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Introduction to mobile app monetization

Users install mobile apps for very diverse purposes: some are meant to solve an annoying issue, some are there purely for entertainment and others or some other benefit. In the Google Play Store and the App Store there are tons of different mobile apps, which can be used for virtually anything. Have you ever forgotten where your car is parked? No problem – “Carrr Matey” will remind you where it is “in a pirate-like manner”. Have you ever wanted to go to the toilet while watching a movie in the cinema, but didn’t want to lose out on the plot? “Run Pee” will tell you which moment is the best for a trip to the toilet. There are millions of similar products – from a messaging app, which only allows you to send one type of message – “Yo” – to “Places I’ve Pooped”, which is a catalog of the toilets you’ve visited.
Developers of mobile apps can also have very different goals. Mobile apps are often treated as a marketing channel, creating brand awareness, getting new customers and keeping loyal ones. If you found this article interesting, you probably have an interest in earning money through mobile apps. You might already be earning money through them or you might be a beginner. Below, we will present the three basic and, at the same time, most popular monetization models: paid apps, apps with ads and the freemium model (In-App Purchase model).
A choice of the mobile app monetization model should be made already while first envisioning the app. There are examples of mobile apps, whose mobile app developers have looked for ways to monetize it after it had already been released to the market. This is a big mistake, since a well implemented monetization model should be encoded in the app’s DNA and well-defined at the start. Well implemented monetization solutions should be integral parts of the mobile app’s user experience.
To correctly choose the monetization model for your mobile app, it is important to define what you are looking for – a high return on investment from the very beginning or a big user base (URL strategy – User first, revenue later). Planning the timeframe of your actions is very important – it might just be that the best solution for your mobile app is maximizing downloads and changing the monetization model later (it can of course always be changed), which is why your budget should be taken into account while making any decision.
While considering the purpose of the mobile app or game, you need to ask yourself whether users will be willing to pay for it. What solutions does the competition bring to the table? This way, already then will you be able to exclude or reconsider some models. Let’s look at one of them.

The „freemium” model – in-app purchases

This is one of the more transparent mobile app monetization model. It is based on giving the users free access to a mobile app, within which you can then make certain additional purchases. The sold products can be virtual items, additional functionality or actual, physical goods, such as cups, T-shirts, devices or other accessories. There are many examples of what can be sold – the sky is the limit. We should however mention, that this model should be well thought-through already at the early stages of designing the app, so that it really becomes an integral part of the app. Only this way is it possible for the model to be a success.
The pros of the freemium model (In-App Purchase model):
Flexibility – this monetization model does not exclude other models.
High profits, low operating costs and low risk compared to other models.
In-app purchases tend to engage the users more.
Mobile app developers using this model report an average of 20 times higher profits per paying customer than in other, parallel models, however…
The cons of the freemium model (In-App Purchase model):
– …not much more than 5% of the users carries out in-app purchases.
– Google and Apple take a provision for any in-app sale.
– Such a monetization model has had a bad reputation for a long time – this was because of the accidental purchases or expenses caused by the user’s children.
– An increasing number of regulations regarding in-app purchases.
– A necessity of explicitly stating that the model is used in the store.
What are the statistics when it comes to this monetization model? As an example, let’s look at the summary of in-app purchases for April 2016 for the platforms of Apple and Google.
For mobile apps with in-app purchases (excluding games):
Average purchase value for all users running iOS/Android – 0.50$/user
Average purchase value for all paying users running iOS/Android – 9.60$/user
Average purchase value for all users running iOS/Android in general -8.80$/ Google-Android user
Average purchase value for all users running Android – 0.43$/user
Average purchase value for all paying users running Android – 7.17$/user
Average purchase value for all users running Android in general – 6.19$ /Apple-iOS user
Average purchase value for all users running iOS – 1.08$/user
Average purchase value for all paying users running iOS – 15.24$/user
Average purchase value for all users running iOS in general – 12.77$/user
For games with in-app purchases

