Mobile App Monetization Part 3: Revenue Generation Models

The article was originally published on Forbes.com

In my previous articles, we have already considered some of the mobile app monetization models. In this article, I will tackle user subscription, affiliate deals, service fees and m-commerce in order to help startup founders monetize their ideas. 

User Subscription (SaaS)

The subscription model works with mobile apps exactly as with any other SaaS: A user subscribes for an app and is automatically charged over the subscription period until they cancel.

AppAnnie recently reported that subscription revenue from nongame apps resulted in a consumer spending boost for the entire industry up to $120 billion worldwide in 2019. 

As for the revenue made by subscription apps, Sensor Tower points at 21% growth as a result of $3.8 billion that the top 100 apps in this category generated. The total revenue for subscription apps was $4.6 billion in 2019. This figure made 19% of total consumer spending on the Apple and Google app stores for that year.

The subscription model is a source of revenue on an ongoing basis. To keep churn rates at bay and extend user lifetime with this model, you should be prepared to constantly innovate user experience and update your content. This takes up resources, but users are unlikely to pay recurring fees for the same limited content on a monthly or quarterly basis.

Subscriptions will also be especially beneficial if you can measure the services that your app provides or the content it allows access to in units like credits. With every payment, the credit count will renew for your users. If they want more, let them get additional credits through in-app purchases and exchange them for content or services.

For example, when you subscribe to Amazon’s Audible app, you get one credit per month, which you can exchange for any audiobook in its library regardless of the price, and prices range from $3 up to over $35 per title. 

In addition, you can choose free titles from the Audibles Special section each month and listen to daily news including the New York Times, Washington Post and Wall Street Journal.

In a nutshell, if you are sure that you can provide value for users on an ongoing basis, the subscription model will be a good option for you.

Affiliate Deals

Affiliate marketing is not an app-specific concept. By using this model, you can earn a commission fee every time someone follows an affiliate link placed in your app and takes specific action.

These actions range from downloading an app to purchasing a product or using a service. 

The affiliate approach is more beneficial for advertisers than regular apps in the sense that they are charged per effective consumer behavior rather than ad impression or click. If 298 app users click through an affiliate link but no one buys, shares their contact information or downloads an affiliate app, it costs nothing to the advertiser.

Discount coupons and promo codes generated within your app are probably the clearest example of how this works. The Coupons app, for example, built its whole business on providing users with such codes.

You should consider implementing this model if you plan to partner with businesses that offer products or services in high demand.

Service Fees

Transaction fees, service fees or payment fees can be a powerful source of revenue for apps that are designed as a digital marketplace.

Depending on the specifics of your app business, such as target audience, niche and merchants, you can choose whether to charge vendors, consumers or both. Airbnb, as an example, has two options for service fees: shared host and guest fee (3% and up to 14.2%, respectively) and host-only fee (14% to 20%) as mandatory for hospitality businesses.

Service providers and merchants benefit from the fee model because they only pay you when they get paid, thanks to you. This feature makes this model especially suitable for startups, where the app lifetime and efficiency over time are hard to predict.

In other words, if your app operates as a mobile marketplace, why not follow the example of eBay, Fiverr, Uber, PayPal and other successful businesses?

M-Commerce

Companies that use apps to sell products and services are in the mobile commerce business.

Mobile commerce (m-commerce or mCommerce) connects smartphone users with merchants enabling deals between them. Offers range from financial services and wholesale to stickers, slippers and private counseling.

According to Statista, sales made through mobile in the U.S. are likely to reach $339.03 billion in 2020, compared with $207.15 billion in 2018. The upward trend is due to the growing security of mobile apps.

If you plan to distribute your goods and provide services within a unique ecosystem, building an m-commerce app is the right choice for you.

In my next article, I will talk about crowdfunding and donations.

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