App Monetization – How do apps make money?

After the big app idea is hatched, usually one of the main questions entrepreneurs have is how they can monetize and profit from building this app. There is not one full proof way of making money as every app is different, it really depends on how it engages with the users. It is up to the entrepreneur to find the right balance of providing a useful service to the users and not scaring them away with payments.

Some of the most common monetization techniques include freemium services, recurring subscriptions, paid app, advertisements or a combination of any of those options. One very important thing to keep in mind while reading further about each of these models, is that Apple (iOS) and Google (Android) need to make money as well. To do this, they actually keep 30% of each transaction which occurs via an app in their app store.

What is freemium?

Freemium is a monetization model where the service is initially free but may have limited functionality. In order to ‘unlock’ premium features the user will have to pay a fee.

For example, consider LinkedIn. Although LinkedIn is free to use, you have the ability of paying a fee which gives you the ability to message users who are not in your connections. This is considered a premium feature, which must be paid for. Hence the term freemium.

At Alias Apps, we are big fans of this model (again, this depends on the app you’re trying to build). However, the reason we like is because you can show your users what your app can provide for them without any risk to them. This in turn makes them more willing to try it out, and hopefully if they deem your service worthy, the will make a payment to get even more functionality.

Recurring Subscriptions

Another major monetization model is recurring subscriptions. In this model users are charged an automatic recurring fee at pre determined intervals. This method can bring a constant stream of revenue, however users may be more reluctant to subscribe to a service indefinitely.

An example of a successful recurring subscription implementation is Netflix. They charge users a monthly fee to access their catalog of movies. Note that Netflix has a 3 month free trial before the subscription kicks in. This is a freemium subscription type of model as they allow their users to test the service before committing to it.

Paid Apps

Perhaps the easiest to implement from a programming perspective are paid applications. With these apps, users have to purchase them before installing. Usually app reviews play a big role in determining wether or not a user will purchase your app or not so make sure you keep your users happy!

Advertising

This is a model which involves having advertisements in your app which your users see and can tap on. Whenever a tap is recorded, your make a few cents. This model may not be the best for apps just starting out as you need a lot of users to see any real revenue from ads, however, once your app has a lot of users it is almost always a good way to make money (as long as it doesn’t annoy the user experience).
If you are interested in this model, check out AdMob. Offered by Google, AdMob provides advertisements for your app.

Instagram was a great example of this. Originally free, once they got the user base in place, they implemented Sponsored posts (i.e. ads). They are not using AdMob, as they sell their ad space directly to advertisers. AdMob is good when you do not have any advertisers to work with yet.

Hopefully this gives you some insight on how to make money with your app. If you have any questions post a comment or shoot us an email and we would be glad to help you out with any of your questions.
www.aliasapps.com

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