Most companies are jumping on the app bandwagon, including established companies releasing existing products repurposed as apps and startups releasing new products, creating entirely new app categories. Regardless of the company, there is a common problem encountered: how can we make money on the app store?
It is incredibly difficult to get noticed when your app is surrounded by a billion others. Let’s think long term for a second. Let’s assume your app is successful: people downloaded your app, they are using it, and they love it. Congratulations! But now what? These users already paid for your app, so now they are essentially using it for free. Here’s the problem: how do you monetize existing app users?
Software update cycles
In the old software model, a customer would purchase your product, use it for a year or two, and when you released a new version, they would pay again to upgrade. This is still common in operating system software (e.g., Windows) and the major productivity apps (e.g., Photoshop, the Office Suite); however, apps have broken this cycle. Customers go to the app store, purchase your app, and expect to receive upgrades for free, including those new features you released to get new people to download your app. If your app is a service with a large backend (think social networks like Instagram and content apps like a newspaper), you have costs you need to cover to support existing users, but these users may never give you another cent.
Here are the strategies I’ve seen app developers try to monetize existing users.
Major ad networks will pay you for each impression, so sticking ads on your home screen means that existing users will give you a continuous source of income (bonus if you provide new content every day, so that users re-engaged regularly). In general, users don’t like ads, and they can make your app feel cheap. You also don’t have very much control over what ads are shown, so your users may get conflicting messages. For example, if you have a strong environmental brand, it would seem weird for users to see an ad for a Hummer. Oh, and if your app is a paid app, you should never include ads. It feels like double dipping, and people don’t like feeling like they are paying twice.
There are two general models of in-app purchase: freemium, and additional features. In the freemium model, users download and use the app for free, and pay minimal amounts to change a feature temporarily. It is most common in games. For example, people could pay to skip a level they couldn’t beat, to get a new costume for their character, or to get an additional spin on a bonus wheel. The other model of in-app purchase is to provide optional features (e.g., the ability to store a document on DropBox), or provide new features that users have been asking for (e.g., “now you can add friends from Facebook!”).
In-app purchases are now the main source of income for app developers. In either approach, they allow users to explore your product at little or no cost to them, and give users incentives to pay for your service. Also, unlike ads, you can include in-app purchases in a paid app without alienating users.
Another version of in-app purchase is the subscription model. The most common is auto-renewing subscriptions (e.g., biweekly or monthly), where people pay for intervals of service. Subscriptions make sense for lots of apps, but Apple’s App Store policies limit what kinds of apps may use subscriptions.
“11.15 Apps may only use auto renewing subscriptions for periodicals (newspapers, magazines), business Apps (enterprise, productivity, professional creative, cloud storage) and media Apps (video, audio, voice), or the App will be rejected” (3 March 2014).
To me, this suggests that some traditional subscription models (e.g., memberships for online games like World of Warcraft) would not be allowed in the app store.
Another great way to monetize existing users is to sell them physical products. This could be swag, like Angry Bird plushy animals. Another approach is to sell a product based on the content of the app. For example, Mosaic (http://heymosaic.com/) sells physical photo books you set up in the app.
Note that with physical products, these cannot be purchased through in-app purchase. This means you will need to have another checkout process, but it also means Apple or Google won’t take 30% of the purchase price.
The last strategy I’ve seen is for large app updates. For example, when Fantastical updated their app for iOS7, they actually released it as a new app (Fantastical 2). This is following the “old style” update cycle of operating systems and productivity suites. This is non-standard in the app world, but it can be a reasonable approach if your new app is different enough from the original app to warrant users to go out and buy your app again.
I think each of the strategies I’ve described could be successful, but it will depend on your app and your users. The current state of the app stores suggests that in-app purchases are the way to go, but apps are still so new that there are lots of opportunities to try new things.
Andre Doucette is the lead interaction designer at Push Interactions. With his background in human computer interaction, he believes that thoughtful design can delight users in ways we can only thus far imagine.