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Mobile app revenues are still climbing rapidly year after year, with a 50% increase between 2015 and 2016 according to this TechCrunch article. The interesting thing is that the portion of apps that cost money to download is simultaneously declining. This means that mobile developers are somehow increasing revenues while releasing a higher portion of their apps for free and this seems incredibly counter-intuitive. This paradoxical phenomenon is made possible thanks to a number of business models and practices that publishers have adopted in recent years. Here, we will discuss the ways in which a free application can be monetized and still make a huge ROI for publishers.
The first and most classic method of making money off a free phone application is to feature advertisements and charge for impressions or for clicks. Different ads have varying production costs but also varying click through rates. With mobile still being a relatively young platform, the science and theory behind phone ads is shaky at best, but video is quickly emerging as the king, capturing over 70% of total mobile spend in Q3 of 2017. Other options include typical banner but these are less and less effective as people become used to and weary of them and ultimately immune to their message.
Gaming apps come with a natural affinity for full-screen interstitial advertisements, either in picture or video format, since these can be inserted between levels, thereby minimizing the impact on user experience and maximizing effectiveness. Users can also be incentivized to watch entire videos in order to get in-game benefits, and this almost guarantees that the advertiser’s message is consumed, making the strategy a very potent one when executed correctly. The most important thing is to ensure that users do not become completely fed up with ads and end up uninstalling the app out of frustration.
Apps, and games in particular, present amazing opportunities for sponsorships and partnerships. These can range from branded features to things like affiliate marketing. The Angry Birds/Star Wars crossover comes to mind as a good example of brands collaborating in order to monetize on an application.
Partnerships can also be more niche and subtle. Users of your app can be given incentives to download a partner’s application or vice versa. Hilton partnered up with Uber in order to let users of their Honors app arrange rides and earn loyalty points within the application. This added convenience gives people reasons to use Uber if they stay at Hilton and to book at Hilton if they’re Uber users. It’s a win-win situation. Brands need only to ensure that the companies they are partnering with share values and won’t impact their image negatively.
White Label code is code that can be built upon and branded differently by a publisher. Think of white label code as a cake mix – you can decorate your cake or shape it however you like, but the base is for a cake, and not for another dessert, and it comes conveniently prepackaged.
There are many instances of companies selling the base code of their games or platforms to other firms. WordPress is a typical example of a white label software that companies use to develop entire websites for others while ignoring the issue of crediting entirely. In the app world, there are examples of Temple Run creating a special edition of their game for Brave and Oz.
While writing code that you plan to sell might not be as profitable right off the bat, a useful platform will eventually be bought by several companies and will bring in great returns.
Some applications have done an amazing job of monetizing through a ‘freemium’ business model. In 2016, Pokémon Go made $180M and the ‘gacha’-model Fire Emblem Heroes made over $115M in its first 6 months (more than $10 per user!) These applications managed this through an extremely strong IP but also by featuring micro transactions in their games.
The interesting thing is that both of these apps give users a free way of obtaining all these resources that are featured in the store – just at a slow rate. Thus, users who do not wish to spend can still play the games and have fun while those wishing to get ahead can do so as well. Ultimately, this keeps the game’s community varied and large and is good for the long term life of the application.
Freemium is the model that most applications are adopting today, and this is clearly seen in the shift towards more ‘free to download’ apps. Creating a strong user experience and giving users the impression that their purchase is worthwhile can make such apps extremely profitable.
Business tends to always find a way to move towards the money and so the shifting trend towards free mobile applications proves that there is not only money to be made, but that there is a lot of money to be made. Developers are given a choice between several monetization strategies when it comes to making back their hefty initial investments. Choose one -- or a mix of several -- that fits your application as well as your business and you’ll be all set.