Like most other segments in tech, the mobile app industry is growing rapidly—the players in this industry are developing and publishing unique apps that make the lives of mobile users much easier and enjoyable. On average mobile users spend approximately 5.4 hours on their smartphones.
With the growing dependency on mobile apps and smartphones, developers are looking for new ways to gain revenue from the apps that they create. They seek optimal strategies for monetizing customer engagement with their apps.
Ahead is an app monetization guide to help you understand what app monetization is and the trends to expect going forward.
What Is Monetization?
Monetization is defined as “the action or process of earning revenue from an asset, business, etc.” In other words, monetization is the process of converting non-revenue generating assets into sources of revenue. In financial terms, monetization means the conversion of any event, object, or transaction into a form of currency or something with transferable value.
In some ways, the definition of monetization parallels that of a revenue model, which is the framework for how a business will generate financial income, generate profits, and produce a higher than average return on investment. A revenue model is typically used for mid and long-term projections of a company’s profit potential and is a key component of your business model.
What Is App Monetization?
Mobile app monetization is the process or technique used to make money from mobile apps. It gives you a chance to leverage your user base in such a way that you can generate revenue—it’s as simple as that.
So how does app monetization work? App developers and publishers tend to engage their user base to enable this process. They have to influence the behavior of their users to encourage more purchases, ad impressions, and other conversions. The mobile app monetization strategy a publisher uses varies based on the app type, with some models more suited than others.
According to recent app monetization statistics, mobile app revenues are expected to hit the $693 billion mark by the end of 2021. To further break this down, it is expected that the mobile app consumer spending will be $50 billion and $90 billion for Google Play Store and App Store, respectively.
Growth of The App Industry
The amount of business conducted online represents an increasing use of the internet for goods and services that users traditionally purchased from brick-and-mortar locations. As the percentage of online businesses continues to grow, so does the number of services offered through smartphone apps. In addition, as a result of the COVID-19 pandemic, online business has grown exponentially over the past year, creating a massive opportunity for mobile marketers and app product managers.
The global revenue generated by mobile apps surpassed $318 billion in 2020, an increase of over $60 billion from 2019. Industry experts predict that the app industry will continue to flourish over the next few years, with revenue estimated to reach $613 billion by 2025. Thus, the vast majority of people in the app industry are involved in generating income.
In an industry filled with intense competition, the question is often is it possible to monetize and generate revenue from an app and, if so, how. There are several approaches and models that mobile marketers and app product managers can implement to monetize apps in various categories and from mobile platforms around the globe. Determining the best monetization method for a specific app requires careful consideration of these models.
Before investigating different monetization techniques, it is vital to have a basic general knowledge of the opportunities for app monetization. The popularity and demand for quality mobile apps have increased dramatically over the past several years, creating massive opportunities for mobile app monetization.
App Monetization Examples
There are a few techniques that app developers employ to generate revenue. A retail app may encourage users to convert by offering an incentive, such as a discount, as a way of thanking them for downloading the app. Even if this amounts to a small purchase, it’s more likely that the user may remember this interaction and convert at a later date. Ideally, mobile marketers and app product managers should attempt to monetize users through this method within the first few days of an app download, especially since nearly 25% of users abandon the app after the first day.
Upselling and cross-selling is also an effective method of creating additional revenue within an app. For example, by tracking user data of purchase history, you can present users with related product suggestions later on. Marketers can also encourage users to return to their shopping cart with push notifications. For example, if the user searched for hotels in an app and failed to complete the purchase, you can send them a notification or message to remind and encourage them to return and take action.
Influencing user behavior is one form of app monetization, but revenue can also be generated through external sources. For example, in-app ads can generate additional revenue for app owners, with more ad impressions typically translating to increased ad revenue for marketers. Revenue may also be generated by offering users the option to pay for an ad-free version. Another option is sponsorships and affiliate programs, which can benefit the app developer and the sponsor by creating brand awareness.
Ultimately, mobile marketers and app product managers should use a variety of app monetization methods to ensure the greatest return on investment by encouraging in-app purchases to earn commissions by working with big names.
What Does App Monetization Mean For Marketers?
Industry experts estimate that when combined, the total number of iOS and Android OS apps installed on people’s smartphones and tablets numbers over five million, and the number continues to grow. From just a few thousand apps in 2008, the industry has seen massive growth fueled by smartphones, tablets, smartwatches, and other wearable hardware innovations, the continuous shift from a featured phone to smartphone use, and the rapid growth of the middle-class in Asia, particularly in China.
App monetization is essential for mobile marketers and app product managers who want to remain competitive in a world of free mobile apps and still make a healthy return on investment. An additional benefit of making money with these marketing methods is a better user experience. For instance, marketers can personalize ads to target specific users, delivering more relevant content and encouraging them to re-engage later. Additionally, users who have been targeted early on with personalized incentives tend to feel more valued and often will continue using the app on a long-term basis.
Mobile App Monetization Trends
In 2023, mobile app monetization methods will primarily focus on providing the utmost user experience—publishers will not compromise user experience when monetizing their apps. This means that there will be less room for in-app advertising to thrive as a technique for monetization. Even so, non-intrusive ad formats have a chance of making it big in this industry.
In-app advertising is a significant part of the app monetization ecosystem. It refers to the placement of ads inside your app. In-app advertising as a monetization model is pertinent for all verticals and provides numerous ways for displaying ads to users. Here is an outline of in-app monetization methods:
- Native advertising: This is a modest method of generating revenue from advertisers without interfering with your app’s user experience. Native advertising is designed to replicate the feel and appearance of your app. As such, it creates a satisfying user experience while still exposing users of your apps to advertising. Given that native ads must watch the design and functionality of your app, it can result in a more creative advertising strategy.
