How to monetize an app?

How to make money or monetize my mobile application? It’s a recurring question posed by our customers. Although the first answer is the well-known ‘it depends’, Cuatroochenta’s expertise in app development and publications through 480interactive led us to develop a list of possible answers.

 Alive and evolving, the app market is tough and has much competition, so you have to sharpen your wits. The most important thing is to consider this issue at first, when you are conceptualizing the app and taking into account its characteristics. Never impose a model by force.

Before entering the field, we should consider some general aspects. To begin with, something we are all noticing and that reliable studies – as the last of Flurry– confirm: the usage of mobile applications is growing exponentially, specifically, 115% in 2013 over the previous year. The ranking is led by social and messaging (+203%) and productivity (149%) applications. In absolute terms, 30 million mobile applications are downloaded daily (worldwide). On average in Spain -according to The App Date– each user has between 24 and 31 apps on their mobile or tablet. On the other hand, a report by Gartner reveals that in the next 5 years, less than 1% of all mobile applications will be profitable. That is, there are a growing number of applications, but that doesn’t mean they are profitable. In fact, most of them are developed without the intention of monetize them.

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Before choosing a model to monetize our app we have to keep in mind two questions: which is the real purpose of our app? And what audience is it for? Depending on the characteristic of the service or product it offers, the value proposition and its differentiation from competitors, we can opt for a strategy or another. And above all, taking into account the real costs so that the equation is well planned from the beginning: to develop a high quality app, in addition to the cost of development and launching, it also entails maintenance work so that the app is updated at a programming level, as well as for contents. Moreover, Google and Apple take 30% of commission in each transaction.

An app is a living element, it is not published and ready; it is very important to develop a business plan including a comprehensive analysis of maintenance and scalability. For that reason, the role models are preferable to provide for certain recurring revenues rather than the ones which are limited to an income per download, also when it comes to an application of great success (even more so in that case). We’ll explain it with an example: the development of and app costs 30,000 € and has a maintenance cost of 2,000 €/month; if it is sold for 1€ and it gets 100,000 downloads it may appear to have done a good deal (70,000 € profit with respect to the initial investment). But if it reaches its peak of audience and downloads hinder, in just 35 months it begin to give losses. Would not be the first time it happens.

Finally, a general premise: it is ten times more likely for an app to be downloaded in its first days when it is free than when it has a cost. These first days are vital in its positioning and visibility in the rankings. It is not easy to create a successful app, much less to keep it on top. However, good news is that it is a recipe that is on fire right now, so there are as many ways to cook it as you can imagine. Here you are some ideas:

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>Freemium. Free app having paid features or sections.

One of the fastest growing models -at a rate of 50%- which is developed by over one quarter of developers all over the world, according to the VisionMobile annual survey (see above chart). It is used in many internet services and products, with the philosophy of leaving someone wanting more. The app is free to download but some of its contents, features or updates are extra. It can also take the form of a pre-free-app (perhaps with advertising), a lure which runs as a demo to test the product which is followed by a paid-app with more content or without advertising.

The strategy is to offer a quality service to hook the attention of the user in order to -afterwards or in parallel- offer a premium option at a reasonable price. This way the user knows what he is paying for and even sees it with good eyes. Keep in mind that in the app world, due to the large volume of offer, the user always looks for a free alternative of a paid tool, so it is crucial not to block the entry door.

>In-App Purchase

It consists of moving the well-known ecommerce within an application. The IAP (in-app-purchase) allows you to purchase certain products or services within the app once you have downloaded it for free. It takes the same mechanics that when you download a paid app, through the ID of Apple for iOS or the Google Play account for Android and the corresponding password. Both platforms also remain with the aforementioned 30% commission.

This is the model which generates more revenue per application on average right now and the most popular on iOS, with 37% of developers using it, according to VisionMobile survey. The Gartner study foresees that by 2017, 48% of the total revenue generated by apps in the world will proceed from those micropayments within applications, compared to 17% of 2013.

Many games, which typically set trends, follow this strategy: you download them for free and then they sell you upgrades to new levels that can be purchased with virtual money (donuts in Springfield, by instance).  You earn that virtual money by winning games or paying for them with real money. Games dominate the rankings with more income both in App Store and Google Play.

