App monetization definition
Mobile app monetization refers to the various methods and strategies employed by app developers to generate revenue from their mobile applications. Simply put, it’s how an app makes money.
App monetization models
There are several app monetization models. Each model varies in user privacy, user experience, and cost to developers. It’s an important aspect for app developers to bear in mind when building their apps as the monetization model(s) chosen can affect the user experience (UX), app layout, features, and more.
Many app developers today find success in utilizing a combination of the following app monetization models combined into one cohesive app monetization strategy.
Paid apps
In the pay-to-download monetization model, sometimes called the premium model, users pay a fixed amount to download the app. This model was previously the most popular model among app developers as the technology needed for the other models had yet to be developed.
However, as of July 2023, 8% of the apps on the Apple App Store are paid and only 4% of apps on the Google Play store are paid. As most apps are free today, a paid app must establish its unique value effectively to compete in the market.
In-app purchases
With the in-app purchase revenue model, users purchase items, events, or content within the app post-install. In-app purchases (IAPs) can even help to enhance the user experience. They vary depending on the vertical—upgrades in a productivity app, exclusive access within a fitness app, or items and unlocks for gaming apps, to name a few.
In-app advertising
In the in-app advertising model, users are served third-party ads during app sessions and the publisher receives payment depending on the cost model used. For example, rewarded video ads are a form of in-app advertising in which a user is rewarded for watching a full-screen ad. The reward can be an app currency, completion of a level, etc.
In-app advertising is often used in the freemium monetization model discussed below.
Freemium model
Using the popular freemium model, users download and experience an app free of charge, but certain features are reserved only for paying customers. Should a user wish to unlock premium content or remove ads, they’ll need to make an in-app purchase or pay for a subscription (see below).
Spotify is one of the most well-known apps leveraging a freemium pricing model. Users can download the app and listen to its content for free with ads. However, Spotify gives users the option to purchase a monthly or yearly subscription, allowing them to listen to Spotify’s music and podcasts ad-free.
Subscription model
In the subscription revenue model, users pay either a flat rate subscription or choose from a selection of subscription tiers, offering developers a consistent revenue stream. This monetization model is especially beneficial for apps that provide ongoing value, such as news, productivity tools, or entertainment platforms, as it fosters a sense of loyalty among users who appreciate the continuous enhancements and specialized offerings.
A free trial period of an app is an excellent way for developers to demonstrate the full capabilities of their freemium or subscription-based app. Users can download and try the app for free for a set time period to determine if they want to commit to the paid app.
For example, Amazon’s audiobook app Audible gives subscribers one audiobook per month with their subscription. Audible offers a 30-day free trial so potential customers can experience their app to discover its value before subscribing.
Sponsorship model
In this model, an app developer provides sponsorship opportunities to companies by offering them brand exposure within the app. Sponsorships work well for apps with a large user base, but also if an app is widely known within a niche market–as relevant companies will likely be interested in the app’s user base.
The sponsorship monetization model differs from in-app advertising as developers do not need to integrate their app with an ad network to run ads. Instead, the ads are typically more static and further tailored to the needs of the sponsor’s brand. For example, a developer could add a sponsor’s logo to their loading screen.
