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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!