Robin Thurston is CEO of MapMyFitness
You’ve already beaten the odds — your app is successfully gaining adoption. But now a more difficult challenge looms: You need to parlay that app success into a viable business.
A successful apps-based business will demand many of the easy-to-overlook (but crucial) conventional business functions that go beyond pure app development and software maintenance such as customer service, PR and marketing, finance, operations, etc.
But let’s put those things aside for a moment and focus in on the biggest single challenge facing the developer of a successful app: Generating a sustainable revenue base from which to grow a business.
Here are three ways to do that:
#1 – Paid apps
Paid apps are an indispensable component to any revenue-generating efforts in the current app store environments. Any developer offering a free app should strongly consider offering a paid version as well (and vice versa), even if alternate revenue generation strategies are in play.
There are a few reasons for this:
- There is a large class of consumers who simply prefer paid apps. They directly seek paid apps via the app store categories and will download a paid app over an identical free one.
- Paid apps can easily and effectively be directly promoted by the developer. E-mail blasts to the free app user base, and interstitial notices within free apps can be a highly effective way to boost revenues and better, boost paid apps high in the rankings of the app stores. By utilizing these tools in bursts. developers can maximize organic revenue lift from the rankings jump as well.
- App stores treat paid apps differently. There are times when the app store editorial teams are looking for a paid app to promote (over a free one).
- Temporary price drop promotions are easy to execute, and very effective.
Important points to consider with paid apps:
- Consumer expectation of lifetime support: Even at a $.99 price point, consumers have come to expect a lifetime of value and support from an app developer. Carefully consider what upgrades you are offering and how these are messaged to the consumer. Paid apps are a one-time charge only, and consumers rarely expect to have to pay more to unlock additional value from a paid app or have a feature set change down the road.
- App store dynamics favor lower price points. If you have high-cost content or expensive features, figure out how to break them up into bite-sized chunks to keep prices low and revenues aligned with costs.
- Free app downloads tend to be the best source of leads for paid app upgrades. Make sure you can reach your free app users effectively and convert them to the paid app. Do so in strategic bursts with other marketing initiatives for maximum efficacy.
#2 – In-App purchase
In-app purchases can be a great way to generate revenues from both free and paid apps. Moreover, they can be used to effectively gather information on price and feature combinations that will sell most effectively, since product pricing and descriptive information can be modified on the fly if implemented properly.
Both one-time and subscription models can be realized via in-app purchase — although on certain platforms, auto-renewing subscriptions are only approved for use by certain types of applications.
For one-time in-app purchases, many of the same guidelines apply as with paid apps, although typically the promotional tactics that are used for paid apps are less effective when applied to in-app purchase (due to the limited number of ways to drive users to in-app purchase checkout flows).
Subscription models via In-App purchase represent a sustainable, renewable revenue stream for developers. By building in time or usage-based product expiration, developers can build repeat business from customers over a longer time period.
This model requires intensive focus on repeat usage and conversion — without auto-renewal, the customer has to re-purchase the service at regular intervals, and achieving solid renewal rates can be difficult for even the most popular apps.
#3 – Advertising and sponsorships
Much has been written about the challenging state of mobile advertising. Inventory is outpacing demand, ad units are highly commoditized, and the upside for developers via indirect ad sales (ad networks) remains bleak as mobile eCPMs (effective cost per thousand impressions) have remained flat.
There are, however, some developers experiencing great success with mobile advertising, who tend to employ a combination of three key ingredients:
- A unique and desirable audience
If your app users are distinctive in some way versus typical smartphone users, they become more desirable for direct advertising or sponsorships.
- Differentiated and targeted native ad “experiences”
Due to the proliferation of banner advertising, distinctive ad experiences offer unique opportunities for brands and agencies, coupled with much higher response rates from consumers. These can include rich media ads (i.e. audio/video), however, targeted “experiential” customized ad units that are unique to your app’s user experience offer a high value engagement vehicle not available elsewhere. One great example is audio ads for apps with a strong audio oriented experience. Additionally, full app takeover sponsorships provide brands a high degree of exposure and offer a more memorable experience than traditional banner campaigns.
- Direct sales
A high performance direct ad sales team that knows how to demonstrate the unique value of mobile advertising can be a major benefit. This is difficult to build, however, and requires a certain scale before it’s even feasible.
Generating a sustainable revenue stream is by far the biggest challenge when trying to make the leap from building apps to building a business based on them. Through a savvy and thorough consideration of all the options and app store dynamics, developers can maximize their chances for success.