Apps in the Apple Store follow five primary business model patterns: the free model where the app might make money via paid ads. Freemium model is where the app charges for premium features; subscription-based model, paid model, and paymium model, which is a mix of paid and freemium.
Monetization
Description
Advantages
Drawbacks
In-App Advertising
Apps display ads to users while they use the app. Revenue is generated through ad clicks, impressions, or other engagement metrics.
– Wide range of potential advertisers. – Passive income stream. – Can be used in free apps to reach a broad user base.
– May disrupt user experience. – Ad blockers can reduce revenue. – Earnings depend on user engagement with ads. – Limited control over ad content.
In-App Purchases
Users can buy virtual goods, premium features, or digital content within the app. This freemium model offers a free version with paid options.
– Encourages users to spend within the app. – Potential for high revenue per user. – Allows free app access to attract a larger user base.
– Requires a balance between free and paid content. – Risk of user dissatisfaction if paid features are too prominent. – May alienate users who prefer entirely free apps.
Subscription
Users pay a recurring fee (monthly, yearly, etc.) to access premium features or content within the app.
– Steady, predictable revenue stream. – High potential for recurring revenue. – Encourages user loyalty and retention.
– May limit user adoption due to paywall. – Requires continuous value to justify the subscription fee. – Sensitive to price changes and competition.
Freemium
Apps offer both free and premium versions. The free version includes ads or limited features, while the premium version removes restrictions. Users can choose to upgrade.
– Attracts a wide user base with a free version. – Upsell opportunities for premium features. – Allows users to experience the app before committing to a purchase.
– Balancing free and premium features can be challenging. – Risk of users seeking alternatives for free functionality. – Conversion rates from free to premium users may vary.
Affiliate Marketing
Apps promote third-party products or services through affiliate links. App owners earn a commission on sales or actions generated through these links.
– Diverse product and service options to promote. – Earnings from successful referrals. – No need to create or sell products directly.
– Dependence on external affiliate programs. – Income variability based on user engagement with affiliate links. – Risk of promoting products not aligned with user interests. – May require significant traffic for substantial income.
Sponsorships
Apps partner with brands or companies for sponsored content or features. Sponsors pay for visibility and promotion within the app.
– Direct income from brand partnerships. – Possibility for non-intrusive, targeted promotions. – Aligns with app niche or content.
– Finding suitable sponsors can be challenging. – Balancing sponsored content with user experience. – Risk of losing user trust if sponsorships are perceived as intrusive.
Licensing
Apps with valuable intellectual property (IP) or proprietary technology can license their technology or content to other businesses or developers for a fee.
– Additional revenue stream for unique or in-demand IP. – Can extend the app’s reach through partnerships.
– Requires valuable and protectable IP or technology. – Complex negotiation and legal processes for licensing agreements. – May divert focus from app development.
Crowdfunding
Apps may seek funding from users or investors through crowdfunding platforms or campaigns. Users contribute funds in exchange for rewards, early access, or equity in the app’s success.
– Provides initial capital without debt or equity loss. – Engages early supporters and potential brand advocates. – Validates market interest before full development.
– Success not guaranteed; campaigns can fail to meet funding goals. – Time-consuming to manage crowdfunding campaigns. – Need to fulfill promises to backers, which can be challenging.
Selling Data
Apps collect user data and sell it to third parties for market research, analytics, or advertising purposes.
– Additional revenue stream with potential for high-value data. – Passive income source. – Monetizes user data without direct user payments.
– Privacy concerns and ethical considerations. – Regulatory compliance and data protection requirements. – Risk of alienating users if data usage is not transparent. – User backlash if data security is compromised.
Users get those apps for free. This makes the whole experience of getting the app frictionless as it removes the barriers to entering and downloading the app.
How do free apps make money?
Developers either don’t make money, or they do make money by displaying ads within the apps. In the case in which developers decide to make money by showing ads, they need to optimize for a large user base and to have strong engagement.
Indeed, this is the most sustainable way to make enough money from a free app.
Why do developers use the free model?
The free model has a few advantages. Some of them are:
branding: a successful free app can be recognized across a large base of users
large user base: free is a powerful way to have users try your app, quickly
lead generation: if you have other apps, a free app might be used as a lead magnet to attract users to download or purchase other paid apps
While those elements might seem appealing, in reality, given the competition on the Apple Store, many free apps might never turn a dime.
Freemium Model
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.
In a freemium app model, the user still downloads the app for free, which removes the initial friction.
If the user wants to have additional features, or content not available in the free version, she/he will be prompted to buy the premium version of the app.
How do freemium apps make money?
Those apps make money by converting free users into paid ones. This implies the content in the app needs to be optimized for conversion.
Therefore, a basic version needs to be significant enough to convince free users to keep using it, add features, or limit their usage, so that free users might want more and switch to paid.
Why do developers use the freemium apps model?
The freemium model has become quite popular in the Apple Store. However, making money from a freemium, it’s not as easy as it might seem.
Convincing users to switch to paid requires a deep understanding of the users’ base willingness to pay for the app. At the same time, a paid app requires a high cost of maintenance for the content it carries.
While you might develop a completely free app, and leave it there. You can’t with an app built on top of a freemium strategy. Continuous support will be needed.
