How mobile app monetization is challenging conventional payment methods

By Evan Rose

Mobile apps are no longer merely extensions of visual identity efforts that serve to build brands and maintain them in the public eye. These apps are important potential sources of revenue for the companies that publish them. As mobile payments continue to proliferate, it is increasingly probable that mobile payments will rival conventional payment methods such as credit cards and PayPal. The in-app purchase revenue model continues to gain traction as a solid method of revenue generation for many mobile application developers.

The concept of an in-app purchase is quite simple. It is one type of mobile app monetization strategy that involves generating revenue from the sale of physical or virtual goods from within the app itself. There are many types of in-app purchases, including consumer goods such as clothes and accessories. Game apps commonly offer virtual items such as extra lives or in-game currency.

Various types of in-app purchasing

A 2016 Gartner survey revealed that a typical mobile user is more likely to make a purchase on one or more in-app features than he or she is to buy the app prior to downloading it. On average, users spend over 24 percent more for in-app purchases than is spent on buying the app.

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For mobile apps, another way to think about the in-app purchase is to view it as a similar mobile app monetization model called “freemium” monetization. Depending on the design of the mobile app, this can include various approaches. It’s possible to monetize the following:

  • Upgrades
  • Accelerators
  • In-app currency
  • Additional functionality
  • Special sets of emojis or icons
  • Access to additional services
  • More usage time
  • Hiding ads
  • Some combination of the above

For content apps, it’s common for basic services to be available for free, and access fees are charged for more valuable content. Or, regular delivery of premium content or services is made available from within the app with recurring monthly or annual billing. For instance, consider The New York Times app. The basic free app gives users access to a specific number of articles, but if they reach this limit and want to enjoy more articles, they need to pay a modest subscription fee.

Is mobile app monetization model right for you?

In-app purchases of physical goods on mobile devices are becoming highly critical for many brands. Though it’s becoming universal, mobile isn’t the only game in town. If a customer decides to buy those sunglasses at one of your retail locations instead of making the purchase on your mobile app, you’ll be happy the sale was made in one of your segments. The purchase is equivalent, right?

Not really. Mobile users increasingly have such a high level of engagement with their devices that they extensively research potential purchases while inside retail stores. Or, they opt to finalize a shopping experience on their desktop browsers that had begun on their smartphones. Each time a customer begins a purchase sequence on mobile but intends to finalize the purchase through another option, the purchase is at risk. Companies that successfully convince their customers to complete in-app purchases will remain in the best position as mobile apps become evermore critical to the lives of their prospective customers.

The following are some of the advantages of the in-app purchase model:

  • It’s especially suitable for mobile commerce brands.
  • It’s adaptable to other business verticals.
  • Marketers can experiment with incremental offerings with low risk.
  • It can easily adapt to partner and affiliate programs that attract referral revenue.

However, the in-app purchase model also introduces some business burdens, such as the following:

  • App stores retain a portion of the revenue for purchases of virtual goods.
  • Apps will need to be more transparent on their app store listing page if they include in-app purchases, which may prevent some people from downloading.
  • Care must be taken in the design of in-app purchasing that targets children, since Mashable reported that governments are urging app stores to enforce strict regulations that prevent accidental purchases.

When choosing in-app purchasing as a mobile app monetization approach, a mobile app developer must balance the number of free features necessary to attract users with the number of features that will generate sustaining revenue. Whatever offerings are found within a mobile app, it’s important to ensure any in-app purchases integrate well so that the user experience remains smooth and natural.

Image source: iStock

Written By

Evan Rose

Web/Mobile Applications Developer and Founder of Rose Digital

Evan Rose is a web/mobile applications developer and entrepreneur. He started Rose Digital, a New York based minority-owned digital agency focused on mobile and single page responsive web applications, in 2014 and since then has built and delivered web and mobile applications for…