The digital space helps businesses thrive through monetization. While advertisements have always been the primary source of income for brands, factors like consumer demands, developing trends, and a highly saturated market make income generation challenging.
For these reasons, businesses now seek alternative methods to monetize their efforts. On the surface level, app monetization pertains to profit-generation techniques used by app developers and brands. Income comes from your users, specifically through in-app purchases, ad engagement, and usage patterns.
However, you must think about strategies to successfully enjoy a steady app monetization stream. Discovering which works best for your current mobile ecosystem can be complicated, but we’re here to help you jumpstart the journey.
How app monetization works
A 2022 study shows that 97% of Android apps and 94% of iOS apps are free. While you can package your app as a product users can purchase before downloading, the competition is steep. This is because users are more inclined to choose apps they can download for free, making it difficult for your brand to cut through an already saturated market.
Many product teams find offering their apps for free to be the best solution. But then, you need to use monetization strategies to generate revenue once a user downloads and installs your app.
Monetization may sound rather complex, but the formula is simple: showcase value by appealing to user behavior. For example,you can encourage people to spend more time on the app so they make purchases and invite their personal networks to join your social spaces.
Mobile app monetization strategies that aren’t ads
The demand for convenience drove mobile engagement, which is why most brands recognize the importance of free apps. But businesses need to maintain operations and generate income, which proves the importance of app monetization.
The shift towards free apps meant creating new monetization strategies, not just for the ROI—but also for maintaining quality user experiences. Because for the end user, value drives engagement.
In-app advertising became the best way to generate revenue, especially since 50% of mobile gamers prefer free ad-based games. For this specific audience, it meant that their preferred apps remained free in the market—a small price to pay for a stellar user experience.
In 2018, the in-app advertising market was valued at 66.78 billion US dollars. While it’s expected to grow more in the coming years, developers must widen their horizons with more monetization opportunities. Here are some strategies to consider:
1. Subscription and freemium models
“Freemium” falls under a broader category of subscription apps. While still considered a mobile app monetization model, it offers more advantages than other strategies.
Once a user downloads a free mobile app, you know they’re interested in what you offer. You can then showcase more exclusive parts of the app, such as additional but highly valuable content, premium features, or other digital services.
One prime example of a freemium app is Spotify. Developed in 2006, it began as an antithesis of the then-expensive iTunes, as well as illegal pirating of music. It offered a pay-per-song business model that users embraced and eventually morphed into the music streaming platform we know today.
But what makes it so successful is that it knows how to offer premium app features to users. For a certain subscription fee amount, you unlock Spotify Premium, allowing you to download music, listen ad-free, and even create playlists.
Benefits
One of the most significant benefits of the subscription or freemium model is that it enables a wide audience base to adopt your app. With the freemium model, users can test out what the app has to offer, and they can experience the product while seeing the potential benefits of the paid version.
Having a free version of the app plays a crucial role in attracting as many users as possible and building a loyal customer base. This can help drive network effects, which means the app’s value will scale up as the number of users grows.
These “network effects” are crucial for apps with a primarily social component, and dating apps like Tinder and Bumble are excellent examples. Paid dating apps limit the number of users, which makes customers less likely to connect with others.
Free versions of Tinder and Bumble allow them to gain a significant number of active users, with a more limited number of consumers that are willing to pay for premium versions with extra features.
New businesses can also identify which customer groups are likely to become paying customers. As such, they can also provide specifically tailored offerings that can lead to better value and enhanced monetization opportunities.
Downsides
One of the most significant disadvantages of freemium apps is that upselling can be challenging. Users may feel that the free service is adequate, which can discourage them from upgrading to the paid version. Developers must ensure that the paid app provides enough value to drive conversions.
Another downside to freemium apps is that users may become frustrated if they feel that the app is constantly upselling or forcing upgrades via in-app ads.
2. In-App Purchases
In-app purchases are a common app monetization strategy that enables users to purchase premium content, virtual goods, bonuses, or services within the app.
This method is prominent in gaming apps. For instance, users can buy consumable items like lives or gems, or they can purchase non-consumable ones like virtual items and unlockable characters. Non-gaming apps like YouTube also use this strategy—users can buy or rent movies within the app.
Benefits
In-app purchases are a highly convenient app monetization strategy because they allow users to pay for products or services within the app. They can link their credit cards to Google Play Store or Apple App Store, which makes purchases quick and easy. As such, it isn’t as disruptive to the user experience as in-app ads.
