in terms of content, others are just a list of ad networks, and many are a couple years old which in this space means they could just as well be written […]<\/p>\n","protected":false},"author":1,"featured_media":174,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[5],"tags":[3],"_links":{"self":[{"href":"https:\/\/arpuinsider.com\/wp-json\/wp\/v2\/posts\/19"}],"collection":[{"href":"https:\/\/arpuinsider.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/arpuinsider.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/arpuinsider.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/arpuinsider.com\/wp-json\/wp\/v2\/comments?post=19"}],"version-history":[{"count":32,"href":"https:\/\/arpuinsider.com\/wp-json\/wp\/v2\/posts\/19\/revisions"}],"predecessor-version":[{"id":308,"href":"https:\/\/arpuinsider.com\/wp-json\/wp\/v2\/posts\/19\/revisions\/308"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/arpuinsider.com\/wp-json\/wp\/v2\/media\/174"}],"wp:attachment":[{"href":"https:\/\/arpuinsider.com\/wp-json\/wp\/v2\/media?parent=19"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/arpuinsider.com\/wp-json\/wp\/v2\/categories?post=19"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/arpuinsider.com\/wp-json\/wp\/v2\/tags?post=19"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Paid Apps<\/h2>\n
Premium App Versions<\/h5>\n
High Utility Apps<\/h5>\n
Freemium<\/h2>\n
In-app purchases of virtual goods<\/h5>\n
Gated features<\/h5>\n
Gated content<\/h5>\n
Incentivized\/Value Exchange<\/h2>\n
Video<\/h5>\n
Polls<\/h5>\n
Offers<\/h5>\n
Advertising<\/h2>\n
Sponsorships <\/h5>\n
Banners<\/h5>\n
Interstitials<\/h5>\n
Video<\/h5>\n
Native Ads<\/h5>\n
mCommerce<\/h2>\n
Selling your own inventory<\/h5>\n
Selling merchandised items (e.g., Amazon Merch)<\/h5>\n
Affiliate sales of physical goods<\/h5>\n
Affiliate sales<\/h5>\n
Subscriptions<\/h5>\n
Other Monetization Methods<\/h2>\n
Sell user data<\/h5>\n
White label your app<\/h5>\n
APIs<\/h5>\n
Donations<\/h5>\n
Sell your app<\/h5>\n