This guidebook introduces hybrid monetization and shares best practices, success stories, and resources to guide developers through the transition to a hybrid model.
In the mobile app industry, hybrid monetization usually refers to an approach that incorporates both advertising and non-advertising revenue streams to support an app's growth. In general, this approach involves implementing in-app ads in either a paid app or a free app that involves in-app purchases. Through this model, the app's revenue sources are diversified.
Apps that rely on in-app purchases or paid downloads alone are behind the times – and missing out on major revenue.
According to an AppsFlyer study, only 7.1% of iOS users make at least one in-app purchase per month, and only 4.6% of Android users do. And because paid apps tend to get fewer downloads, the revenue they generate can be limited.
Ads can increase mobile app revenue by 10-30%
To counteract these limitations, in-app ads can maximize the revenue-generating potential of non-paying and paying users alike. In fact, Pangle's data shows that ads typically increase mobile app revenue by 10-30%.
89% of mobile developers have already adopted in-app ads
Both developers and advertisers are recognizing the value of in-app ads: 89% of mobile developers already use in-app ads as of December 2019, and advertisers are expected to pour more than US$240 billion into ad spend in 2020 – up 26% from 2019.
Freemium + ads
Freemium apps are apps that offer free downloads and free access to basic functionality, with the option to pay a fee for premium features.
Inevitably, many users will never purchase the premium features, but they can still generate revenue. Rewarded video ads are an especially effective way to monetize non-paying users of freemium apps. With this format, users can choose to watch ads to unlock premium features – or just a trial of a premium feature, if you're concerned about maintaining in-app purchase volume.
Of course, freemium apps can also simply include ads of any type within the free features.
Subscription + ads
The subscription model is usually adopted by video/music streaming apps, news apps, and some utility apps. Some developers believe that ads have no place in subscription-based apps, but subscription and advertising can indeed co-exist, so long as the ads are shown to the right user groups.
For subscription-based apps that provide some free content, user behavior data and A/B testing can help you identify user groups that generally consume only the free content. Then, you can incorporate ads into the free content and show them to these user groups.
Paid downloads + ads
If you rely solely on a pay-to-download model, your users stop generating revenue immediately after they purchase your app. Over time, a relatively inexpensive app without in-app ads will likely earn less revenue than a free app containing in-app ads. To maintain revenue gains in the long term, consider turning your paid app into a free app and carefully implementing ads.
Deciding which users should see your in-app ads depends on your priorities. If your priority is to give your loyal paying users the best experience possible, your in-app ads should target users who rarely or never make purchases. But if maximizing revenue is your goal, you should be showing ads to all users, while modifying the frequency depending on each user’s likelihood of making purchases.
To ensure good user experience, select ad formats that fit your app type. Pangle supports all three of the most common ad formats: rewarded video ads, interstitial video ads, and native ads. Here are some typical placements for each ad format:
To avoid negatively impacting user experience, clearly distinguish ads from other content. In addition, avoid having ads interrupt user flow or pop up without notice. This is especially important to pay attention to when designing interstitial video ad placements.
Churn rate and average revenue per user (ARPU) are your two most important metrics. Churn rate tells you how ads are impacting your users, and ARPU tells you how ads are impacting your revenue. When you first implement ads, try keeping other variables constant for a time while you observe churn rate and ARPU. These metrics can help you better plan out ad placement design, display frequency, and target user groups.
In-app ads can actually encourage more in-app purchases. Use rewarded video ads to offer trials of paid features, or to offer in-app currency that enables in-app purchases. Many developers prioritize the experience of paying users by only showing ads to non-paying users.
Combat of Hero is a martial arts-themed mid-core casual game published by Ohayoo. Currently the #1 mobile game in Japan, it has racked up 5 million downloads from users all over Asia.
To maintain strong profitability, Combat of Hero uses a hybrid monetization model combining Pangle's in-app ads with in-app purchases. Rewarded video ads are used to optimize experience for non-paying players, helping them tackle short-term obstacles within certain levels. These ads also encourage primary and secondary players to make in-app purchases. Meanwhile, in-app purchases optimize experience for paying players, helping them level up and achieve success in the long term.
This model has led to a 30% increase in user lifetime value (LTV) with consistently strong user retention rates.
Powering App Monetization with Hybrid Models.pdf