0.32$/user – Average purchase value for all users running iOS/Android
9.39$/user – Average purchase value for all paying users running iOS/Android
Average purchase value for all users running iOS/Android in general 7.00$/Google-Android user
Average purchase value for all users running iOS – 0.24$/user
Average purchase value for all paying users running Android – 7.31$/user
Average purchase value for all users running Android in general 5.53$/ Apple-iOS user
Average purchase value for all users running iOS – 0.63$/user
Average purchase value for all paying users running 15.34$/user
Average purchase value for all users running iOS in general 10.96$/user
Currently, the best earning game on both platforms is Game of War – Fire Age.

Mobile App Ads

In this model, the gathered data regarding our users is just as important as the ad itself. A vast majority of apps using this model is free, which encourages users to download it and makes the majority of what Apple and Google stores have to offer free. While analyzing our receiver base, we have an opportunity to precisely target ads. Those ads can come from different publishers and be a source of monetization through different types of settlements – this, however, is a very broad topic, which we will discuss later.
A great example of the use of this model is Google’s app ecosystem. Although this giant has published a number of paid solutions and services, its biggest profits come from ads and user data. Facebook functions similarly – the company does not request payments from users, instead presenting them with personalized ads.
In mobile apps, there are a couple of advertisement formats, with the most popular currently being:

Interstitial ads („interrupting” ads)

This is a type of full-screen advertisement, usually presented while trying to enter a different section of the app. It can appear right after loading the launch menu or, in mobile games, between levels or after a loss. Interstitial ads are usually displayed for a couple of seconds or need to be manually closed. This way, users can choose whether to continue using the app or enter the link in the interstitial ad. Since the ad is full-screen, it allows for the use of more CTA (Call To Action) surface area. You should however remember that a bigger advertisement is equal to more data transfer, which is why it is important to ensure that the ad views properly and downloads in the background. Lately, one of the most popular formats of Interstitial ads are so-called Playable Mobile Ads, which are meant to encourage the user to install a new mobile game or app.
Pros of Interstitial ads:
– Large dimensions
– User interaction, focusing the attention of the user and a high conversion level.
Cons of Interstitial ads:
– Often described as an invasive format by users.
– Overusing those types of ads is a very common reason for uninstallation of the app.
Playable Mobile Ad
Chartboost mobile ad

A banner (a display ad)

This is an advertising format usually found at the top or bottom of the screen – it is a small, graphical link to a certain piece of content – it is also the most popular choice among mobile app developers. This format has its origin in web pages. In an app, it is designed to draw the user’s attention. A well-made banner, properly tailored to a user, is often the easiest and most reliable advertisement solution for your apps.
Pros of banners:
It is a very cost-effective format – it is both cheap to construct, easy to implement and allows for substantial income
While creating user-tailored content, banners are easier than other formats.
Cons of banners:
„Banner blindness” – this is a phenomena which occurs when users are so used to banners that they stop noticing them at all.
Another concept that should be mentioned is native advertisement, which is a type of content, which perfectly blends into your app and becomes its integral part. Even though it has a similar function as a banner, a user will not necessarily consider this type of content an ad at all. The biggest advantage of such a format is the undisturbed user experience. The problem lies in the implementation of such a format into the app, which proves more difficult than regular banners.

Video commercials in mobile apps

For many years, marketers have been summarizing each year as “the year of video marketing”. This format is generally very popular and has essentially dominated the internet. In mobile apps, video commercials are most often used similarly to an interstitial ad, smoothly bonding two stages of an app. They are most often used in games, for example after a completed level, and are displayed for 20 to 30 seconds. The common motivation for watching such a commercial, if there is an option to close it that is, is gaining extra points in the game. Mobile app developers recognize the many advantages of video commercials, which has made them increasingly popular:
Users are gradually starting to accept commercials which cannot be skipped, while the amount of clicks on such ads keeps on increasing.
While the biggest disadvantage of this format is:
The big shortage of user attention – users tend to lose interest in the content in less than 10 seconds, which makes the creation of such formats very demanding.

