Do you know how much the famous mindfulness app Headspace earns annual revenue?
It's $100 million
This is incredible, isn't it?
Now read this
Headspace app has over 65 million downloads with more than 2 million paying subscribers.
If you are an app owner or developer and scratching your head thinking over how some apps manage to make millions or even billions of money, you must note merely developing a mobile app for your business is not sufficient.
You need to ensure your mobile app is optimized with effective app monetization models so it can give monetary value to your investment. You need to keep your eyes close to your competitors what strategy they are using to monetize their app.
But again, not all app monetization models suit your mobile application. You need to understand some important things that directly affect your app revenue model.
In this blog, you will learn about top app monetization models and understand which model best suits your mobile app depending on your goals.
You will also learn the revenue models of famous apps how they are making millions and billions of money every year.
Table of content
- What is app monetization?
- Why choosing the right app monetization model is important?
- Top app monetization models
What is app monetization?
In short, app monetization is the strategy of converting your app users into paying customers.
Every mobile app has its own target audience and business goals. Different audiences may have different choices for paid apps, subscriptions, ads, in-app purchases, and other eCommerce.
Therefore, to maximize your app revenue you should consider a dynamic monetization strategy that engages the audience and market.
Why choosing the right app monetization model is important?
Why ultimately you build a mobile app?
Of course, to establish your business and make money.
There are more than 5.5 million mobile apps, Android and iOS combined, installed on people's smartphones and tablets all around the world.
And with the growing production of smartphones, tablets, smartwatches, IoT devices, wearable gadgets, the demand for mobile app development for various industries is increasing tremendously.
Mobile apps are now becoming the next essential item after food and clothes. If you don’t believe it, think how panic you feel when you realize you forget your smartphone in the home or office.
Therefore, businesses are now using mobile apps to connect with more customers and increase revenues.
If you see data, global consumer spending in mobile apps and games has increased significantly despite the economic depression in 2020.
According to Statista report 2021, worldwide mobile app revenues are projected to reach a massive of $935.2 billion by 2023.
Sounds great! Right?
But if this is so, then why many companies and app owners are struggling to generate money from their mobile applications?
Android app development company in India claims their services are not limited to developing mobile applications but how to monetize the apps is the hot concern that businesses are looking for.
Users generally believe that most apps are free. But when they find they will need to pay for using additional features in an app, they start avoiding it and continue using simply free features.
That is why businesses, companies, and all app owners require an effective app monetization model that can help their app generate better revenues.
Having a good monetization model also helps you build a sustainable business through your mobile app. It is because of the app monetization model with high-quality content the world's most popular streaming app Netflix made $6644 million revenues in Q4 2020 with over 204 million subscribers.
These popular apps have travelled a long journey. However, you may find a shortcut to make your app famous overnight by making it viral, but if don’t know the secrets of how a mobile app goes viral, you will have to eventually work on creating smart strategies to monetize your app.
Sometimes, great-looking apps also struggle to earn profits in long-term because their revenue model is not flexible to the demand of users.
So, having an attractive mobile app is not a guarantee that it is going to earn a lot of money. You need to set up the right app monetization model for your app to maximize profits.
And below we are discussing various app monetization models that could empower your app to earn more. You should choose the model depending on your goals and app features.
1. Premium apps
It is a pretty straightforward monetization model. If users want to use your app, they must first buy it from the app store. Once they pay for your app, they will get complete access to all features.
This model was common when the app market just started. Today, successfully using this model is quite challenging due to high competition from free apps.
Premium Model Example: Dark Sky Weather
Who should use it: This model is ideal for top B2B applications which provide clear business values as well as unique features to niche audiences who are looking for very specific solutions.
Tips to use this model: Users are hardly willing to purchase an app that doesn't give them a chance to try out first, thus you should consider offering them a lite version app that has a free trial period for 14 days or a month. This will make them habitual of using the app, and consequently move to buy it when the trial ends.
2. In-app advertising
In-app advertising is a monetization model where app owners earn revenue for displaying third-party ads within their mobile applications. It is one of the widely-used revenue models at such a level without it a lot of apps wouldn't even exist.
Mobile apps which use In-app advertising model are generally free for users, and app owners focus on generating revenues from advertisers. This is a universal model, as it can be implemented in all types of apps and works as long as the app has active users.
In-App Ads Example: Instagram, Facebook
Who should use it: In-app advertising model is suitable for all types of free apps which have the potential to be used frequently by users for long periods of time.
Tips to use this model: It may sound like a good concept to put as many ads as you can into the app, the truth is that users don't like watching ads. Therefore, you should always put user experience first.
Analyze whether a specific ad type or ad frequency within the app is creating a negative impact on users. If this is so, users will feel less motivated to use the app. The success of this model depends on when your app has a large number of downloads. If users are not downloading your app, then you should improve the result.
3. Freemium apps
The word 'Freemium' is an integration of the words "free" and "premium", and it perfectly explains what this model exactly is. Freemium apps mean users have access to the basic or some defined functionality. But to use additional and premium features of the app, users need to pay for that.
Freemium is one of the complex app monetization models as it contains two equally important aspects.
The majority of the app's features and functionality are completely free to use (and the app itself is free to download), but if users want to unlock premium features and additional options, they need to purchase them.
