3 monetization trends app publishers need to know

Monetization Trends - Apps

The mobile app market is growing fast and there is no ceiling in sight.

With consumer evolution outpacing product delivery, is it time to reconsider your business model for your app? Whether you’re in the concept stages or have an existing app, trends in the ecosystem should influence how you think about making money. As specific models become more adopted, major changes will need to take place to stay relevant.

Earlier this year, we broke down the most common monetization strategies. Here we’ll discuss 3 major emerging trends to think about when structuring your app’s business model.

 

1. Subscription models are on the rise

Right now the most dominate model is a hybrid between freemium and advertising. The two work well together when considering the building blocks of a monetization strategy and great user experience.

Over the last few years, subscriptions have proven to provide the value a consumer looks for in a product or service. While businesses might see a cut in margin, the idea is to think of overall volume, and more importantly, lifetime value. Consumers want more and are willing to commit to the services they love for a monthly fee. The opportunity inherently lies in the ability for businesses to guarantee a recurring customer, and for the consumer, the consistency of new products they love or services they need.

As of June 2016, Apple and Google implemented changes which signal that subscription growth will continue to be on the rise.

On the subscription model, Apple’s App Store now only takes a 15% cut versus the 30% they used to collect. Another key indicator of this model’s market penetration is that Apple opened it to all categories. Prior to these changes, the subscription model was limited to select categories like entertainment, media, or cloud services.

On the Android front, Google has since introduced account dashboarding features that allow users to manage all their subscriptions. For businesses, if a user is negligent on payments, Google will be able to temporarily stop service delivery until the account’s billing is in good health again.

Let’s take a quick look at some of the numbers Apple and Google are reporting:

Apple’s 2016 app subscription billings were up 74% year over year to $2.7 billion.

Google has seen a 10X growth in subscription spending over the last 3 years, and 2X the number of active subscribers in the past year.

 

Subscription Model Image

 

2. Native and programmatic advertising

In-app advertising ad revenue is expected to generate $53.4 billion dollars by 2020. If you’re thinking about going with an advertising model, but not sure which or how to implement, native and programmatic advertising are important to keep on your radar.

Let’s take a look at in-app native advertising.

Facebook reports that while first party in-app native — like the ads you see on Facebook or Instagram — will continue to be the largest mobile native revenue driver, third party in-app native — operated and served into an app by an outside partner such as Facebook’s Audience Network — will be the fastest-growing. Third-party is expected to grow at an annual rate of 70.7%, and will account for 10.6% of all mobile display ads ($8.9 billion) by 2020.

 

native mobile apps

 

Programmatic advertising is simply automated ad buying. While there has been some bad press regarding fraud with programmatic ads, spend is continuing to grow as advertisers shift from open to private marketplaces to control brand safety and minimize ad fraud. eMarketer estimates that programmatic display ad spend will reach $33 billion this year and will hit $46 billion in 2019.

With programmatic advertising, advertisers can buy exchange inventory through automated means by using a Demand-Side-Platform (DSP) to connect to an ad exchange to bid on inventory sources. The DSP then provides the required scale to reach a large number of ad impressions; breaking through the noise of ads that aren’t relevant to the target audience. Many mobile marketers are adopting this process which means you will need to carefully select which programmatic exchange is the right fit for your app.

Programmatic advertising technologies can also ensure that advertisers get the lowest cost possible when it comes to mobile ad inventory. All of this helps to deliver better campaign results.

Lauren Fisher, Principal Analyst at eMarketer shares:

“Programmatic has become a huge component of brands’ media buying strategy. They are pulling away from certain platforms, but they are investing programmatically in other places like private marketplaces. Remember, programmatic is not just about open exchanges — it is lots of private buying and social media buying from Facebook.”

 

3. Business model innovation – monetizing billions of future users

Business model innovation

New mobile broadband users are increasing dramatically. Mobile Marketing reports worldwide smartphone penetration will continue to increase, and by the end of 2018, more than a third of the global population will be using a smartphone. This year more than 54% of mobile phone users will be smartphone users. While this growth is very attractive to existing monetization models, let’s not overlook who these people will be.

The important takeaway is smartphones are becoming more affordable, and thus beginning to saturate markets in developing countries – markets with first time smartphone owners who are essentially new to mobile internet. The billions of users in the future may present the following challenges that app publishers need to think about:

  • Access to credit is difficult
  • Weak purchasing power to support app fees regardless of model
  • Advertisers might pay less to reach those with less disposable income

In Asia, Africa and Latin America there is a wave of new, aspiring digital natives. They are enabled by $50 smartphones, and the burgeoning second hand smartphone markets, creating a huge demand for Internet services, apps, games, and Internet connectivity. In these emerging markets, the barriers to smartphone and Internet growth are very much about price and affordability, but also about understanding cultural differences.

Business models are in dire need for innovation if you want to capture markets at a global scale. Publishers need to focus on cultural differences when attempting to offer their value in new markets. There is a huge need to remove friction, increase flexibility, and become more analytics-driven in pricing and distribution.

“Crowdsourced by-products” have been a leading model for emerging markets monetization. For the sake of simplicity, this model means monetizing valuable and desirable information generated by free-to-play users.

A great example is Play to Cure: Genes in Space, a space traveling mobile game. What seems like another game released by a studio was actually developed by Cancer Research UK to help identify defects in real-world DNA microarray data. In just one month, data from in-game paths charted by thousands of gamers helped make 1.5 million DNA classifications. This saved 6 months of manual data analysis by cancer researchers and scientists. These apps rely on user engagement to monetize (or reduce cost) and the purchasing power of an individual user is no longer relevant, regardless of their income.

Companies who understand the barriers to use mobile services in emerging countries are not only well positioned for future growth, but more importantly positioned to shape user behavior for the future.

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