Making money in the App Store Economy
The new App economy has created a gold rush in which everyone (ISVs and individual “mom and pop” developers) is looking to cash in. Today, there are hundreds of thousands of Apps developed by thousands of developers. The success of an application and its ability to make money in this new gold rush depends on 2 factors – adoption and customer experience differentiation.
Gone are the days when any app at random can make it to the top! As these App markets become more crowded, only the best, high quality apps that create more engagement and greater utility (or a pass time) value will eventually succeed. In my previous post, I shared my perspectives on what makes a winning recipe for an application to create differentiation, drive higher session times and longer life time as well as increase adoption.
As developers work to create apps with more functionality, more depth, and more utility, thereby driving user engagement and adoption, they need ways to monetize their App and make it worth their effort. The price of the App alone does not determine the money developers make. Consumers are still undecided about paying an “upfront cost” for an App and we see higher adoption rates for free/low-cost Apps. This being said, in order to drive more downloads and increase the revenues, we see that developers have started spending money in marketing the App or offering periodic discounts on the cost of the app.
I wanted to share my thoughts on a few models that developers could adopt to capitalize on this gold rush. We are already seeing good traction with these models and some early adopters have been successful and have made strides with free/low-cost apps as well.
- Ad-supported App model – We have seen developers leaning towards this model more over the past 1 year. iPhone and Android Apps have already created enough traffic for Ad requests from Ad networks like AdMob and Mobclix. Some of the Apps leveraging this model have created revenues more than some of their paid counterparts. Though the per App revenues may be smaller compared to paid counterparts, this model can really help developers provide their Apps at a very low cost or for free there by attracting more downloads. This model can prove to be highly sucessful with the continued use of the apps (or the life time value per user) which will in turn depend on the engagement quotient of the app.
- Micro-Transactions Model – Imagine playing a game and you are 1 level from finish line and the only way to get to the next level is by defeating the mafia villain who stands between you and the next level. You wish if only you had that magic weapon that has the power to make your opponent disappear. Would you be interested in buying that weapon at that moment for 10 cents? I think you will!! Since gamers are intensely focused and actively involved in the gaming experience, developers should look at leveraging these “impulse buy” situations. If such innovations can be pursued, the basic game can be distributed free of cost to drive adoption and revenues can be achieved through these micro-transactions for the users to purchase additional features or to move to additional levels. This model can apply to apps in other categories beyond games as well. To support these in-app payments, billing and settlement models were a challenge earlier. But recently some of these App Stores have enabled developers to adopt this model as well.
- Promoting downloads through Viral Marketing – Developers can incorporate viral marketing and recommendation features in their apps to capitalize on the power of social networks and propel download and adoption. These viral features can be incorporated at a generic application level or at a individual feature level (something like "did you know this", "I used this feature" type of communication with user’s network). The power of social networks can increase awareness about the apps without the developer having to spend marketing dollars.
The success for developers in this new App Store economy will purely depend on innovative adoption of these additional monetization models. Developers can create a mix of revenue streams for their Apps through a combination of one or more of the above models in addition to the traditional download pricing model.
What are your thoughts?
