Every mobile strategy centers on one question: how can apps provide value to the users and the company, and how can it generate revenue? Generally, there are three ways to monetize apps:
1. Directly – selling content through paid apps, in-app purchases, paywalls
2. Indirectly – marketing, services, branding, etc., that influence buying behavior
3. Laterally – paid advertising from third parties or acquiring user data
In the first two articles of this series we were primarily concerned with direct and indirect app monetization. Lateral monetization is especially relevant for B2C business models, individual entrepreneurs, publishing companies, and game or service providers, who already run this strategy online. There are two ways in which apps can be monetized laterally – firstly using third-party advertising and secondly through acquiring a large user base so that the app or the user data can be utilized. Both strategies bear risks, yet both can be successful under the right conditions.
Mobile Advertising Mobile advertising is expected to be very promising, although the current reality for apps is rather austere. Yes, 73 % of developers monetize their apps through in-app advertisements, however, this is only a viable option when you have a very large user base, and right now that’s almost exclusively achieved by mobile games. One such example is the hyped game “Flappy Bird” (now deleted for iOS and Android), which was able to register 50 million downloads in the Google Play Store alone.
According to a study from App Annie, the revenue from mobile advertising will surpass that of PCs and mobile browsers by 2017. There are different methods for placing mobile advertisements. Some businesses can benefit from direct ad sales, i. e. online magazines on tablets. Most businesses, though, will be better off relying on automatic ad placements through advertising networks and affiliate programs.
Choosing an advertising network
It is very easy for developers to implement ads. Advertising networks provide all necessary interfaces for implementation. Every conventional mobile operating system has established its own advertising network (iOS offers iAd and Google has AdMob), with which third-party ads can be implemented; both providers state that their algorithm is the best for their system. But well-known players from the online world such as Google AdSense and Yahoo Advertising can just as well be used for ad placement. On top, there is a variety of providers that specialized on mobile systems. For local shops, providers such as localHero might be worthwhile as they take over the regional orientation. Providers like plista are on the other hand better for native advertising. You see, there is a wide range and selection is difficult; in the end, your choice must be based on your app strategy and user analysis.
Mobile advertising trends
Banner and pop-ups make up most of mobile advertising. The most clicked ads come from retail, tourism, automobile and small ads. A total of 70 % of all clicks is derived from these fields. The trend, however, goes to contextual and native advertising – one reason being that smartphone users are annoyed by banners and the second that conversion rates for native ads are significantly higher.
A nice way to subtly place ads with users are in-app product placements or branding. Games use this kind of advertising quite regularly; Gameloft, the developer of the “GT-Racing 2” app, went into an agreement with Mercedes-Benz, for the benefit of both parties. Mercedes-Benz accompanied the start of the app with various PR measures, which quickly increased the level of awareness of the app. In return, the app game has put four cars from Mercedes-Benz’ product line into the spotlight.
Using the advantages of mobile devices
The sensors of mobile devices enable apps to measure various data. This way ads can be displayed according to place, weather, time of day or background sounds. Amazon tops this with its Fire Phone and the Firefly feature. By pushing the Firefly button, the respective apps recognize the music playing in the background and search for a match in their database to offer appropriate concert tickets or recording media. Native advertising depends largely on the offered content and quite often consists of additional services the user has to pay for, like articles or videos; contextual forwarding measures similar to “this could be of interest to you” or “customers who bought this also looked at” are also part of this approach.
Acquiring a user base
Selling the app
A current example of an app that pursued one goal in particular, namely acquiring a user base, is WhatsApp. The service, offered for free (or for a small fee), mainly aimed at attracting new users over the course of years. After being sold, Facebook now has to decide how to monetize the app with that user base. This strategy is risky, for it requires a lot of investment over months or years to arouse the interest of appealing investors or buyers.
A large user base can also be the goal for another reason: selling user data. This strategy gets increasingly difficult to carry out as users become more concerned with access rights for functions that don’t have a clear relationship to the services offered by the app. Present scandals partly cause this, one example being the flashlight app “Brightest Flashlight”, which saved position and device type of over 50 million Android users before forwarding it to advertising networks. The problem: the user wasn’t informed that his data was being shared with third parties.
This means protecting one’s data becomes more and more important for users, elevated even further due to spying affairs of intelligence agencies. Now countless users would rather pay for a service than finance it with their data.
Professionalism is crucial for app business
As we have seen, businesses are advised to inform users in detail about data protection rules and how their data will be used. They should consider offering pro-versions of their app without data collection. For this reason, many companies prefer the direct or indirect monetization of apps in order to prevent mistrust and bad press.
Combining direct, indirect and lateral monetization
Now that we have considered at all the monetization strategies individually, we want to finish with looking at how and when a combination of direct, indirect and lateral monetization is practical. Once again, the decision depends on the offering and the character of the app, although direct and lateral monetization are the strategies combined the most.
>Let’s look at a fictitious example of a magazine app which offers free articles next to additional articles made available as in-app purchases. Advertising could be implemented in the free articles. Many business models from startups include a free basic service, i. e. the model by 6Wunderkinder with its “Wunderlist” app. Further functionality requires an update liable for costs. Businesses that profit from partner commissions are quite likely to benefit from a combination of lateral monetization and in-app advertising or in-app purchases of partner offerings. Users of the “Karstadt” app stay informed on individual branches and opening times as well as current offers of the partner shops – the “Tchibo” app has similar features.
Conclusion – Companies need a comprehensive mobile strategy
Choosing a perfect monetization strategy for a business is subject to detailed preparation to make apt decisions. There are many possibilities and a combination can potentially increase the effectiveness; this choice will define whether the app succeeds or fails. The wrong price, annoying ads or distrust caused by data security concerns can on the other hand damage the company and its brand. Success comes from correct usage and exploiting the advantages of mobile devices, which will improve customer retention on a long scale and propel sales.
Go ahead and download the whole: “Whitepaper on App Monetization Strategies”