The Buzinga PodcastEp 3: How To Make Money From Apps in 2016

• Hey guys, Logan Merrick here and you’re listening to episode 3 of The Buzinga Podcast:

• The number 1 resource for startups building and growing their business in the tech space.

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What we’re talking about todayApp monetisation models

• When was the last time you paid $0.99 for an app?

• PAY-TO-DOWNLOAD APPS ARE DEAD

• In 2016 you can choose ‘off the shelf’ monetisation models but also blend and adapt monetisation models to craft a perfect stream of revenue.

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In this episode…

• Pros and cons of the 5 most popular monetisation models

1. freemium2. Subscription3. Sponsorship4. in-app purchases5. in-app advertising.

• A word about blended and non-traditional monetisation models

• How to choose which one is right for you and the customer? Ask yourself 6 questions

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1. Freemium

• In a nutshell: Free but with locked features customers can choose to pay for if they wish

• Increasingly popular as it is so easily adapted to any app vertical (incl. media, utilities and social apps)

• Offer limited time trials to get people through the door, then upgrade to paid account.

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Eg: LinkedIn, Spotify, Evernote

1. Freemium

• In a nutshell: Free but with locked features customers can choose to pay for if they wish

• Increasingly popular as it is so easily adapted to any app vertical (incl. media, utilities and social apps)

• Offer limited time trials to get people through the door, then upgrade to paid account.

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Eg: LinkedIn, Spotify, Evernote

1. Freemium

Pros

• Try before you buy users are more likely to become engaged and buy down the track

• Allows you to develop a large user base, then up-sell at the right time in their customer life cycle.

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Eg: LinkedIn, Spotify, Evernote

1. Freemium

Cons

• If you don’t offer enough features for free, your users may drop off

• If you offer too many features for free, no one will want to upgrade

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Eg: LinkedIn, Spotify, Evernote

2. Subscription

• In a nutshell: Free but with locked content customers typically must pay for to get any value from the application.

• Eg: Whatsapp, Apple Music, Netflix

• Users pay the same amount of money weekly, monthly or annually to access exclusive content.

• Subscription price is smaller than the one-time price – incentivises long term commitment.

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Eg: Whatsapp, Apple Music, Netflix

2. Subscription

Pros

• Results in a constant, repeated revenue stream

• Forces you to continually deliver fresh, high quality content to retain your users

• Leads to loyal and engaged app users

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Eg: Whatsapp, Apple Music, Netflix

2. Subscription

Cons

• Doesn’t easily translate to all app verticals – More suited to service apps.

• Can be hard to determine just how much content to provide for free and when to start charging

• Requires a massive commitment from a first time user (reputation for being hard to cancel)

• An initial free or discounted trial is almost a prerequisite for using this model

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Eg: Whatsapp, Apple Music, Netflix

3. Sponsorship

• In a nutshell: Involves offering advertising space within your app to brands who will offer your users exclusive content or discounts.

• Examples: Runkeeper, Menulog, Pinterest

• One of newest and hardest monetisation methods to execute, but is definitely one of the most effective.

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Eg: Runkeeper, Menulog, Pinterest

3. Sponsorship

Pros

• The ultimate Win-Win-Win scenario: Devs, advertisers and customers win.

• Minimal disruption to user experience

• Model can be easily tailored to every app vertical and industry

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Eg: Runkeeper, Menulog, Pinterest

3. Sponsorship

Cons

• It’s a relatively new model that hasn’t been as thoroughly tested as other options

• To convince sponsors, your app needs to have:

1. strong brand behind it2. sophisticated data on your users

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Eg: Runkeeper, Menulog, Pinterest

4. In-app purchases

• In a nutshell: Users can choose to buy virtual or physical goods from within your app.

• Examples: Candy Crush, Tinder, Snapchat

• Typically used for games (in-app credits) and retail apps (checkout)

• BUT, every app can offer some kind of extra functionality, tools, enhanced features and deeper content

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Eg: Candy Crush, Tinder, Snapchat

4. In-app purchases

• Stuck for ideas? Look at your reviews, user feedback and analytics.

• Eg: Snapchat found out that a small % of users wanted to replay a snap more than once ($0.99).

• Eg: Some Tinder users were complaining about accidentally swiping left on a potential soul mate, so are now testing ‘take back a swipe left’ for $0.99.

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Eg: Candy Crush, Tinder, Snapchat

4. In-app purchases

Pros

• There is minimal risk in implementing this model.