A rewarding video ad

Besides regular video commercials appearing between sections of the app, mobile app developers often use an additional advertising model with the use of rewards for watching commercials. This model is not limited to situations, where the user is somewhat forced to watch a commercial – it is based on watching another commercial willingly, in exchange for additional benefits. This way, mobile app developers take advantage of the positive emotions caused by winning a game by giving the user a chance to amplify their victory.
The advantage of rewarding video ads:
Taking advantage of the increased goodwill of the users during moments, where they are more happy to engage, viewing the format more favorably.
The disadvantage of rewarding video ads:
It is not always easy to find the right moment and define the right reward.
To sum up the idea of monetization through in-app ads, remember that it is crucial to choose the right format and accurately target the ads based on your gathered data. If you have the option to access a lot of information concerning the user, paired with the GPS location and browser history, this monetization model can be constantly optimized. Users are much more fond of apps which are free, and publishers are increasingly more keen on this form of advertising. However, poor implementation of this model can discourage and annoy users. They might be unsatisfied with the user experience of a poorly ad-optimized app, while its usability might decrease due to the ads taking up half of the screen. Moreover, for niche apps, which will never gain a big user base, this model can be economically insufficient. For those kinds of mobile apps and games, the next solution might just be the best one.

Paid mobile app

This model is also very simple in principle. If a user wishes to use our app or mobile game, he needs to conduct a purchase. In this model, it is important to assure that our app stands out from the competition from the very beginning – more often than not, a user cannot test the app before making a purchase beforehand. This means that you need to take more care of your ASO – in the stores of Apple and Google, users are generally used to free apps. Similarly, if they decide to spend money, they expect much higher quality and better finish within the app. Features like constant updates, additional functionality, no advertising and security are also very important. However, what is worth taking advantage of is that higher priced apps automatically seem better than the free competition in the eyes of the consumer.
Pros of paid mobile apps:
– The clients pay in advance.
– The purchase in itself greatly increases further user engagement.
Paid mobile apps often allow for getting rid of compromises in functionality and interface, especially because of the lack of banners and other ads.
And cons of paid mobile apps:
– Difficulty with convincing users to purchase your mobile app
The constantly decreasing amount of paid mobile apps in Google and Apple stores in comparison to free apps
Both stores charge a 30% profit provision
This model is not viable for many types of apps, where the amount of active users is an important factor (within this model, only 10% of mobile apps is downloaded more than 500 times per day).
The best-selling release for both iOS and Android is Minecraft: Pocket Edition (which, despite a price tag of $6.99, also enables in-app purchases).
Here are some other monetization models worth mentioning:
Subscriptions (Paywalls) – this is a model of monetization which works well for apps enabling access to specific content, such as Spotify. Usually, we can explore the functionality of the app itself and the partial offer without paying, but after paying a subscription fee we can access the complete set of content. A big advantage of such a model is the constant, monthly income, which is much easier to calculate beforehand. However, a disadvantage you have to recognize is the lack of possibility of implementation of this model in most types of apps. One of the more popular apps using this model is Spotify. Everyone can install their free mobile app and get to know its functionality, but to take full advantage of its range of options, you need to pay a subscription fee. It is estimated that Spotify makes a profit of almost 8 million dollars per month!
Sponsorships – this is a model similar to monetization with the use of advertisement, however in this case the whole app is a brand’s marketing channel. This model increases user immersion, while at the same time having a positive impact on the image of both the app and the sponsor. An advantage of this model is the possibility of implementation in many types of apps, while at the same time enabling advertisement which will be well received by the users. A disadvantage could be the less defined standards of the model and less research concerning it, which can cause unpredictable outcomes.
Global mobile app monetization
[tweetshare tweet=”According to statistics, only 2% of mobile app developers generate almost 55% of all the mobile app income.”]
It is estimated that, in 2016, the mobile app market was worth 88 billion dollars. Most of this revenue is generated through purchases within the apps themselves. Surprisingly, in 2014, paid apps were still the main source of income in the market.
The biggest spenders when it comes to in-app purchases and app purchases in general are the Japanese – they spend, on average, 40% more per month than any other nation. The second spot is occupied by the Americans, who are the absolute leaders in one category – online retail apps. What is more, even though Americans, on average, spend less than the Japanese, they are more willing to spend money for single transactions. In Japan, the most profitable area of spending are games – among the most popular ones, over 2/3 are RPG games. Within this segment, the citizens of the Cherry Blossom Land spend more than double that of any other nation. Speaking about Japan, it is impossible not to mention the big release of Super Mario Run, a mobile game, which, even before its release, has attracted more than 20 million iOS users (as pre-release registrations). It didn’t stop there – within less than 5 days, Nintendo, the developer, reached the 40 million user mark – it should also be mentioned that this was the developer’s first mobile game release for the platforms of Apple and Google (at the time of writing, the Android release is still due). The game was met with very mixed reactions from both users and reviewers, mainly because of its monetization model. The app can be downloaded for free, but already after the first 3 levels the users are forced to purchase the full version if they wish to continue.
Except for a couple of other unusual solutions (such as the need for being constantly online), this was the reasoning behind most of the negative comments and reviews – users were used to different models, offered by similar titles. Even though Nintendo is a global giant, and Mario is the most widely recognized character on the planet, the developer was still prone to making mistakes.
According to statistics from April of 2016, the average value of in-app purchases for both platforms was equal to:
Globally (average amount of paying users equal to 5.2%)
0.50$ – average for all users
8.80$ – average for all paying users
Asia (average amount of paying users equal to 5.9%)
0.70$ – average for all users
10.65$ – average for all paying users
North America (average amount of paying users equal to 5.8%)
0.61$ – average for all users
8.68$ – average for all paying users
Europe (average amount of paying users equal to 5.0%)
0.26$ – average for all users
5.61$ – average for all paying users
Latin America (average amount of paying users equal to 2.0%)
0.16$ – average for all users
4.61$ – average for all paying users

