The issue of how to charge for apps has been a thorny one since the arrival of the iPhone, and with it, the Apple App Store. OEMs and operators were forced to follow suit, and since then, there has been a proliferation of app stores. Over the intervening years, the problem of how to charge for content has not disappeared.
Apple succeeded with the App Store, thanks to two key factors. The first was that is already had millions of registered iTunes accounts in place when it launched the iPhone; the second, that the App Store was the only place for end-users to get app content for their iPhone.
But the App Store, while sophisticated and refined in some respects, remains decidedly old school in others. The majority of the revenues are still generated by pay-per-download activity, and developers, wanting to use more powerful monetisation strategies such as in-app billing or advertising, need to spend both time and money on integrating approved SDKs in to their code, and testing them afterwards.
Despite the inherent limitations of the App Store, no non-iOS app store has been as successful, which means that it’s difficult for developers to generate the same level of revenue outside of the Apple App Store. Only yesterday, app developer skobbler announced that it was withdrawing its free navigation app from Android Market, citing the success it has enjoyed on the iOS platform as one of the reasons behind the decisions.
Premium charging
To date, premium charging is the traditional way of monetizing mobile apps. Previously, most content was offered as pay-per-download from operator portals, where the customer would pay first and download after successful payment. This model is now losing out to the more user-friendly in-app billing model, where customers download and install the app, and then pay inside the application.
In-app billing brings with it a number of advantages. Firstly, customers will always be able to download products to their devices, so distribution is guaranteed. Secondly, as new pricing and licensing models become available, these can be easily incorporated. Thirdly, conversion to purchase can be improved, due to lower entry barriers and ease of purchase. Fourthly, recurring revenues will increase revenues from usage-based models. Finally, apps can be preloaded and unlocked on operator or OEM devices, following a free trial period.
When it comes to non-premium models, such as advertising, the market has evolved quickly, particularly on Android, where premium models have not been as successful, due to the fact that Google Checkout is a much less attractive payment option, compared with operator billing. Developers have therefore opted to integrate various advertising solutions into their apps. These range from traditional banners, to incentivised downloads.
No longer either/or
In the current developer market, premium and advertising working together to maximize revenues for developers has been an either/or scenario up to now. If you go with ads then you exclude premium, and if you go with premium you exclude ad revenues. However, it is now possible to increase conversion rates significantly for premium apps by combining pricing and advertising offers.
Using automated wrapper technology, developers do not need to rebuild or add code to their products in order to implement a variety of monetisation solutions. Wrappers can be applied to any app, and can include both in-app billing and offer walls. This way, both premium and non-premium models can live alongside each other, and developers do not need to decide, during the design stage, whether to go fully premium or fully advertising with the game.
Offer walls such as Sponsor Pay and Tapjoy can be integrated into the wrapper. These offer credit-based purchasing, where credits can be earned by taking part in advertising offers. Customers get free credits to start with, enabling them to try the application, and earn credits in order to buy further access. After earning and spending credits on the game the customer can also decide to buy the game, paying via operator billing or credit card.
On average, 10 per cent of people decide to pay premium for an application after a free trial, but 90 per cent do not complete a purchase. With the combined premium/advertising model, it is possible to improve average conversion rates significantly, without cannibalizing existing revenues.
Jens Lauritzson is CEO of Flexion, whose wrapper solution currently supports the automated wrapping of Android, Java and Blackberry apps