• Works well with certain app verticals (games and retail apps especially)

• Buying virtual goods typically leads to greater user engagement and longer session times.

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Eg: Candy Crush, Tinder, Snapchat

4. In-app purchases

Cons

• The app stores will take 30% of the profits from in-app products

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Eg: Candy Crush, Tinder, Snapchat

5. In-app advertising

• In a nutshell: Free but with advertising within the app

• Examples: Facebook, Google, Youtube

• Sometimes referred to as ‘native advertising’

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Eg: Facebook, Google, YouTube

5. In-app advertising

Pros

• Works well if your app is a new concept to the market.

• You can gather a large userbase and profile data on your users BEFORE rolling out any paid ads (more sophisticated data for advertisers to fight over!)

• Can be very effective if minimal and targeted advertising

is used.

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Eg: Facebook, Google, YouTube

5. In-app advertising

Cons

• Generates quite small revenue per user

• Paid ads go for big scale over high margins. According to Monetize Pros, most developers will only generate $1.50 per thousand impressions of their ads.

• So, this model is best suited to apps that have a huge userbase and are used frequently.

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Eg: Facebook, Google, YouTube

5. In-app advertising

Cons continued…

• Reputation for being annoying and disruptive to the user experience

• Bonus: How To NOT Annoy Users With Mobile App Advertising

• Feels unnatural in certain kinds of apps (Eg: Utility apps like banking apps or city transport apps).

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Eg: Facebook, Google, YouTube

Offbeat monetisation models• There are actually dozens of options out there, not just

cookie cutter ones.

• Duolingo earns revenue by crowd-sourcing pieces of translation done by its users and selling them to CNN and BuzzFeed for their international websites.

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Eg: Duolingo

Offbeat monetisation models

• Tinder: Razor company Gillette paid for access to their user data for one of their marketing campaigns.

• Gilette proved that LESS facial hair correlated with MORE swipe rights (girls interested).

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Eg: Tinder

Whitelabelling

• Will other businesses, industries or apps benefit from this platform’s core functioning?

• Could they apply it to their own processes to achieve greater efficiencies or customer satisfaction?

• If yes, you can whitelabel and sell the code that the app is built on.

• These external companies then apply their own branding

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Which model is right for you?

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6 key questions

• Not every app will suit every monetisation model

• Ask yourself these 6 questions to help pick one…

Which model is right for you?

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6 key questions

1. What is your user’s overall goal during an app session? • How will each monetisation model impact them

achieving that goal?

Which model is right for you?

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6 key questions

2. What vertical or industry is your app in?

How would user experience be compromised as a result of each of the 5 monetisation models?

Which model is right for you?

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6 key questions

3. Is there a single moment in your app in which users experience discomfort or happiness?

• Explore your analytics to find an ideal time in a user’s session when you could place in-app purchase prompts

• Eg: well-timed freemium ad or in-app purchase

Which model is right for you?

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6 key questions

4. What type of ad will geniunely be most helpful to users?

• Flip your from defence mode ‘what can I get away with’ to ‘what extra value can I offer?’

• Think about you user’s needs, goals and desires.

• What kind of advertising, extra features, or brand sponsors would your users enjoy being exposed to?

• What helps them achieve their goals faster?

Which model is right for you?

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6 key questions

5. What monetisation models do your competitors use?

• What do they do well and what can you add to make it better?

• Bonus: How To Perform Competitive Analysis On Apps

Which model is right for you?

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6 key questions

6. Are there any potential partnerships you can leverage?

• Are there any brands or other apps who would find your audience valuable for their business?

Blending monetisation models

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Something to keep in mind…

• All these monetisation methods are not mutually exclusive

• You can tailor content and offers to your audiences. MORE MONEY!

• Eg: Snapchat uses a combination of sponsorship through its discovery tab in stories, as well as in-app purchases like special lenses and additional snap replays.

Summary

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The best monetisation model will be one that suits:

1. Your app’s industry2. Its core function and 3. Customer behaviours

Further resources

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• Hope you take something out of this!

• If you want to learn more about monetisation then check out our blog, I’ve included 3 relevant blogs in the show notes:

1. How Pinterest Soared To A $3.8B Valuation Without Making A Cent

2. How To Double Your App’s Profits in 30 Days3. How NOT to annoy users with mobile app advertising

Thanks for listening!

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• For more of this please subscribe on iTunes, watch on YouTube with accompanying slides or on our blog at buzinga.com.au/buzz

• See you on the next episode!