You’ve built your business’s smartphone mobile app- but how are you going to make money out of it?If you’re thinking of a suitable price tag for it and hoping that it will take the various app stores charts by storm- you could be in for a nasty surprise.
Mobile app downloads are expected to have increased from over 7 billion in 2009 to almost 50 billion in 2012- which works out a growth in revenue from £2.5 billion to £10.9 billion.
But although 80% of the 2009 figure is accounted for by paid apps, by 2012 that is expected to drop by around half.
The rest is made up of a mixture of advertising, virtual goods (things bought within the app environment, such as tools in social games such as Farmville), and other revenue models.
Sometimes giving your app away for nothing may mean a bigger payoff in the future.
Top 5 revenue streams
- Paid apps
- In-app advertising – you get paid for each ad seen
- Virtual goods – for example buying tools in Farmville
- Subscription – charging a monthly fee, for example to access news content
- Marketing – a free app used to promote a product
- Hybrid- free initially then charging for premium content
As such, different business models need to be developed for different types of content. To do this, you need to measure two things – stickiness and utility.
Utility means how much the user values the time using your app.
The general rule is the higher the utility of the app, the more the consumer is prepared to pay for the app up front.
If it’s a relatively simple application, like a web app like chat or messaging, the consumer is less likely to pay anything at all and you have to go for other models.
Stickiness refers to how often you end up using an app – if you ‘stick’ with it.
The majority of games that are only played three or four times and are very unsticky, however some apps like Facebook are extremely sticky.
Stickiness means that advertising might be a good option.
If you have an unsticky app and choose to go with advertising, you will only display it three or four times. As the current rate is £1 for a thousand impressions, you won’t make much.
If you have a high utility but low stickiness you go for a paid app. High stickiness and low utility, like web applications, then advertising is the choice.
Virtual goods – for example things players need to enhance a game – have been pioneered by companies like Zynga, the creators of Farmville.
Considerations include whether your target market can easily pay for things – for example are they underage and have no access to a credit card?
And you need to weigh up the rates taken by the market place for a paid for app with the rates charged for using advertising.
Apple, for example, takes 30% of the face value of every app sold in its iTunes store.
But if you simply want to promote a product – a shiny new BMW, for example – then making your app free and recouping the cost in increased sales is the sensible option, says Mr Laurs.
As long as the app is perceived as free for the consumer then the marketability of the app is generally 50 times higher than any paid app.
It’s obviuosly easier to get consumers converted to free apps than to pay for them. It’s human nature.