Monetization is a critical aspect of success for consumer apps in the dynamic and competitive mobile app market. As the digital landscape continues to evolve, mobile app companies need to adopt effective monetization strategies to drive revenue and sustain growth.
According to Gitnux, the global mobile app market is projected to reach $407.31 billion by 2026. In 2022, data.ai reported that mobile app downloads grew by 11% year-over-year to 255 billion, while hours spent in Android apps alone grew 9% to reach 4.1 trillion. That’s all while about 95% of people’s on-screen time is spent inside apps.
It’s no secret that there is immense and growing potential for generating revenue in the mobile app industry. However, with numerous monetization models and strategies at publishers’ fingertips, choosing the right approach today can be challenging as the market evolves.
Below, we’ll explore the importance of a robust monetization strategy and delve into effective techniques to maximize revenue and engage users in the consumer app space.
Understanding the consumer app monetization landscape
The consumer app market is experiencing rapid growth. Global app sales were $469,198 billion in 2022, and by the end of 2023, this amount is projected to increase to $526,259 billion.
But for mobile apps today, choosing the right monetization strategy requires a thorough understanding of the current state of the market and careful consideration of the various monetization models available. In the consumer app landscape, models such as in-app purchases, advertising, subscriptions, and freemium have been widely adopted:
- In-app purchases offer users additional features or virtual goods within the app, while advertising generates revenue through ads displayed to users.
- Advertising models generate revenue by displaying advertisements to users.
- Subscriptions provide access to premium content or features for a recurring fee.
- Freemium models offer a basic version of the app for free, with the option to upgrade to a premium version for enhanced functionality.
Each model has its own advantages and considerations, and selecting the right one depends on factors such as the app's target audience, value proposition, and competitive landscape.
In-app purchases
In-app purchases can provide a seamless way for users to enhance their app experience by unlocking additional features or purchasing virtual goods. They allow users to have control over their spending and offer flexibility in monetization. Success stories like the popular gaming app Candy Crush Saga demonstrate how in-app purchases can generate substantial revenue.
Major benefits of the in-app purchase monetization model include:
- significant revenue generation via virtual goods or premium features,
- flexibility and scalability of pricing and offerings,
- free app availability to attract a larger consumer base,
- no ad interruption, and,
- opportunities for upselling and cross-selling.
However, some of the drawbacks of this model include:
- potential user resistance to buying,
- a fragmented user experience,
- the perception of paywalls that restrict access to essential or desired content, and,
- revenue variability as sales are subject to fluctuations.
Advertising models
Advertising is also a widely used monetization model for consumer app businesses due to its potential to generate substantial revenue. With advertising, app publishers can partner with advertisers and display various forms of promotional content within their apps, such as banners, interstitial ads, native ads, or rewarded videos.
How much money your app makes per ad will depend on the type of ad your app is running. Banner ads will earn less than, for example, interstitial ads. Publishers should talk with their ad network first to get a better understanding of how much they are projected to earn with a certain strategy. – Pangle
The key to successful ad monetization is finding the right balance between user experience and ad placements. Strategic ad placements that do not disrupt the user experience can be highly lucrative, as seen with social media platforms like Instagram and TikTok.
The primary benefit of advertising as a monetization model is its ability to provide a revenue stream without directly charging users for app usage. Other pros of this model include:
- Diverse ad options,
- Scalability,
- Targeted ads,
- Continuous engagement, and,
- The potential for strategic partnerships between brands and advertisers.
Downsides include:
- The impact on the user experience,
- User ad fatigue,
- Ad relevance or intrusiveness,
- User privacy concerns, and,
- Dependency on advertisers.
Subscription apps
Subscriptions have more recently gained popularity as they provide users with exclusive content and a premium experience. Apps like Netflix and Spotify have effectively implemented subscription models to generate consistent revenue while offering value to their users. Headspace, a popular meditation and mindfulness app, also implemented a successful subscription-based model to access its premium content.
The top benefits of a subscription model include:
- Predictable and recurring revenue (and higher revenue potential),
- Enhanced user engagement,
- Improved user retention,
- Deeper customer relationships and long-term value, and,
- Content and feature expansion opportunities.
The cons of this type of model include:
- A barrier to entry (requiring users to pay a fee to access) and subsequent user resistance,
- Subscription cancellations and churn,
- Market saturation,
- Retention challenges, and,
- The complexity of pricing and plans.
Freemium models
The term "freemium" combines "free" and "premium" and aims to attract a large user base by lowering the entry barrier, allowing users to explore and use the app's core functionalities without upfront payment. Freemium models leverage the concept of upselling, enticing users to convert into paying customers by providing a taste of the app's value and offering enhanced capabilities or additional benefits for a fee.