- Playable ads: When promoting a mobile game, there is no better way of showcasing its qualities than allowing users to experience gameplay. Playable ads make this possible—they enable users to play a portion of your game without necessarily installing. Over the years, playable ads have become the go-to choice for most advertisers. In fact, the Playable ad format was voted as the most effective in-app ad format available in the US.
- Rewarded video: This in-app ad format incorporates gamification to the experience of using an ad. Mobile users are motivated to watch in-app ads given that they’ll receive a reward every time they do so. For instance, a mobile game might reward users with extra lives or coins for watching a 30-second ad. According to an eMarket report on in-game advertising, rewarded video is the most used format. Another report by Ocean discovered that the value of in-game advertising was roughly 5.29 billion in 2020 and is expected to grow by over 19.5% in the period between 2021 and 2027.
- Interstitial ads: These ads are the largest in terms of size. They are designed to take up the entire smartphone screen to attract all mobile device attention to a single ad. These ads are like a two-edged sword: on the one hand, they guarantee that smartphone users will view an ad; on the other hand, they irritate users and make them less inclined to open the advertisement that advertisers want to offer them.
- Banner ads: Given that banner ads take a small amount of space on smartphones; people pay little attention to them. On an Android banner, ads cost $0.15 to $1.50, while on an iOS, they cost $0.20 to $2.00.
Freemium Model of App Monetization
Several apps offer a freemium service, where users can download the app free of charge and enjoy the functionality of ads. The probability of users purchasing an app that they haven’t tried is slim. As such, most developers implement a freemium service so that users can try the apps out before committing to a subscription.
When providing a freemium service, you can showcase the value of your product to convince users that it is worth purchasing. The freemium monetization model is popular given that it is much easier to gain users when your app is free. Additionally, users who fail to subscribe to your premium service can still be monetized with in-app ads.
For instance, Dropbox, a popular cloud storage website, offers a free plan of up to 2GB of storage for easy file sharing and backups. Dropbox’s pro package, which has 1TB, costs $9.99 per month. Dropbox’s freemium model is designed to show how simple it is to exchange and backup data using the Dropbox framework. This strategy is effective because you can backup data from any location or mobile device. Moreover, anyone who has videos or pictures would tell you that 2GB is never enough. As such, once you’ve experienced how easy it is to use Dropbox, paying a $9.99 monthly subscription fee to upgrade feels like a no-brainer.
Subscription Monetization Model
Subscription monetization model allows users to upgrade their experience and remove advertisements. A Sensor Tower Survey found that the sales of the top 100 premium apps in the US increased by 21% in 2019 from $3.8 billion to more than $4.6 billion. An excellent example of a subscription monetization model is the Spotify model.
While anyone can download and start listening to music with advertisements, they’ll need to pay a monthly subscription to get the unlimited ad-free option.
Most apps also allow a one-month free preview of the subscription package so that users can see what they’ll be missing if they keep on using the free version. A great example is Netflix. It is one of the most popular businesses globally, with its earnings increasing by 23% or more every year since 2018. Netflix is currently one of the most profitable entities that operate exclusively on a subscription basis. It prioritizes three investment areas, namely technology, content, and marketing. Its revenue is based on users paying a flat monthly rate to stream movies, television shows, and other specials.
Many mobile applications rely on in-app transactions to operate. For example, 95% of Google Play Store applications are free using revenue generation by monetization mechanisms like in-app purchases. It is approximated that in-app purchases are worth $380 billion globally. This makes them one of the best ways of increasing an app’s revenue.
Computer games in-app purchases are split into two categories, namely consumables and non-consumables. Consumables like in-game money are usually available for a limited duration, whereas the non-consumables must be purchased only once. Unlocking a character’s skin or stage is an example of a non-consumable in-app purchase.
There are many benefits to using in-app purchases. With them, you have the power to determine how much money is spent. You can either play the games or use the Apps for free without purchasing anything. Even so, the desire for users to progress to the next level often runs deep. They will buy coins or gems to move to the next level of a game.
Storyly App Monetization Solution
Besides being the next chapter of advertising, stories are currently the leading format for mobile experience. In-app stories allow you to tell your audience what you stand for, how you intend to improve their lives, and why you can help them attain their goals better than anyone else out there.
But to present your story in a way that appeals to your customers, you need an efficient solution. That’s Storyly for you. With it, you can not only provide your audience with stories that educate and inform your audience but you can also turn your stories into an in-app revenue channel by monetizing them or delivering them as native story ads via Google Ads. Additionally, you won’t have to interrupt the user journey.
App Monetization Forecast: What to Expect in the Near Future
Besides the trends outlined above, it is also important to look ahead at the possible trends that may affect the app industry in the near future. Below is an outline of a couple of app trends and monetization methods that every marketer needs to keep on their radar.
In-app advertising will mean more competition for ad inventory.
In-app advertising is a complex way of auctioning a publisher’s inventory. The basic principle here is to have advertisers bid simultaneously against one another for a given inventory. As in-app bidding continues to become common, it will give every demand source the chance to win the impression. As such, it will allow publishers to obtain the best price for their inventory.
Multiple revenue sources will become increasingly vital.
It is prudent to have multiple ways of monetizing your apps. This will not only act as a safety net but will also enable user preference to determine how your app is used. The problem most apps face is that only a small percentage of their audience contributes monetarily.
Diversifying your monetization model means that you’ll be less reliant on a small percentage of valuable users, thereby increasing app revenue and building a more robust overall monetization strategy.