Freemium Model Example: Spotify app, OneDrive
Who should use it: This model is ideal for mobile applications which have a goal to provide a consistent value for users- one with a great free version and second a premium version that eventually generate revenues
Tips to use this model: App owners will need to pay high attention to draw the distinction line between free and premium features.
If features in the free version of the app are too good, chances are users won't have a strong reason to buy the full version. On the other side, if they aren't good enough, users won't consider the full version of the app as worth the money.
4. In-app purchases
Despite the fact that only 5 percent of users make in-app purchases, revenue earned from this small percentage is almost 20 times greater than revenue earned from all the other users.
In-app purchase is one of the most popular app monetization models. It seems like the app is free, but enabling users to buy various types of products in the app.
Those products may involve many forms such as additional app features, in-game currency or coins, access to premium content, and other customized options. The primary goal of this model is- the free version or part of the app must be fully functional so that it inspires users to make purchases.
In-App Purchase Example: VSCO
Who should use it: This monetization model is ideal for games and service-based apps which are engaging enough even if users don't spend money, as in-app purchase is meant to improve the user experience.
Tips to use this model: Users appreciate the idea of using a free app and having the option to spend money if they find it good. You simply need to make sure that every in-app purchase you include into your app should provide real value and enhances the overall user experience.
This strategy is like a free trial mode as it allows users to download and try the app for free but later requires a paid subscription to use restricted features or content.
Subscription model is similar to in-app purchases because it also enables users to purchase additional products, features, and content. But instead of providing them with the option to buy whenever they want, the subscription model offers 'subscription periods'.
When users pay for the subscription they get access to premium features or content in the app. And when their subscription expires, they will have to subscribe again or use the auto-renewal option.
This model is widely famous in most of the apps. Especially Apple users are always ready to pay for subscription if they find the app is providing amazing features and user experience. Therefore, iPhone application development company in India mostly prefer this model in their app projects.
Subscription Model Examples: Headspace, Netflix, Amazon Prime Video
Who should use it: This monetization model is perfect for mobile apps that have high-quality features, and primarily service-oriented or provides valuable content to niche audiences.
Tips to use this model: This model works for the mobile app which can provide high-quality content or features to users. This model may take time to reach a sufficient figure of users. However, if you deliver great value to users, it will be successful.
6. eCommerce apps
This is also a simple model- your app is a marketplace through which you sell physical goods. eCommerce apps have been highly successful as compared to other types of apps.
In fact, eCommerce has become a billion-dollar business in the entire world. Today, many brands are using this model in their app due to higher profit margins, as app stores don't charge a commission for selling physical products.
eCommerce Model Example: Flipkart, Amazon app, Shopify app
Who should use it: This model is best for apps whose main goal is to sell physical goods to certain audiences.
Tips to use this model: User engagement plays a critical role in the eCommerce app. To make it happen, you need to leverage push notifications in this model. As users are more likely to see a notification than opening an email, you should create a push notification strategy and send customized offers.
7. White labeling app
If you have a mobile application with unique functionality or one that solves a particular problem, you can monetize your app by licensing your code to other app owners.
A white label product is a term that means you are making a product that another company can buy from you, rebrand it and resell it. This model is a good option for earning extra revenue from the application without affecting your user experience.
White Label Model Example: LevelUp app, Stream LXP app,
Who should use it: This app monetization model is suitable for apps which are built on specific concepts that can be utilized by multiple brands. It is also good for making additional revenue from the app which has stopped generating revenues at its own.
Tips to use this model: Although you can earn extra revenue by reselling your whole mobile application to other brands, you should try to resell your app's code. It will enable other companies to use your app's code as a framework which will allow them to build their own app.
8. Data licensing app
If your mobile app has a large size of active users, you can start gathering information on their behavior and sell anonymous data to third parties like market researchers, advertisers, and consumer analytics companies.
This is not a new model. Every app collects some sort of user data. It helps app owners to know how their app is being used and what elements should they improve.
And in this age of data science, businesses are ready to pay a great amount for user data. The more app acquires an active number of users, the higher price app owner is expected to get for user data.
Data licensing Model Example: Bloomberg
Who should use it: This monetization model is perfect for applications which have an extremely large and engaging user base, and can generate a big amount of data on client preferences to understand consumer behavior.
Tips to use this model: Data privacy is a very critical concern today. No one wants his or her data to be shared without their cognizance or approval. Therefore, you must take the user's approval or consent before you sell user data to a third party.
There have been many controversies happened recently related to sharing user information with other parties. However, once your user gives his consent, you can share data through paid licensing.
We hope this blog has helped you understanding app monetization models that you can use in your mobile app and improve revenues.
It may sound easy when you see several models working effectively in various famous apps. However, as an app owner, you must note that app monetization models work successfully when you are delivering great value to users.
Otherwise, no model works which doesn't provide valuable products or services to customers. Netflix, Amazon, Spotify are making millions and billions of revenues because they are providing high-quality services through suitable monetization models.
So, when you are choosing a revenue model for your app, be clear about the following questions:
- What is unique about your mobile app?
- Why people will be willing to pay for it and how much?
- What app monetization models do your competitors are using and have they really worked for them?
- What is more important for your business right now: to gain revenue or a high number of users?
Making money from mobile app requires intelligence and experience. Get more practical tips that can improve your app revenues. Talk to our app experts at eSearch Logix and discuss everything related to monetizing your app.