You can also offer a wide range of products, services, and features as in-app purchases. It’s a flexible app monetization method that you can tailor to your app. Depending on users’ engagement, in-app purchases also help provide an excellent source of feedback.
In-app purchases are also highly effective. In one AdColony survey, developers found it to be the leading monetization strategy for gaming apps, making up 44% of their revenue. It’s also a major source of money for non-gaming apps, contributing 21% of their revenue.
Downsides
Although in-app purchases are effective, some users may feel unfairly charged for minor purchases. Because of this, developers must be wise about the types of in-app purchases they offer.
Charging money for basic or necessary products, services, and features can harm user experience and retention. Users may complain that the software is a “pay-to-win” app, which may damage your brand.
3. Virtual tipping jars
Video can be considered a powerful video marketing tool that has since evolved into more income-generating categories, such as live streaming. It’s a multi-billion industry in China, thanks to virtual tipping jars popular streamers use to earn virtual gifts from fans.
This app monetization strategy relies mostly on building a community with opinion leaders or influencers. These people keep users engaged and motivated to keep coming back, eager to hear more from their favorites or interact with other fans. In return, they provide virtual tips, which brands can also benefit from through commissions.
Benefits
Virtual tipping jars are a monetization method that can benefit active app users directly. They’re creator-friendly and incentivize quality content creation. Tech giants like Facebook, Instagram, Twitter, YouTube, Twitch, and TikTok have adopted this monetization strategy.
Virtual tipping also can happen in-app, which provides a convenient way for users to pay. Integrating this feature within the app allows viewers to forgo visiting an unfamiliar payment platform.
Because tipping is user-driven, it also helps reinforce a sense of community within the app. Entertained viewers can send money to their favorite creators, encouraging community-building and mutual aid. The tightknit circle that forms can also help drive engagement within the app.
Downsides
One potential drawback to virtual tipping jars is that they can be an inconsistent source of app revenue. Jonathan Hyla, a content creator with 80,000 followers on Clubhouse, disclosed in an interview with The Information that “repeat tipping” is an uncommon practice among viewers. They typically only tip a creator once.
Some ways to get around this downside are to “gamify” the experience or provide other entertaining incentives for users to tip creators.
4. Paid communities
In an increasingly digital world, users will want to see a more human side of your app. This makes connecting and engaging feel more authentic, particularly if they find like-minded people who share the same interests, experiences, or challenges. These communities can also allow experts to connect with people eager to learn or perhaps aggregate solutions to demands in dating and intimacy.
To gain access to these communities, users will need to pay for a membership, workshops, or even coaching sessions. Prices can get rather steep, but you’ll be surprised to see just how dedicated users can be to personal growth, relationships, and connection.
Benefits
Having an active online community is key to a healthy app. Research shows that around 98% of users in an online group feel a sense of belonging within that group, which is vital for engagement and retention.
Paid online communities allow users to share information and connect with like-minded individuals via chats, groups, or social feeds. They’re likely to become return customers who use the app actively. Because they’re paid apps, users are also more likely to be highly interested. There will also be fewer instances of trolling and spam messages, making moderation easier.
Downsides
Although paid communities are likely more engaging and high-value, they require more thorough planning and organization. Users expect high-quality communities and content from these apps.
It may also be challenging to attract users without an existing audience. As such, paid communities may be more effective for developers and creators with a solid following from other platforms.
How Amity Can Help
Online communities need reliable chat features that allow them to communicate with other users one-on-one, in private groups, or in public forums. Amity Chat allows developers to integrate in-app messaging features faster, helping them foster a thriving online community.
Developers also need to have readily available support and moderation in these communities. Integrating Bots within the app to address user concerns 24/7 may be helpful.
5. Crowdfunding
Crowdfunding isn’t a novel idea, but it comes with a proven track record of success. Most startups use crowdfunding to raise money for respective pursuits, and those from North America alone earned over $17.2 billion in 2018.
If you need additional funding for mobile app development, there are over 400 crowdfunding platforms to choose from, including Patreon and GoFundMe.
Benefits
Crowdfunding allows developers to build and maintain their apps without taking a significant financial risk. They can test the market and examine if their idea is viable before investing capital in materials and development.
Crowdfunding campaigns also have the potential to achieve “viral” status, helping you market the upcoming product. This may allow you to tap into a wide audience base and attract more potential users while getting the funds you need. You may also reach an existing community looking for an app like yours.