What are the differences between Android and iOS regarding monetization?

At the end of this year, Android was operating on 86.8% of devices on the market, while Apple’s iOS was operating on 12.5%.
Percentage of users, who spend money on in-app purchases (with the exception of games):
5.2% for both platforms
4.6% for Google Play Store
7.1% for Apple App Store
Percentage of users, who spend money in games: 3.4% for both platforms
3.2% Google Play Store
4.1% for Apple App Store
The average value of purchases in iOS apps was equal to $1.08, with $0.43 on Android devices. Even though there is almost 7 times as many users who operate Google’s system, the users of most markets do not make substantial purchases, which actually makes iOS more profitable. For both systems, the biggest source of income are games. Also, an interesting category is productivity apps – in this category, the average purchase value on Google-ran devices is, on average, 2 times as high.

What will the monetization trends be in 2017?

According to analysts, 2017 will be the year of in-app purchases – this monetization model is said to bring up to 49% of all mobile app income, totaling at up to 37 billion dollars. 37% will come from paid apps (totaling at 29 billion), while 14% will come from advertising. While studying the percentage distribution, it is important to remember that mobile app developers are increasingly more happy to use mixed monetization models.
According to specialists, developers of games and mobile apps should now focus on creating more dynamic and engaging content – and move away from “annoying” formats. Video commercials will however still play an increasingly large role in app monetization, not only thanks to an increase in the number of them, but also their quality. We will see more video ads, which can be categorized as native ads, with the purpose of engaging users.
Mobile marketing agencies will deliver increasingly more accurate advertising, especially by improving their targeting methods. We should also see increased focus on advertising tailored by the developers instead of by the actual content publishers.

ARPU Brothers Founder, App marketing agency for mobile apps and games

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