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Best practices for mobile monetization are changing overtime, with subscription services increasing in popularity, paid apps in decline, and regulatory challenges increasingly burdening companies relying on the in-app purchasing model.

1. Paid app downloads: high quality business apps from known brands

  • Paid apps charge an upfront fee per download. When apps first became popular, most developers used the pay per download system to generate revenue. However, overtime, in-app purchases and freemium models have overtaken this method in popularity except in certain select cases. From 2011 to 2017, the percentage of paid apps decreased from 90% to just 50%, and this trend has continued.
  • Today, 90% of apps are free, so customers may not be willing to pay for most apps. In fact, since users often filter their searches to free apps only, many paid apps will not even be seen by most consumers.

2. In-app advertising: must be tailored to the application

  • In-app advertising is considered to be the easiest way to monetize apps.
  • There are a number of ways that application developers and marketers can use this strategy. Developers can display a 3rd party application within their own application, or get money from clicks, views, or conversions.
  • Banner ads are the most frequently used inside applications. A banner ad will appear as a rectangle at the top or bottom of the screen. There are a number of frequently cited issues with these ads though. For one, they require a precise and focused design. Also, they rely mostly on brand recognition to get users to interact with them. Users may become irritated when the ad distracts them from the page itself, or worse, overlaps app content. In the end, developers must balance making money from these third parties with losing customers from any annoyance the ad creates.
  • Another popular ad type is the interstitial ad. This type of ad fills the entire application window, temporarily hiding the content of the app itself. Users then usually have the option to skip the ad and return to the app, or to click the ad and view its contents. This is a method frequently utilized by YouTube. Pros include that an interstitial ad will get more attention than a banner ad due to its size and intrusiveness. Cons include that improper use may cause the consumer to get frustrated and uninstall the app. Best practices include using interstitial ads infrequently and placing the ads in logical places in the app that don’t interrupt the user’s flow or prevent the user from performing certain actions.
  • Capture forms are another frequently used monetization strategy. Capture forms collect user data, sometimes by requiring the user to subscribe to a newsletter or fill out a form. Usually, a capture form will collect the user’s email, and sometimes their postal address and phone number, to be used in further marketing campaigns. Capture ads are especially effective for social networking apps, since the app can capture the data directly from the user’s profile. Facebook’s lead ads use this method.

3. Subscriptions: a predictable revenue stream

  • Subscriptions are used in situations where an application provides a regular service to a customer. They are most effective for apps that deliver content to consumers, such as news feeds, newspapers, and magazine applications. Usually, the application is free via a service like Google Play or iTunes, but the user needs to pay a fee to get content delivered. Often there will be a short trial period, after which the user must subscribe to avoid losing access. Longer subscriptions can be incentivized by making the per/diem fee lower when a longer subscription is chosen.
  • Subscriptions are becoming more and more popular in recent years, as regulators in various countries are cracking down on the use of in-app purchases, especially in apps used primarily by minors. For example, recently EA was pressured into removing “FIFA Points,” a lucrative form of virtual currency, from all of its FIFA games in Belgium due to complaints from regulators.
  • If such regulatory struggles continue, in-app purchasing, the most lucrative source of revenue in mobile gaming, may no longer be an option. This may encourage more game developers to start exploring the subscription model of monetization.
  • Subscriptions are already overtaking other monetization methods for many other app types. Recently, Apple and Google reduced the platform fee they charge for in-app subscriptions to 15%. This has led to a sharp increase in the number of apps offering subscriptions. And as of June 2019, 9 out of 10 of the top 10 grossing apps, at least partially made money using the subscription model of revenue generation, with 2 of those top 10, Netflix and HBO Now, relying solely on subscription revenue generation. Some larger companies, like Netflix and Spotify, have even been able to avoid the platform fee altogether in many cases, by fulfilling subscriptions outside the app.
  • Another benefit of the subscription model, is that revenue is more predictable. Subscription revenue is recurring, and not one-off, like that from in-app purchases. It also leads to quicker recoupment of investment, since it is an upfront purchase.
  • Subscription models offer flexibility. Users can upgrade, downgrade, or crossgrade to comparable apps.

4. White Labeling: specialization can lead to increased profitability

5. Case Study: Bodybuilding.com, a switch to a subscription model

  • Bodybuilding.com is a company attempting to use the subscription services model to turn its failing business around.
  • Bodybuilding.com, whose product offerings can be accessed through its website or a number of different user apps, is a company that for over 20 years has specialized in helping consumers meet their fitness and nutrition goals. For the company’s first 18 years, all content could be accessed freely, and the company made money through partnerships with supplement wholesale providers, and by featuring sponsored content.
  • Over the years, internet retail sales of supplements fell overall, and Bodybuilding.com also lost market share to competitors. Its free content no longer created enough traffic to drive supplement sales. Because of this, Bodybuilding.com had to change course and try something risky and new. In 2017, it put much of its content behind a pay wall for the first time.
  • This move was initially universally unpopular among stakeholders. Users were locked out of programs that they were in the middle of, and sponsors were angered as they lost traffic to articles that they had funded.
  • However, the company held firm, as it knew that it offered a unique user experience that would be hard to replicate. It also continued to develop its services to offer a more personalized user experience.
  • Since 2020, the program has added an additional membership tier. The older and less valuable content is still free. Then, there is the first pay wall, added in 2017, offering expanded access to articles and content. And as of 2020, the new Elite Subscription, offers highly popular expert developed fitness plans, shipping discounts, and other perks.
  • Bodybuilding.com has banked on the fact that their database is unique. Much of the content may be available elsewhere, but not all in one highly organized database, such as the one Bodybuilding.com has spent the last 20 years cultivating.
  • Bodybuilding.com has also added increased algorithm driven personalization to create a truly unique user experience. And by offering trial memberships and multiple tiers of programming, the user can dip his or her feet in before making a bigger commitment. Per best practices, Bodybuilding.com offers discounts for longer subscriptions to build brand loyalty.
  • Much of the corporate revenue and other financial data was behind a pay wall. However, a free graph on ecommerceDB, indicated that revenues declined significantly between 2015 and 2018, but then stabilized over the last 2 years.
  • The fact that revenues continued to decline after the initial changes likely reflects both continued challenges with supplement sales, and a hesitance on the part of consumers to pay for what they had previously received for free. However, the stabilization could mean that the new strategy is working, and that the new, albeit smaller customer base, has accepted the changes and is moving forward with the new company. The results of the more recent 2020 changes are obviously not reflected in these numbers yet.

Research Strategy

We did an in-depth dive into 4 best practices: paid apps, in-app advertising, subscription models, and white labeling. We also completed a case analysis of a company that has recently attempted to adopt the subscription model of monetization, with mixed results. This is perhaps a cautionary tale, that it is often harder to get people to pay for something once they are already getting it for free. This case study may suggest that it is best to do a lot of research upfront to make sure that you come up with the best monetization strategy before introducing your platform to customers, as they may react negatively to any changes that don’t obviously benefit them. However, it also shows the need for flexibility. Here, Bodybuilding.com had to take the calculated risk of losing some customers in order to save its business. And perhaps, the extreme changes in technology were not foreseeable when it started its business in the late 1990s.

TDM

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