Revenue Models

Success

Mobile Applications

List Question

What are some of the most successful mobile apps

revenue models?
The popularity of freemium offerings and the lack of "ads" in many of the mobile apps puzzle
me. How do they plan to monetize? How are they raising funds? Are most stand-alone
mobile apps a hobby?
Would really value investors/entrepreneurs perspectives.
PS. I am aware of the approach "build it and they will come" or "just focus on building a user
base", and I am curious as to what credentials a co-founding team would need to have for
this type of pitch to work (if at all)...

7 Answers
Lior Weinstein
Updated Jan 7, 2013

I have worked on apps that monetized with paid models, in-app and separate app
freemiums, virtual currency, subscriptions and 100% ad based.
See my analysis below of current models I worked with before and what I think of them.
I guess the most important aspect of anything I describe is traffic - does your app support
the organic traffic methods that exist on the app store, or are you going to need to spend a
lot of dollars to get people exposed to the app. So what ever you choose to do, you should
take into consideration how are you going to get installations and then how are those
going to make you money.
Personally, I love freemium apps, especially virtual currency based if it's relevant and I
think it's the best model out there - it's a combination of lead generation and sale
conversion. You have a lot of opportunities to optimize and market your app without
spending $50K or even $10K on advertising.
Ad-based apps are great, with the few caveats I explain below.
As far as your 'raising funds' question - I think it's probably safe to say 99% of the apps
don't raise (or better yet need to raise) any money. Dev costs are super low in most cases so
unless you're shooting for some amazing tech or 3D experience you can probably wrap it in
a few K or a few dozen Ks.
Regarding your hobby reference - I'm pretty sure a lot of apps on the app store are for
pure hobby - some of mine started that way. That's the great thing about Apple and what
they did to the mobile industry - you pay a $100 and you can use your free time to code
and submit an app that might actually make you money in any way you want, on top of
that they even offer you their vast user base and ubiquitous billing systems and you just get
a check. I love that :)
Let me break down my insights from each:
1. Paid apps - personally, I wouldn't go with a paid app at all these days unless you
have either a very good traffic source that's not based on the app-store and one that is
free or exponentially growing (like an amazing brand with wonderful PR) or just an
amazing utility or functionality that your target market can't live without. For
instance, one of the apps I bought almost when it came out was LogMeIn Ignition
which back then cost $30 and although I had a free logmein account on the web - I
just had to have it as a tool. This is true for amazing games but frankly if you go only
with a paid app model on a game you're losing a lot of potential customers.
2. In-app and separate app freemiums - from my experience, in-app upsell
converts better overall, but obviously it will depend heavily on your app. When you
take the separate app freemium approach you have to consider that you're going to
manage two apps (submissions, updates, bugs, marketing, etc) but you also get some

added value of controlling each of them differently. For instance you could do FAAD
promotions for your paid app which is something you can't do for an app that's 100%
free and has an in-app purchase to upgrade.
What's great about freemiums is that the amount of prospects/leads you get is
astounding in comparison to just a paid app. You have to consider the organic traffic
you get on the app store - if you just publish a free app without telling anyone about it
you will likely get a few hundred downloads easily (depending on category but I've
published in a few different ones and they all reacted the same). If you publish a paid
app you might never get a single download in comparison.
If your free app is good and you engineered the user flow to get them to want playing
once they've hit their limit then upgrade to a paid or in-app can convert very well.
3. Virtual currency - the most profitable model by far right now on the app store is
games based on virtual currency, you can just take a look at the top 50 grossing and
see what's there. Apps like Temple Run or Slotomania are not relevant as a
standalones or upgrade to full apps. Same goes for We Rule or any other app that's
based on virtual currency that gets depleted as you continue playing. To create a good
game though can cost you a lot of money comparing to other types of apps you can do
- that said, if it's good, you can make a lot of money in a relatively short period of
time. A good virtual currency game starts at around $10K and can end anywhere
(dev, graphics, audio, etc).
4. Subscriptions - I have to say that although that model sounds appealing, I didn't
see any major performers there. You have to put in a lot of work to get people to sign
up and keep a subscription. When Apple started offering it was kind of pointless for
developers because at the end of the 'subscription' the user would get prompted to
renew it AND only when he opened the app - so you might as well put a regular inapp purchase option to give 30-day access with different phrasing. Currently it's best
for magazine and video content publishers but ones that make sure to renew their
content frequently.
5. Ad-based - from my experience there's are some good upsides but also downsides to
ad-based apps.
Pros:
It's easy to build traffic for free apps, especially in the right category - it's usually
not long-lasting traffic but it is traffic so if you can think of apps you can
manufacture at a steady rate with low costs then you can build apps that
generate ad revenues quite easily.
Ads let you keep your app free if they're profitable enough, which in turn gives
you a chance at a wider audience. If you have a large audience, you can use
that to either use the ad slot for your own purposes, send them offers and engage
them with tools like http://www.appoxee.com/ (full disclosure - I was a
founder). You just can't get that kind of engagement with a new website today as
opposed to new apps. If you keep the app niche enough, then in my opinion it's
as good as gold considering the amount of content you can build and revenue
streams you can generate.
Super easy integration - with the tools and networks available today, you don't
have to work more than a few minutes to get an ad network (or rotating layer)
installed so if engineering time is expensive for you then it's definitely a
consideration.
It is really passive which is nice.
The fact that you have middle layers right now enables you to switch between the
most profitable networks seamlessly.
6.
Cons:
SUPER LOW AND ANNOYING eCPMs. No matter what anyone tells you, the
market is saturated right now and if you want to generate good money, then you
have to have a LOT of traffic, and great placements that attract the clicks.
You have to sacrifice around 50px in height on your apps which is quite a bit for
any screen inside your app to sacrifice for.