>Subscription

The in-app purchase within an app the user downloads for free can be one-off or can be a recurring subscription payment to opt, by instance, to continuous updates. Clear examples of this are the virtual newsstands which offer the digital version of the media: its application is free to download but requires a subscription to the means to be able to consult. Such is the case of 480interactive in its option Multiple Issue App.

 

>Affiliate Marketing

Your app is a showcase to other companies to offer their products and you receive a percentage of the sale. It simply consists of applying the filiation model used on the web -such as flight search engines- to the field of mobile applications for smartphones and tablets. It can also be find as a guide or directory, in a specific section of the app in which services or companies pay a fee to be shown, fixed or variable depending on the visits.

The key is to align app content with brands so that they have the same target audience. A very good example is the South Korean instant messaging app Kakao Talk, with over 100 million downloads, it has a paid game room and it charges 21% of sales to them.

>Banner with direct advertising

It is the most used now. It is also based on free download apps, but in this case incomes come by inserting ads banners linked to other apps or websites. In fact, it is advisable to use this model only on free apps, since publicity would be invasive and counterproductive in paid apps.

As in web advertising you can offer rates which are proportional to the number of ad impacts (number of times the banner is displayed in your app) and clicks (number of users who have visited the advertiser’s link). You can also opt to offer flat rates for certain period of time depending on the number of visits your app has. The management of such advertising may be directly or through adversers platforms such as the ones of Apple and Google, iAd and AdMob respectively, among many others that are being implemented. Formats vary between inanimate, animated images, videos and even games, which can be displayed full screen when entering the app (also in a section) or at the bottom, static or emergent.

Media often use this formula to monetize their traffic on their app versions for smartphones and tablets. In fact, it is one of the few income sources which is undergoing an upward trend. According to the Study of Digital Advertising by IAB Spain, ad investment in mobile devices grew 47% in Spain in 2013 over the previous year and it is forecasted to continue growing over 40% in 2014, with video as main star.

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>Sponsored Free App

The application you have in mind (or the one it is already developed) fits like a glove to a brand or a specific advertising campaign, either because its features or because it targets a very specific audience which matches the brand’s audience. The brand may finance its development to lead the launching or it may be interested in a full sponsorship in order to own the app. Thus we are talking about an app developed practically ad hoc having in mind a brand or with such a good and specific positioning that it only needs the final touch. A sponsorship of these features could obviously determine the name and image of the app and it also probably close the doors to other income avenues.

>Big data management and loyalty

We keep on talking about free download apps, but we enter the realm of intangibles to get profitability. An application can be a great tool to better understand your audience, their habits and preferences. The tacit deal is that, in exchange for offering a free feature or service on an app, the users let you know them better -obviously always within the law and without invading privacy-. An exchange in which the company involved can obtain highly relevant information to better tailor its products or services to the target audience, to better direct a specific campaign, etc.

Data management can come from an app directly driven or a third party app, since the higher the number of users the more relevant is that information. They are the most famous and at the same time most exceptional cases, but if your app gets millions of users, it may awake the interest of many, mainly for this reason.

In the field of brand management, there is a very clear way to monetize the app for well-consolidated companies outside the app world: improving their customer loyalty and expand into other channels. In this section we find clothes shops which sale their clothes through their apps or banks which offer better presentations of online operational.

>Paid app

It is the conventional business model we all know: I put on sale a product or service in the form of an app charging directly for it. As mentioned before, Apple and Google markets will apply their sales commission and they will periodically pay us our share of the incomes per download. On the App Store the range of rates for the apps are preset: free, 0.99, 1.99, 2.99, 3.00 or 4.99 euros…and up to €899! (Seriously). On Google Play you decide from €0.50 (both cases refer to Spain; in US the app VIP Black stays on top of the most expensive, at $999.99). Considering the vast and growing supply of apps, this model is only advisable when you have a well-established brand or service, since as we noted above, as a rule the probability that someone is willing to pay for an app is low. In addition, as we have also explained, it is crucial to consider the costs of maintenance and scalability.

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