Articles7 min. read

8 main ways to earn from Android and iOS app monetization

Anna Korman

Marketing manager, Appbooster

Mobile apps are a business. An innovative worldwide business, sure, but with the end goal of, as in any other case, making money. So, what kinds of app monetization can you use, how do these differ, and which ones are the most popular? You can read about this below.

In App Advertising

More and more developers are using ads as the main way to monetize their apps. Selling paid apps and games is quite difficult, and only 2–4% of users make in-app purchases, so in app ads remain one of the best ways (if not the only way) to make money. Moreover, according to some forecasts, spendings on digital advertising will be as much as 97 billion dollars, and 60% of those will go into mobile.

Main types of ads:

  • Banners
  • Native advertisement
  • Interstitial full-screen ads
  • Videos (including those with rewards for watching)
  • Interactive and gaming ads

An example of such a model of monetization would be social media showing native ads in its users' feeds, video ads in videos, etc.

PROS:

  • It is easier to attract users into a free app, so you can monetize it from the very first day;
  • Various advertising formats, some of which are even able to improve user experience;
  • The easiest adoption scenario compared to the other approaches.

CONS:

  • Not suitable for niche apps that address an immediate need (e.g., ordering a taxi);
  • Low income per user — you will need a very large user base to start making decent money;
  • Banner blindness and overall ad fatigue among users.

Monetization via in-app purchases

Another popular way of app monetization is through in-app purchases. As a rule, it means that users first convert real-world money into some sort of an intermediate virtual currency — and then spend it to buy in-game or in-app items. Games use this approach more often.

An example of an app using this monetization model would be a game about tanks where you use real money to buy gold and then use gold to buy premium tanks and upgrades.

PROS:

  • Low level or risk;
  • Users are already accustomed to this approach.

CONS:

  • Difficult to integrate without negatively affecting the gameplay or the main functionality, to make the users buy on a regular basis without giving them noticeable advantages;
  • A very small percentage of players make any purchases at all (these are so-called 'whales', the users who spend a lot of real money in games).

Freemium is a natural monetization model

This monetization approach is more common for apps. The developer gives free access to the basic features, while the advanced ones are only available if you pay. Actually, this principle is inherited from computer programs called 'shareware', which is, basically, software shared with limited functionality that requires the users to pay for the full version.

An example of an app using this model would be a to-do list in which the to-do lists themselves are created without restrictions but you will need to pay $0.99 to cloud-sync them.

PROS:

  • Users are already accustomed to this approach;
  • Easy to implement;
  • The app itself remains free, which facilitates user attraction and loyalty creation. So it's free app monetization.

CONS:

  • Same as with the built-in-purchases model, a very small percentage of users actually do pay;
  • You need to make the free experience as 'premium' as possible to make users buy the rest: if the free features are not good enough, the users will not be motivated to pay;
  • If your model does not use a subscription, any one user will only make a single payment, and their LTV (Lifetime Value) will be this one payment itself.

Subscription

The most 'in' way of monetization; it is now actively promoted by both Apple and Google. Overall, it is similar to freemium, but the users are charged regularly; there are certain free features or content, and the additional elements are only available to subscribers.

An example of an app with such a model of monetization is an app with video series that you can watch for a monthly fee.

PROS:

  • Regular payments from users;
  • Increased LTV and user loyalty;
  • Platform owners use various means to encourage the use of subscription (for example, Apple takes only 15% of the subscription fee for the second year instead of the standard 30%).

CONS:

  • It is very difficult to gather a loyal and paying audience;
  • You need some truly premium content that people are not just ready to pay for — but are ready to pay for regularly;
  • The technical implementation and subscription status monitoring are relatively complex;
  • Subscription models are not suitable for most apps where the content is not updated regularly. For example, it is most likely that you will not be able to pass the stores' review stage with a subscription-based game.

Premium apps — Users pay to download them

This monetization approach is slowly dying out but is still quite popular nevertheless, for both apps and games. You can get money for your app or game from the start — by just asking users to pay money to download it. This model works for both App Store and Google Play, and the stores will adjust the price for the user's currency automatically.

An example of a product with such a monetization model could be a recipe book for healthy eating or a game with unusual mechanics.

PROS:

  • Easy to implement;
  • Every new user brings immediate and easily calculable income.

CONS:

  • The app needs to have outstanding quality or mechanics: users are unlikely to pay for a "pig in a poke" when there are dozens or even hundreds other options;
  • This also complicates the marketing since paid apps are exponentially more difficult to promote;
  • Any one user's LTV is limited by the purchase itself, same as with freemium;
  • Piracy: paid games and apps almost immediately get stolen, especially on markets historically prone to that, like Russia and China. This does not mean that apps with built-in purchases do not have to deal with fraudulent users; however, this issue is most pressing for premium games.

