The app market has been thriving now for a number of years and hasn’t shown any signs of slowing down. In fact, we have already seen record levels of downloads and consumer spending in the third quarter of this year.
Downloads on both Apple’s App Store and Google Play almost hit 26 billion globally, up 8% over the same period last year. The revenue generated from apps also reached approximately $17 billion (which is actually a new record).
Upon close examination, you’ll notice that a lot of growth is now coming from emerging markets where smartphone penetration is on the rise. As a result, it’s safe to conclude that we are likely to see much more growth in global downloads going forward (at least in the near future).
Apps now dominate the amount of time people spend on their mobile devices and this is one of the reasons why we’re experiencing consistent growth within this space. Mobile retail is also booming, but apps now play an important role across industries (with each taking their own approach to mobile apps).
But how are these apps being monetized? Whether it’s iOS or Android, there isn’t a one-size-fits-all approach to this because the overall landscape is now increasingly complex and competitive. This makes it important for app developers and publishers to base their strategies and decisions on data.
1. The paid model
Purchases from the app store follow a 70/30 model. This means that for every app purchased, the app store will receive 30% of the subscription fee or the purchase price. For subscriptions in particular, after one year, the publisher’s revenue will increase to 85%.
This is a great revenue generating model because it has a high perceived value, every download generates money, in-app purchases are possible, and users are more loyal. It’s also a great approach to keeping your app free of ads.
However, if you’re going to move forward with this app monetization model, you have to build a high-quality app to meet end-user expectations. You will also have to come to terms with the fact that there will be fewer downloads and your monetization options will be limited.
2. The freemium model
Freemium means the basic app features will be available for free while there will be a small fee for a variety of in-app purchases. Sometimes this comes in the form of paying to remove ads or unlock advanced features.
Like the paid model, the publisher or the developer will receive 70% of the revenue generated from in-app purchases while 30% will be forwarded to the app store. But this monetization model is not always easy to achieve.
To make the freemium model work, you have to develop an app that can keep users highly engaged. It has to make the end user feel like it’s worth investing in and have an economy that’s enabled to generate significant revenue from top users.
This model has worked well for game developers (who have a better chance of relying on in-app purchases), so it’s not something that should be ignored. But it might be a slow process to refine and optimize revenue based on data.
3. In-app advertising
In-app ads are a lot like the pop-up ads of the 1990s, but they aren’t as intrusive or annoying. In-app video ads also do considerably better. According to a study conducted by App Annie, video ads were the top revenue generator for 57% of respondents when compared to other ad revenue formats.
In non-gaming apps, 35% of respondents stated that static banner ads generated the most amount of revenue. At the same time, full-screen static ads and video ads were perceived to have the most negative impact on user experience (UX).
This makes it critical to test different ad formats and analyze user engagement. It’s also important to let users know how to dismiss ads if that ad renders the app temporarily unusable.
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