You can't control the ads - you can filter in some networks which apps or
categories CAN'T advertise, but you can't control otherwise so you have to expect
that sometimes your users are going to see ads you or they don't want to see.
Some users find it very annoying - but that's up to you to make it work really.
34.5k Views View Upvotes

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Aparna David, Content-crafter, an avid painter

Updated Jun 12, 2015

In my opinion, the key to a repeatable and scalable business model is to deploy just right
app monetization strategy. In order to do so, it becomes critical to scrutinize the methods
in which you are planning to monetize your users as it is directly related to your lifetime
value of customer(LTV). In case if your LTV isnt higher than the amount of money you
are paying to acquire a customer, then your business operation is not sustainable enough.
Heres a brief about the current trends and statistics of app revenue models that I have
for questions,
people,
and topics
Gyan:
5 Revenue
Models to Monetize your App
excerpted fromSearch
here: AppN2O
Paid Downloads
According to Statista, currently only 4% of the 100 top-grossing apps in the Google Play
store are paid apps. On the contrary, there is a critical difference to the Apple App Store
for iPad wherein 31% of top-grossing apps are paid. On balance, the Apple App Store is
providing developers with a higher monetization potential.
Freemium
Interestingly, the freemium model has proved to be the best money-maker of all the given
options, especially for game, entertainment, and productivity apps. According to the latest
report produced by App Annie and IDC, Freemium app monetization model has surged
more than 70 percent.
Ad-based/ In-app Ad Monetization
Well, In-app ad revenue growth has outspaced mobile, PC browser-based ads, and by
2018 the spending on mobile in-app advertising will be greater than spending on online
search advertising. Though it tends to convert better compared to other monetization
models, it still depends on the type of your application.
The other two promising models are Sell off App Monetization Method and App
Buyout. Find out more about these models here .
8.6k Views View Upvotes

Kate Abrosimova, tech journalist, blogger.

Written Nov 27, 2013

So far in-app purchase leads the market. In-app purchase according to the research (here
Gartner Says Free Apps Will Account for Nearly 90 Percent of Total Mobile App Store
Downloads in 2012 ) is rising as a monetization tool and will be present in 30 percent of
apps by 2016.
There are other ways of monetization like subscription, advertising which is the most
common but has to be more native ads oriented to get tangible results and paid download.
My article on app monetization here A path of a small app to big monetization success .
8.7k Views View Upvotes

Nagesh Pobbathi, Entrepreneur

Written Feb 5, 2015

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As others have described here, there're multiple options to monetize depending on the type
of the app, the user need it serves and the user base.
One key thing to note is that these options (except for paid app option) are not all
mutually exclusive. You can utilize multiple monetization channels depending on your
user segments. Game developers have had success with this approach. They categorize
their users as whales, dolphins and minnows based on how much the users spend ingame.
Whales spend a lot of money (even thousands of dollars a month in extreme cases) to
level-up or buy in-game stuff. They contribute to >90% of the game's revenue while being
<5% of the user base. Games don't show them any ads as the opportunity cost is high and
don't want to risk losing them.
Dolphins spend moderately. So, if game developers decide to show them ads, they make
sure they are of high quality from select ad networks.
Minnows are grinders that show no inclination to in-app purchases. They are the long tail
of the user base. Game developers open-up more ad units to them to monetize.
So, 1) segment you user base, 2) test various monetization options for a fraction of users
within each segment, and 3) optimize.
5.3k Views View Upvotes

James.henry, IOS Developer

Written Oct 28

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Related Questions
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mobile/social apps?
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What are the most successful mobile apps?
What are the most promising future revenue models
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