In the last 5 years, piracy cost mobile publishers more than 17 billion dollars. According to Tapcore, some apps lost as much as 76 million dollars; among these negative record holders is Subway Surfers with losses of up to 91 million dollars. This is not just because premium apps get stolen but also because free apps lose their ad income — pirates take the original game or app, change the ads in it with their own, and then upload these copies to third-party stores. Here are the top titles by losses due to piracy (it is worth noting that among these only 28 are games, the other 72 are apps):

Commissions

Another trendy monetization approach is creating platforms or marketplaces that connect customers and providers of certain goods or services. The owner of the app then gets a certain percentage from every deal.

Examples of apps with such a model of monetization: taxi or cleaning services.

PROS:

  • The model works "by itself";
  • The app itself is free;
  • If the demand is high enough, there might be other good ways to monetize the app, such as charging money for ad placement on a marketplace for used cars.

CONS:

  • Difficult to find a niche and "get it moving";
  • Need to introduce payments to control the processes and receive commissions;
  • Necessary to provide and maintain the whole infrastructure, making sure that the providers only need to do the actual work;
  • You become the front of the platform, and all the complaints will be directed to you, not the providers.

Mixed monetization model

All the methods above can and should be combined with each other.

For instance, you can create a game with built-in purchases in which those who do not spend money can watch videos to get rewards.

It might even be a paid app with additional items or features sold on top.

The important thing here is to understand which of these combinations go well together. You should test different methods and always monitor all the metrics indicative of the "health" of this business where your app is what brings you money one way or another.

Common monetization mistakes

Creating an app that makes good money is incredibly difficult. At the same time, it is surprisingly easy to make a mistake in the process.

Here is a short list of what you will have to deal with:

  1. Choosing a wrong strategy. Different kinds of apps work well with different monetization models, so something that suits Netflix is unlikely to fit Candy Crush Saga.
  2. Building a model that cannot be scaled. How and when will users spend money in your game or app? What will make them pay again and again — and why? All these questions have to be answered BEFORE you create your product, and all the answers have to become parts of its core mechanics and features.
  3. Not using analytics. Which advertising space brings you the most money? Why do users pay for one feature but not for another? Who of them are shown ads and who use built-in purchases? These are just a few of the questions you will need to find answers for. Using analytics and being able to find the right answers are definitely among the keys to successful monetization.
  4. Choosing a wrong ad network. Effective sets of ad networks differ from one region and even country to another. What works in the US does not work in India, and Chinese ad networks are nothing like Korean or Japanese ones.

The role of ASO in successful app monetization

In most of the approaches listed, we mentioned once and once again that if you want your app to make money, it has to create a great user experience and provide the necessary features in the right place at the right time, without errors or crashes.

However, it is also true that, from the users' point of view, the whole path to becoming your paying audience actually begins in the app store. Which means that this is where you need to start positioning your product — and doing it correctly: by explaining its value and features and showing how it can be beneficial to other people.

This is why ASO is the beginning of effective monetization. You need proper screenshots, well-written texts, good ratings and positive reviews. Without those, it is not just that the number of users will decrease: you will be losing money every step of the process.

If you have any questions about app monetization or you need to develop an effective strategy, Appbooster is ready to help.

Let's recap. The main ways to monetize Android and iOS apps are:

  • Banners
  • Native ads
  • Video cut-ins
  • Interactive ads
  • Full-screen, interstitial ads
  • In-app purchases
  • Freemium
  • Subscription system
  • Premium features
  • Paid content
  • Commission from marketplace deals
  • Mixed model (when several monetization types are used at once)
Anna Korman

Marketing manager, Appbooster

Popular

postcard thumb
5 rules for managing app reputation

It has long been known to beginners and not only to marketers that a project's reputation is the basis for proper promotion. In the mobile app market, this is determined by the rating of the app itself, app reviews, and a few other parameters.

Anna Tchaikovskaya

Sales Team Lead, Appbooster

Articles2 min. read

Recent

postcard thumb
8 main ways to earn from Android and iOS app monetization

Mobile apps are a business. An innovative worldwide business, sure, but with the end goal of, as in any other case, making money. So, what kinds of app monetization can you use, how do these differ, and which ones are the most popular? You can read about this below.

Anna Korman

Marketing manager, Appbooster

Articles7 min. read
postcard thumb
Case study: How We Lost $7,500 on Mobile App A/B Tests But Learned How to Do Them

The importance of A/B testing has been covered in hundreds of texts, books, and webinars. Today, no exponential growth is possible without proper experiments conducted. Let’s figure out whether it’s reasonable to invest resources in split tests if your company is much smaller than Google or eBay.

Anna Korman

Marketing manager, Appbooster

Articles6 min. read
postcard thumb
Most popular questions in 2021 about ASO

In our practice, customers often ask us about App Store Optimization. We decided to gather all the popular questions together and answer them in detail.

Valeriya Shalimova

ASO Manager, Appbooster

Articles4 min. read

Contact us

Our office

Room 12, Alva Business Centre 11 Alva Street, Edinburgh, United Kingdom, EH2 4PH