Monetization: Picking The Path To App Profitability

Monetization White PaperThis is an excerpt of a white paper I wrote for The Application Developers Alliance.

Developers get their motivation to build from a passion that is equal parts creativity and innovation, but to a certain extent, the bottom line to success is the bottom line. Those who make money on their applications get the resources they need to fund future creative projects. As CEO of HitFox Group Jan Beckers says, “Monetization is survival.” The best way to make sure that happens is to map a path to monetization for each app well before it hits the market.

One of the first questions to answer is whether to put a price on the app or rely on in-app purchases, advertising or other approaches to generate revenue. As AppMuse CEO Mark Stetler noted last year, “The mobile app ecosystem is steadily trending to a point where the free mobile app is the rule rather than the exception.” Developers also have to decide where to sell their products — exclusively in one of the top app stores, in third-party venues, in specialized markets, or a cross multiple platforms.

The advantages and disadvantages of each monetization strategy vary from app to app. This paper explores the many options to help app makers streamline the decision process.

The big decision — App Store, Google Play or both
Realtors love to say the three most important factors in marketing a property are “location, location, location.” Their mantra sounds a lot like the question app makers ponder every time they imagine a new product: “Locations, locations, locations — which ones will lure people to the revolutionary invention I’m about to build?”

The two most important locations are Apple’s App Store and Google Play, the top marketplaces for the iOS and Android systems. Most developers will build for one operating system or the other because of their dominance — 91 percent of the global smartphone market in 2012, according to International Data Corp. — and perhaps both.

Developers have more than 500 million reasons to consider the App Store. That’s how many iOS devices Apple had sold as of last December, including 75 million in the fourth quarter of 2012 alone. The operating system is limited to Apple devices, but app consumers can choose from an array of those — multiple generations of the iPad and new iPad Mini, the iPhone, the iPod Touch, and even Apple TV.

The App Store appeals to developers because of its size. At more than 800,000 apps as of January, it is the largest store. The 23 categories also give users the broadest selection of apps. They have downloaded more than 40 billion of them over the years, activity that has generated payouts of more than $7 billion to developers.

Some developers don’t like the App Store’s “walled garden,” which requires them to get Apple’s advance approval to market apps. But DLP Mobile CEO Zak Tanjeloff sees a money-making advantage in that approach. “The App Store has a higher proportion of quality apps, thanks to the approval process,” he said. “That means developers can, and have, charged more for their apps.” He added that consumers see the App Store as “a safe community” because of its connection to the iTunes payment process.

But developers definitely should consider the restrictive nature of the App Store when plotting their monetization strategies. To win Apple’s endorsement, app makers have to adhere to guidelines that cover user experience, functionality, content and the use of specific technologies. Companies that want to give their apps away for free and instead make their money on in-app purchases also may not make the App Store cut. Once apps are in the store, they face additional reviews for every update.

Read the full paper in PDF format.

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