Why do apps matter? For the first time ever, Apple’s iOS surpassed Mac OS in terms of Web browsing market share, highlighting a shift of consumers focus towards mobile.
The arrival of smartphones brought with it the “application age,” a time period in which over the last few years approximately one million of third-party applications have come to market, and revolutionized consumer services in the mobile device industry.
Users can now manage their personal finances from their mobile devices, order groceries, check out where the latest movies are playing, and even plan their next vacation.
The success of third-party applications on mobile platforms has not only generated significant revenue for mobile carriers and developers, but has been responsible for adding an estimated 466,000 jobs in the US since the introduction of the iPhone in 2007.
Over the course of the past five years, both the Apple App Store and the Android Market have grown enormously. For instance, the rate of growth of the Android Market has been accelerating, to this day over 7.5 billion apps have been downloaded.
As the App market continues to grow and develop as an industry, monetization of the products and services it provides is becoming increasingly relevant. Monetization of an application can come in many forms, whether it is through charging for the App itself, selling virtual goods, or through in App advertisements.
Given the many options by which to monetize a Web application, it is necessary to not only experiment, but employ a monetization strategy which can effectively engage your target market. So what can you do?
Ensuring A Positive, High-Quality App Experience
Retaining a user base is one of the most challenging aspects of managing and monetizing an App. New users are an essential part of any revenue stream, regardless of the business. Localytics, a mobile analytics firm out of Boston reports that 26% of all apps downloaded in 2010 were only used once.
This emphasizes the importance of doing a good job engaging users, and building off of existing relationships once the opportunity presents itself. The ultimate goal is to create the best user experience possible. This requires understanding the intent of your users, and how to exceed their expectations.
There are several useful data points to help ensure successful marketing of apps, some of which are highlighted below:
Key Metrics
New Users: This metric shows how your success at acquiring new customers. You can analyze this data over different time ranges or software versions to determine the level of your success.
Active Users: This statistic shows the overall health of your App. It aggregates both new and existing users into one metric which you can break down by time, OS, Carrier, etc.
Retention: This measurement is similar to Active Users but shows how an App retains repeat users. Retention occurs through continuous improvement whether it is through bug fixes, added content, reward incentives, etc.
What Do My Users Want?
Breaking down an App based on user interaction can provide valuable insight into what your user’s value, and what parts of your UI they could do without.
Focusing on user intent and the pieces of an App which they interact with most frequently and for longer periods of time can lend valuable insight towards identifying the strategic direction of your App whether it focuses on content or services.
Providing a positive user experience should be top priority. The additional awareness that this kind of analysis provides can also help determine where the best locations are to place advertisements, if at all.
Key Metrics
Sessions: This metric tells you how many times users access an App over a given time frame, whether it’s one hour, a day, or a year.
Session Length: This metric informs you of how long users spend on an App in a given session. Again, this metric can be extended over the desired time frame.
Engagement Rate: This ratio shows how frequently users are engaging or clicking on different portions of an App. This statistic is useful to determine the parts of an App which are the most popular with users, generate the most traffic or activity, etc.
Version Distribution: Every time a new version of an App is released, its adoption is influenced by a number of factors such as frequency of update or content. Version distribution can be calculated by dividing the number of users on a select version by the number of total active users. Carefully monitoring this metric allows one to cater to their audience, as well as identify the best release strategy.
How & When Do I Monetize?
Monetize Through Advertisements
Monetization through advertisement can be extremely effective. Generally speaking, for this strategy to be successful, the app in question should either experience a high volume in use, or have a highly targeted audience. This allows developers and marketers to either take advantage of the large number of page views that come with frequent use, or the intrinsic value of a targeted user base to advertisers.
When to use: High volume apps with large audiences, or apps with a targeted user base
Monetize Through Subscription
Subscription models are best used for apps which focus around content generation or professional and consumer services. One of the most important aspects of ensuring success with this strategy is to minimize customer turn-over and acquisition costs.
Skype, the online calling service, which requires its users to purchase credits to make calls from their computers, stands as a good example of putting this strategy to work.
When to use: Apps with a consistent stream of new content, Apps which offer a service to users
Monetize Through Paid Apps
Charging users a one-time fee for the use of an app is one of the longest standing strategies for app monetization, although it is quickly diminishing as a relevant strategy for all but the largest and highest quality offerings.
According to a 2010 study by Harris Interactive, 95% of Adults who own smartphones in the US prefer free apps. Paid Apps often serve as a substitute for in-app advertising.
From a publisher’s perspective, charging a one-time fee for the use of an app can be a short sighted strategy. This arises from a two part problem – first you are limiting the install base of the application preventing it from reaching critical mass and viral growth.
Furthermore, having already paid for the application once, consumers will not readily accept additional charges from within the application. Because consumers traditionally do not pay for apps, when they do, they have expectations of higher quality. If their expectations fail to be met, the app can suffer from bad user reviews or decreased engagement over time.
When to use: High production value apps, Apps with barriers to entry, high volume apps
Monetize Through Virtual Goods
In-app purchases and transactions have evolved significantly over the past several years to such a degree that the size of the market is projected to reach $2.9 billion in 2012.
For example, 90% of Farmville’s revenue (the popular facebook app) comes from in-app purchases. Virtual goods present an additional avenue of monetization, one which has less of an impact on the user experience than advertisement.
Utility (goods which make the users life easier) and Vanity goods (items which allow users to show off) both present an opportunity to monetize user interaction within an app.
Offering branded ad items to users as “collectible” items poses another alternative to charging users directly. Branded items provide advertisers with direct access to increased exposure, while minimizing negative impact on the user experience.
When to use: Mobile commerce apps, gaming apps, social network apps.
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