Another benefit to launching crowdfunding campaigns is that your supporters are already engaged in the project and are interested in the results. You may build and foster a community out of your patrons, and they can provide the necessary feedback that can help strengthen your app.
Downsides
Crowdfunding takes a lot of time and effort because it’s a competitive marketplace. Aside from developing and marketing your app, you’ll also have to invest resources into your crowdfunding campaign.
According to Fundera, the average success rate of crowdfunding campaigns is 22.4%. That’s a slim chance, and not all apps may not come to fruition despite crowdfunding efforts.
6. Brand Sponsorship/Partnership
Brand sponsorship and partnerships continue to benefit businesses across industries—and for a good reason: it works. However, it’s often overlooked in app monetization, as more people choose to work with in-app advertisements instead.
But by finding a company willing to become your app’s investor, you allow them access to your user base in exchange for funding. They can also ask to be featured in your interface as long as they remain highly visible to your users.
Benefits
Partnering with another brand can help boost your conversion rates because it allows you to cater to a market or community that already exists. Reaching a new audience is also much easier by having sponsors.
By partnering with another company, you also open up numerous opportunities for cross-promotion. Doing so can benefit both parties—such is the case for numerous successful co-branding partnerships like that of Uber and Spotify.
Downsides
As one might expect, brand sponsorship isn’t easy. It’s challenging to find sponsors willing to partner with your app. Setting up deals can be a lengthy process; it will require a lot of negotiations between parties to work out a fair exchange.
Moreover, choosing the right partners will also require research. Your target audience must be similar to that of your potential sponsor. Otherwise, this monetization strategy will not be viable even if your sponsor is highly popular.
7. Commerce
Social platforms broke through the ceiling years ago, given that they now offer commerce within their models. Facebook now offers Marketplace, while both TikTok and Instagram now offer shops. As a result, businesses can display products and advertisements seamlessly, ensuring that the right audiences have access to what they offer 24/7.
The best part is that by connecting to social media platforms, you also gain access to data analytics that help you keep track of consumer demands and behavior. Harvesting this data allows you to pursue other app monetization strategies, including live streaming, paid communities, and so on.
Benefits
Having commerce features in your app allows users to shop and sell within the platform conveniently. You may also offer fast, easy, contactless, and secure payment methods to build their trust. Providing seamless interactions from viewing to purchasing can help improve customer experience and brand loyalty.
Commerce features also help keep the app engaging, as eCommerce is a growing market. According to Oberlo, it’s estimated that there will be around 218.8 million online shoppers in the US in 2023.
A “shopping” component can also help you gather and analyze data about your users. You can easily monitor their activities and personalize content to fit their preferences.
Downsides
Commerce apps require significant maintenance and development to deliver a smooth shopping experience to users. You must always remain on the lookout for bugs and other issues, so continuous testing and updates are necessary.
8. Exclusive virtual events
COVID forever changed the trajectory of the digital world, paving the way for new mediums like virtual events to push through. These essentially work just like in-person events, but users need to purchase “tickets” to get access to exclusive content, interactions, and other premium experiences.
This strategy allows you to build stronger communities, perfectly tying up with paid communities and virtual tipping jars. Your audiences can enjoy digital concerts, live meet-and-greets, and other activities for a more dynamic and engaging experience.
Benefits
While hosting ticketed online events is among the newer app monetization models, it offers numerous benefits. For instance, it can be an excellent way to boost community engagement. Live streaming exclusive virtual events can bring people with shared interests together and solidify your app’s networking efforts.
You can also track and monitor attendees’ information and behaviors easily with these events. As such, this mobile app monetization method can be a powerful avenue for data collection and analytics.
Downsides
Virtual events demand extensive preparation, as technical failures are your number one enemy. It’s crucial to prepare your servers for increased engagement. Customer support and moderation are also vital in these events. Without these measures in place, you risk losing your audience and damaging your reputation.
Monetizing features without minimizing experiences
App development is a rollercoaster ride. The ins, outs, and in-betweens of conceptualizing, designing, implementing, and sustaining require a vast budget, which is why it’s important to pursue app monetization strategies that go beyond the in-app ad status quo.
While your users will be delighted to get access to a free app, they will want to be bombarded with useful and personalized experiences. In many cases, they understand that this will come at a certain cost.
Whether it be monthly subscription fees, constant push notifications, or even in-app purchases, users expect quality content. And as developers, it’s important to focus on not just profit but to ensure that it reflects in the overall app journey.
