Every mobile strategy centers on one question: how can apps provide value to the users and the company, and how can it generate revenue? Generally, there are three ways to monetize apps:
1. Directly – selling content through paid apps, in-app purchases, paywalls
2. Indirectly – marketing, services, branding, etc., that influence buying behavior
3. Laterally – paid advertising from third parties or acquiring user data
Needless to say that any strategy is based on researching the market and analyzing target groups. Companies can offer apps as a service or as a channel of communication as long as there is an added value. The added value is the key to a successful app. Replicating your website will hardly impress your customers. Mobile users have high expectations that will be difficult to meet by simply adapting the content.
In this blog series, we will closely examine each approach and their peculiarities. Due to the fact that a fitting pricing strategy depends largely on the services offered as well as the target group, it is often wise to bet on a combination of strategies.
Direct Monetization of Apps
Only few app providers still use a direct monetization strategy offering paid apps. The number of allegedly free apps makes too much of a competition. App Annie latest report states that 83 % of all apps available through the Google Play Store or iTunes Store can be downloaded for free. While this might be discouraging at first, it gets put into a different perspective when looking at the sales figures: the majority of app revenue comes from in-app sales (92 % iTunes and 98 % Google Play).
Behind the paywall: adding value with additional services
Free apps have the advantage, that users are initially more likely to download and install an app. Whether it’s a game, a magazine or a tool, there is no financial risk associated with installing a free app. Once the app is on the device, it’s all about enthusing the user and convincing him that he will benefit from additional services. Don’t scare users away right in the beginning, by inviting them to purchase a full version or additional services; offer some content instead and showcase basic features to build a relationship first. Play with the curiosity of app users by presenting lots of previews and descriptions of further offers.
Teaser premium content
This strategy has been employed successfully by the visually appealing app of BILD.de, which presents various free articles but also functions as a teaser for additional services of its BILDplus membership area. The BILDplus articles differ from regular content through considerable added value to attract new and retain existing customers. Client’s needs and company offerings define the design of additional services.
Strategies for digital magazines
Offering lower priced subscriptions is the most common magazine app strategy right now, also in combination with a print subscription, as well as selling individual issues through in-app purchases (see apps from Spiegel, GQ Magazine, iX Magazine, etc.). Readers can rarely acquire additional services such as interviews, background information relating to special interest topics, videos or podcasts on top; instead, they are mostly either part of the subscription or offered in the same way as regular paid services.
Only special editions tend to make use of the extra purchasing channel more regularly. It’s worth considering whether the reader should be granted a greater say in which content he wants to pay for or which further offers he wants to acquire, so that payments are based more on the added value of individual content.
Strategies for mobile games
Many games are very successful with this strategy, offering additional services like new characters or extra tools as in-app purchases, providing users with an advantage over competitors or helping them reach goals faster (i. e. Candy Crush Saga). Some app games such as “The Impossible Game” also supply more levels as additional services, benefiting from the ambitions and play instincts of players.
Boost sales with your own currency
You can eventually boost sales by introducing your own currency, which users acquire in exchange for real money through your app. You might have heard about this strategy from other digital channels, for example the iStock platform, where Credits need to be purchased to acquire photographs. This strategy pays off with apps like “Clash of Clans”, which lets users employ the “jewels” on offer regularly to gain an advantage. An in-app currency might also make sense for apps with a large supply of products or services. For one-off purchases, on the other hand, this approach is more likely to scare off customers.
Promoting a premium version of an app which brings ad-free usage, additional features and personalization options is another wide practice. In this style, “GQ Magazine +” promises its readers exclusive extras, animations and multimedia content. On a very different level, the calculator app “Calc Pro” tries to excite its users with various functions, tutorials and personalization options such as adjustable skins and themes. This works well because individuality is increasingly important for many younger users who are very conscious of their lifestyle; they are used to customizing profiles and apps based on their preferences.
How to determine prices for in-app purchases?
In order to be successful with an in-app purchase strategy, the app first needs to acquire a large user base or a high conversion rate, preferably both. According to swrve, only 0,5 – 5 % of users make in-app purchases. The mobile gaming industry is most successful with this, but also with other strategies, and thus achieves 75 % of all app revenue.
When searching for a suitable price, the following formula can be helpful: ARPPU (average revenue per paying user) x Purchase Ratio % (conversion rate) = ARPU (average revenue per user). The average ARPPU, often between $ 3.50 and $ 15, depends largely on the app category. That’s why it is useful to have a look at prices of related apps or similar digital offerings. It should be noted here that the app stores receive 30 % of all app and app content sales.
On principle, make your payment strategy simple and clear. Depending on the app store, purchases can be made with:
– credit cards
– online and offline vouchers
– selected network providers
– external suppliers (Paypal, Click and Buy) or
– prepaid credit cards (MyWirecard).
Although Android currently possesses almost twice the shares of Apple’s iOS, the Apple platform by far generates most of the revenue from apps. This is partly due to their more affluent user group. Many offers, especially for business customers, are primarily available on iOS devices as they are often used for professional purposes. Android devices are on the contrary mainly used by private individuals who attend to different needs and therefore respond more often to free offers.
How to increase revenue from in-app purchases?
Well-known selling strategies such as scale prices (decoy effect) or limitations and deals are just as successful with mobile apps. Discounted apps raise attention in app stores. Their range and thus also the ARPU increase further through apps like “AppDeals”, which are specifically designed for discounted apps.
In a study, market-researchers from Distimo discovered that small changes in price can already induce significant effects. “The downloads of a discounted app, up to five days after the ‘sale’, increased by 1.665 percent in the iPhone store and still by 871 percent in the iPad store. If the developer raises the price thereafter, users react immediately: Again looking at a period of five days, the more expensive app was sold 46 percent less often in the iPhone store and 57 percent less in the iPad store.” Playing on this, you can also encourage your users with discounts for specific actions. You could for instance offer app users to pay less or nothing for a like on Facebook or a recommendation tweet.
App store marketing plays an important role for the visibility of apps and is therefore essential for the success of an app. Watch out for our next blog series, where we will go into more detail on respective mechanisms.
Which difficulties arise from in-app purchases?
For each target group, there are certain issues you need to be aware of concerning in-app purchases. Children, for example, are not allowed to make in-app purchases. This problem can be solved by arranging payments with vouchers; for more details, take a look at the payment solution “CashtoCode” from Funanga.
Next Part: Indirectly – marketing, services, branding, etc., that influence buying behavior
- Go ahead and download the whole series as a “Whitepaper on App Monetization Strategies”.