“[Freemium is] a way of putting them into your sales funnel with the hopes of acquiring them as paying users. When viewed as a customer acquisition model and not just another pricing model, freemium can really shine.” – Paddle
Freemium models can be beneficial because they:
- Target a larger user base thanks to the app being free,
- Present upsell opportunities,
- Provide a reduced barrier to entry,
- Offer monetization flexibility (developers can experiment with different pricing strategies), and,
- Provide a long-term recurring revenue source once users convert to paid versions or subscriptions.
The negative aspects of freemium include:
- Value perception (users perceive the free version as sufficient),
- Profitability concerns without an optimized pricing strategy,
- Development costs,
- Potential user frustration due to free version restrictions, and,
- Increased competition.
Innovative monetization strategies for consumer apps
While the above traditional monetization models are proven, exploring innovative strategies can unlock new revenue streams for apps of all types.
“Monetization through traditional advertising means has become really challenging. And we see a lot of publishers really moving to a first-party strategy as a way to mitigate that. That first-party strategy really is hinged on getting to know your consumer better, and understanding their wants and needs in a safer, more compliant way. And then offering them things that really are going to motivate them and drive them to spend.” – Dennis Ellis, President at Zendrive
One such strategy is sponsorships and partnerships, which are effective avenues for boosting user engagement and monetization. By collaborating with brands that align with the app's target audience and values, businesses can create mutually beneficial partnerships that generate revenue through sponsored content, product placements, joint marketing campaigns, or user engagement programs that apps can create with the right tech partner.
Another approach, which can complement both new and traditional monetization models, is data-driven monetization. This can significantly enhance revenue generation and user experience. By securely and compliantly collecting and analyzing user data, apps can gain valuable insights into user behavior, preferences, and patterns. This allows them to personalize communications around relevant offers, discounts, or new features, increasing user engagement and driving monetization.
“App companies are realizing that there are better ways that they can protect user privacy while still getting the data that they need. I'm excited about that because it means that now, we're moving back to a world where we are collecting the data that we need to do our job, while still balancing it against what’s good to be putting out into the world.” – Alex Bauer
Leveraging data-driven user engagement programs to generate new app revenue streams
User engagement is a critical aspect of driving app monetization. Designing and implementing effective user engagement programs can significantly impact revenue generation.
One popular approach is the implementation of loyalty programs and reward systems. Incentivizing user activity, such as making purchases, referring friends, or completing certain actions within the app, can drive user engagement and increase revenue. Rewarding loyal users with exclusive benefits, discounts, or access to premium features encourages them to continue using the app and potentially spend more.
Incorporating gamification techniques into an app can also enhance user experience and drive engagement. Introducing challenges, leaderboards, badges, or virtual currencies can create a sense of achievement and competition, motivating users to interact with the app regularly. Engaged users are more likely to explore additional features, make in-app purchases, or subscribe to premium offerings, leading to increased revenue.
Maximizing revenue from data-driven engagement programs like IQL
Let’s hone in on an important example of a new engagement program, created by a strong partnership between a consumer app and a tech partner, that can generate sustainable, recurring revenue.
We’ll take popular consumer savings apps as an example in this scenario. Consumer savings apps have a unique opportunity to leverage new features as revenue streams. By offering innovative ways to assist users in saving money, managing finances, or finding the best deals, apps can provide value while generating revenue.
Consumer savings apps can explore partnerships with insurance providers to offer discounted auto insurance rates based on how app users actually drive (and not based solely on other common factors like age and location).
By working with partners like Zendrive, which integrates its SDK into apps to assess user driving behavior through its Insurance Qualification Lens (IQL) program, and its network of top-tier insurers, users who opt into a test drive program can potentially get access to personalized insurance offers based on how safely they drive. This unique type of program not only generates reliable revenue but also enhances the value proposition of a consumer savings app by helping users save on insurance costs.
Moving forward: Evaluating and iterating a monetization strategy
A strong monetization strategy is paramount for the success of consumer apps today. By understanding the current monetization landscape, exploring traditional and innovative models, and leveraging data-driven user engagement programs through strategic partnerships, apps can drive revenue while delivering value to their users.
Reminder: The ever-changing app market demands continuous evaluation and iteration of an app’s monetization strategy. By leveraging data, personalizing user experiences, refining the approach based on KPIs, A/B testing, and seeking user feedback, publishers can stay ahead of the competition and maximize an app's revenue potential.
And ultimately, an effective monetization strategy is not only about generating revenue – it’s also about building sustainable relationships with users. App publishers that can provide value, deliver exceptional experiences, and constantly innovate will position themselves for long-term success in the dynamic and competitive market.
“Apps that solve customer problems effectively and complement their lives have a good chance of success.”– Woody Sears
To learn more about Zendrive and its Insurance Qualification Lens program, contact us directly below.
