Monetization, Hot Topics

The Mobile App Monetization Problem

Having moved ahead of computers for web use, smartphones are clearly the preferred platform for users around the world. There is another transition, though, that is positively booming. Smartphones are not designed to simply serve a browser with-which users can consume all of their web content. Instead, modern phones serve mobile apps. These are focused, self-contained (sort-of) programs that run on the devices operating system. Mobile apps present the user with a clean and direct portal to consume the intended product. Also, apps are easy to open — no ridiculous browser navigation.

From an app owner standpoint, the business is surely not solely about convenient solutions for users.

More than anything, developing an iOS and/or Android app is about revenue.

With projections pushing $200 billion for the mobile app industry by 2020, it’s a good time to get a piece of the pie.

It’s a big pie, but it’s important to understand that all pieces are not equal. In fact, most are little more than a crumb that has fallen from the crust. It’s rough; the prospect of spending the significant cost to develop an iOS and/or Android app and maintain it could very easily be 1000 times greater than the revenue that it generates.

The problem is in the approach to monetization.

Monetization should be fundamental to the concept of a mobile app. If presenting a 30 second description of the app, it should be clear how the app makes money. The app is, after all, a little (or huge) business. Continuing with the problem, not all monetization techniques are equal or appropriate for a given mobile app. The key is to retain users, inspire them to pay, and maximize revenue.

In many mobile apps revenue is gained through one-off in-app purchases, an initial fee to download, or in-app ads. One-off IAPs (in-app purchases) seem like a reasonable model, as users are able to make multiple transactions in the app — boosting revenue. The tricky parts reside in the need to create a continuous, and likely increasing, flow of value to entice the user to make a new purchase. Most importantly in this challenge is the need for the user to take an action — initiate the transaction. As expected, One-off IAPs are not great earners.

Browsing the App Store or Google Play will unearth an array of free and paid apps. In fact, there are ranking charts for both free and paid apps. The attraction of the paid app, for an app owner, is in the guaranteed revenue for each download. Here’s the problem: when a user downloads a paid app, that app is associated with her or his Google or Apple account… for life. It can be downloaded on any device associated with his or her account. Meaning, that $1.99 is the extent of the earning for the mobile app, and it could be used a ton. That could even present problems when maintaining the app or keeping up with AWS fees and cost of development. Revenue might not be able to reach expenses; thus, the mobile app will stay in the red. Additionally, users simply don’t download paid apps as frequently as free apps.

Free apps without IAPs are generally served ads. Scrolling through a feed could present an occasional promoted post. Tapping start to begin level six in a game could present a video ad. In reality, ads that are served by 3rd parties pay poorly. The only real potential in ads is if the app acquires its own marketing clients and the app’s owning entity negotiates its own fees. That’s big work, however, and it should really be a central point in the app’s business model. Another lingering issue with serving adds in an app is the user experience (UX). Ads can disrupt the flow of an app. They slow the user down, annoy them, and the app won’t earn from them unless the user interacts positively with the ads. Though very common, there are serious drawbacks for ads as a vehicle for revenue in a mobile app.

In conclusion

The problem is real; the opportunity is real; and, the solution is real. It’s critical to wed the mobile app and the revenue model at a very early stage. This ensures that they work harmoniously, don’t negatively affect the user, and inspire payments. In addition to this truth, there is another revenue opportunity that is really driving the industry. It is relatively new, and it is being pushed by the app marketplaces. Best of all, this solution is appropriate for an impressively large array of apps and app genres.

To be continued in The Mobile App Monetization Solution

Author image

About Matt Maher

In addition to being a seasoned native mobile developer for both iOS and Android, Matt is an enthusiastic early adopter of Google's Flutter. Simply, Matt builds products and brings them to market.
  • Atlanta, GA