Do you know how to monetize apps?

Last updated by Brady Stroud [SSW] 9 days ago.See history

You don't have to charge users for your software. In fact, even free apps and games are designed to make money. Do you know the best way to monetize your apps?

Apps make money in all sorts of ways, even the 'free' ones. You need to choose the right monetization model for your apps depending on its functionality and audience.

Free vs Paid Apps

Some apps require a form of payment, meaning you must pay for the app before you can use it. Others are 'free', meaning you can use the software, and all its features, without paying for it. These apps make money in other ways. The middle ground is called 'freemium', which is where you get the basic app or game for free, but need to pay to access advanced features.

Payment Models

Whether your app is paid up front or 'freemium', if you need to collect money at some point from your users, there are a few ways to do it:

One-time fee

This is the traditional approach, where you set a price for your app or game, and users must buy it before they can use it. This might be the right approach for you if:

  • Your product is a AAA gaming title
  • Your product is a useful, but not essential, productivity tool
  • Your product is not a SaaS product (one-off payments are difficult to reconcile against ongoing cloud and hosting costs)

engadine
Figure: Good example - The Legend of Engadine on iOS and Android is free to play, but a one-time purchase unlocks premium features.

More information: The Legend of Engadine official website.

One-time fees work with either paid apps or 'freemium' apps; users can either buy the app up-front or use the app for free, and pay to unlock premium features.

Subscription fee

Subscriptions have become much more popular, even for traditional desktop software. Rather than pay a one-time fee, users pay a recurring monthly or annual fee to use the software. This might be the right approach for you if:

  • Your product is a SaaS product
  • Your product is likely to get recurring regular use without you needing to continually drive engagement (e.g. An essential, or at least high value, productivity tool)
  • Your product has other ongoing maintenance costs (e.g. Content development)

microsoft365
Figure: Good example - Microsoft 365 is available to home and business users for a low recurring cost

Microsoft 365 (formerly Office 365) is a suite of productivity tools that run on mobile, desktop and web. With a subscription, users get access to these apps and the connected services that tie them together in the cloud, and the cost over a 3 year period (the average time between desktop releases before Office 365) is lower than the cost of a desktop license amortized over the same period.

Micro-transactions

Micro-transactions is the practice of continually charging comparatively small amounts of money over a long period of time. Micro-transactions can be a great fit if used responsibly, but are considered unethical when combined with nefarious practices like dark patterns, 'pay-to-win' or exploiting gambling addition.

For these reasons, micro-transactions are increasingly subject to scrutiny from governments and regulators. This might be the right approach for you if:

  • You are certain you have an ethical model for micro-transactions
  • You are not exploiting minors or people with a gambling addiction
  • You have a genuine use case for providing small purchases in your app that can bring joy to your users

Video: Bad example - Pokemon Go, one of the most successful mobile apps of all time, combines the freemium model with micro-transactions to exploit a vulnerable subset of users. It's incredibly effective, but unethical

Monetizing free apps

Most free apps are designed to make money too. There are of course exceptions (for example apps created by government departments or agencies, such as the Service NSW app), but generally most apps need to generate revenue; even the free ones. Free apps and games can still make money, and these are some of the ways that they do so.

Ad revenue

The most common way for free apps and games to make money is through advertising. Ads are shown to users in the app or game, either as banners that are constantly there, or as interstitial ads (ads that appear between levels or interactions and block the rest of the app or game until they are finished). In-app advertising is still a significant revenue stream, but is considered less-professional or less-polished for certain categories of games or apps. This might be the right approach for you if:

  • Your app is a mobile or web app (desktop users are less tolerant of in-app ads)
  • Your app has a strong re-use strategy (e.g., 'addictive' games, or diary-like apps that require or support daily use)
  • Your target demographic is less likely to pay to use an app (and less bothered by ads)

Note: If you include ads in your app, you should consider a freemium model, so that users can pay to remove them.

cronometer
Figure: Good example - Cronometer offers a paid and free tier. On the free tier, users see ads, but can pay to remove them

Some apps provide the app for free, but content within the app is paid for. This is a good model for content creators, or an excellent model for content platforms with user generated content. This might be the right approach for you if:

  • Your content is your product, and your app is just a delivery vessel
  • You have a lot of user generated content (and your users want to monetize that content too)
  • You are regularly adding new content to your app

zinio
Figure: Good example - The Zinio app is a digital magazine platform. The app is free, but users pay to subscribe to a magazine or to purchase individual issues

Loss leader

This approach is uncommon, but occasionally an app developer might want to give an app away for free to entice users to try another, revenue generating app. Examples include showcase apps for UI control library vendors, like Syncfusion, Telerik or Grial Kit. This might be the right approach for you if:

  • Your app is used to demonstrate expertise
  • Your app is a portal for a different subscription product
  • Your app has low or no ongoing maintenance or support/infrastructure costs

Data mining

Some apps offer functionality to users for free, and in exchange gather information about users for sale to advertisers or other interested parties. Tiktok, one of the most successful apps in the world, is a surveillance app that mines data about users, their connections, and environment. Some apps are more extreme than others, and the breadth and depth of data acquisition can vary.

NOTE: This is not an ethical approach to monetizing apps and is not an approach you should use.

Resource utilization

Sometimes an app will use users' resources in the background. This is cool for things like SETI@Home, a screensaver that uses an idle computer's CPU to crunch numbers in the search for alien life, but less cool for apps that install an agent into a user's browser and use it to mine cryptocurrency.

NOTE: This is not an ethical approach to monetizing apps and is not an approach you should use.

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