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Analysis on App Monetization

| Category: General    

Most people enter the mobile arena because they are fascinated by the over-night success stories of apps like whatsapp, instagram, etc., But what they actually forget is the amount of brainstorming and analysis which supported their decisions and strategies. Mobile arena is really big and you can become much bigger than you expect. It only needs a sustainable business model.

The reality is 2% of app developers get paid 54% of the app revenue. So, our aim should be to break into that elite 2%. If you are an app developer or an app marketer, with an ambition to become big in the business, read on to get more inputs about app marketing and monetization strategy.

Before we delve into, we need to understand, all strategy might not necessarily work for all apps. We need to find the business model, which suits the best for our app. Before we discuss about some reliable business models, let us start by answering the following questions.

1)What problem is the app trying to solve and how?

2)What is USP (Unique Selling Proposition) of the app?

3)Would the customers pay for this solution? Or what else are the solutions?

4)What business models do competing apps follow?

The answers for these questions, would roughly give you an idea for monetizing your app. One thing to have in mind is, the balance between the total numbers of downloads and revenue directly proportionate to it. Some apps create revenue from the first download, but some apps produce profit only after considerable number of downloads. We would look into some business models which are in practice, you might use either one of these plans or mix them and use them as you see fit.

1)Free / in-app advertising.

This is the plan we see frequently in the app store. This works with allowing the user to use the app free of cost, thus enabling more downloads. And the goal is to get a sizeable number of users and then to gather information of the people using the app, then use the data collected for target oriented advertising. Facebook is the master in this category. Both positives and negatives are attached with this business model. Since the data collected is huge and very organized, these apps are the darlings for targeted ads and the revenue is generally good. In the other side, we need to understand, that these advertisements can also cause annoyance to the user, since it uses the same already crammed screen space. So we need to design the app with the business model in mind, if we plan to use this model.

2)Freemium / Gated Features

This is another business model, which again does not cost when downloading the app. The app can be freely downloaded and used. All basic features are free to use, but there is a need to pay if the customer wants to use all features of the app. The plan is to attract the user with the preview of the features of the app and then charge a minimal amount for premium features. The goal is to accumulate and engage the users first and make them pay for add-ons.

Angry Birds, by The Rovio team is one such app, which has followed this model and achieved big. The game gets the user captivated enough to make them pay to use more features. This plan too has positives and negatives. Since it is free to use, the app can give you a huge customer base and people who have used the app long enough would not mind paying to get few more premium features. But the challenge lies in finalizing the features to offer free and features to gate. If customers are satisfied with free features, they might not buy the premium features, and if very less is offered as free, the customer might stop using the app. This decision is the most important decision, if you are inclined to follow this business model.

3)Paid Apps

This simply means the app is not for free and people should download the app from the app store by paying the charge. The key to success for these kinds of apps is the ability to showcase the value of the app accompanied with a killer app rating, preferably in the top 10. Apps which do a great job in this category should combine unique features with premium design, functionality and brand.

This business model is like a pay and play strategy. And it depends on your marketing team’s ability to convince users to buy the app. The plus point is that the app generates revenue from the first download but to the make the customers pay for the app is tough, because the space is overcrowded with free apps. Statistics reveal that 90% of the paid apps are downloaded less than 500 times per day owing to the cost liability on the customer.

4)In-App Purchases (selling physical / virtual goods)

This model is exactly what it sounds. That is, the monetizing strategy lies in selling physical or virtual goods within the app. It can be physical goods like cloths and accessories or virtual goods like game credits to use in the app. The app will be free and the profit is from the purchase. This app model works well for e-com brands. And one sale can lead to another resulting in more profits. The profit margin is fairly high in this model, because the sale happens online, with zero cost on store maintenance life staff, rent, power etc., But to make the customer buy through apps, apps should be attractive enough and, with usage of mobiles by children on the rise, accidental purchases are also on cards, which will lead to returning/taking back of the goods once sold and it’s a hassle. Further to these models, there are some ideas that are in use like Subscriptions and Sponsorships. Subscriptions are like freemium model, but the restriction is not on the features but on the content. Media houses use this model. They levy an amount on the customer, if the customer wants to see / read the whole content. Sponsorship is the latest entrant in the app monetization model. This model provides your users with rewards when completing particular tasks. You share revenue from the redeemed awards.

With apps trying out new business patterns, the latest trend is towards mixed business models. Many apps have devised strategies which comprise of two or more of the models we discussed above.

The last word is, don’t just walk on the paths other have laid for their journey. Adapt, learn and analyze from other’s experience but the decision should be a new path with is laid brand new from your own app. Be creative and courageous to succeed.

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