However, similar to a free model with the freemium you can easily reach a larger user base, be recognized as a brand, and convert free users into paid ones.
However, you need to make sure to keep offering a great experience for both free and paid users. This is a crucial element.
In fact, by allowing everyone to try the app for free, also those users willing to pay beforehand might opt for the free version before deciding whether to leap to the paid ones.
In most cases, providing a great experience to all users regardless of whether they choose to spend is an integral aspect of the freemium model. The path to monetization is through engagement, and when users are given time to enjoy an app, they may be more inclined to invest in paid features.
As JP Chookaszian, Director of Revenue at VSCO points out in the same article “From their first session with the app, we’re trying to develop trust with users. And we do that by demonstrating value without asking anything from them first.“
Subscription Model
Subscription-based business models are built on a recurring customer base, where customers rather than own, usually have access to the product or service. The customer can have the upside of the service, without owning the good underlying it, which is maintained by the company running the subscription-based business.
The subscription model works by paid memberships that keep renewing automatically until the user decides to cancel the service.
This implies a focus and emphasis on continuous improvement and additional features of the app. Or a reason for the user to keep paying to avoid losing something valuable.
Within a subscriber’s first year of subscription, you receive 70% of the subscription price at each billing cycle, minus applicable taxes. After a subscriber accumulates one year of paid service, your revenue increases to 85% of the subscription price, minus applicable taxes.
Thus, if the user is retained after the first year, the developer makes more money. In short, Apple tries to incentivize developers to build a model to keep users engaged or to gain them back.
Indeed, if a user unsubscribes from an app service but gets back within the 60 days grace period days of paid service continue to be accounted by Apple so that at the renewal of the first year the developer will earn more.
Why do developers use a subscription model?
A subscription model might be the most sustainable in the long run. While the user base initially using the service might be way more limited than the free and freemium model, developers also can leverage a few strategies to gain subscribers quickly.
As mentioned in the Apple Developer blog, “Apps with auto-renewable subscriptions can offer a discounted price or a free trial for a limited time at the beginning of a subscription.”
In short, developers can use one of the following strategies:
Pay as you go: this works by lowering the price of the service for a limited period, which works well with price-sensitive users
Pay upfront: one-time introductory for a specified duration at a lower price. This allows users still uncertain to enjoy of the first period with minimum investment and then decide whether to renew at full price
Free trial: the user enjoys a limited period for free. The subscription starts right away, but the user won’t pay until the end of the trial. The user can cancel before the trial ends
To make this model work, developers have to:
Create a frictionless and seamless sign-up process with a clear value proposition, call to action, pricing and terms to make the onboarding process smooth.
Offer territory-specific prices set according to country and currency.
Re-engage churned users by sending tailored messages with compelling offers.
Offer bundle apps: if you have multiple apps on the Apple Store think of a bundle offer that makes the perceived value of the overall offering way higher.
Paid Model
In a paid model, rather than accessing the app via a periodic fee, the users can get access to it via a one-time payment formula. This is extremely appealing to many.
However, by limiting the option of the users, like in the subscription or freemium model, a user will evaluate the app more carefully before proceeding with the purchase.
This implies that the app needs to be well-positioned in terms of the value proposition.
How do paid model apps make money?
Those apps make money via a one-time payment. To make sure users can evaluate the app fully before the one-time purchase, developers have to optimize the app for things like title, icon, description, preview, and screenshots.
Marketing becomes extremely important for acquiring users.
Another lever developers have is bundle offering. Those primarily consist of:
Pricing: offer a discount compared to the separate purchase price of the individual apps in the bundle.
Subscriptions: a user subscribes to one app, they must be able to access all other apps in the bundle at no additional cost.
Why do developers use a paid model?
With respect to a subscription-based app, a paid model has a pricing structure that although might create some friction initially might be in general more appealing.
Many people like one-time purchases. Also, this might also imply a lower cost of having to engage users in the long run, with support costs. On the other hand, a paid model also suggests lower predictability of the forecasted revenues.
Paymium Model
The paymium model is a mix of paid and freemium. Where users pay to download the app, but also need to pay to use additional features or get access to additional content. As the initial cost might make users evaluate their purchase more carefully, the same principles of paid models apply.
How do Paymium apps make money?
They make money by both an initial payment and an additional payment at the download level and afterward if users are converted again to a paid plan.
Developers using this model can leverage tools from both freemium and paid models.
Why do developers choose the Paymium model?
A paymium model is attractive as it mixes the levers from a freemium and paid model.
What apps have had the most grab on our attention in 2022?
According to SimilarWeb, the top Apps in the App Store are, for the US are:
Blogging is a prevalent and well-established practice, with popular blogging platform WordPress powering many websites on the internet. While a few successful bloggers really make money, those who do usually monetize through affiliate marketing, Google AdSense (or other advertising platforms), sponsorships, memberships, or selling their own digital and physical products.
TikTok, owned by the Chinese tech giant ByteDance turned as among the most successful native micro-video platforms, and it became the go-to platform for millions of young users. Thus, the “TikToker” has already become the evolution of the “influencer” from platforms like Instagram. Those TikTokers make money in a few ways, such as monetary gifts, sponsorships, advertising agreements, affiliations, and more.
Online influencer marketing is a relatively new creation, but it has fundamentally changed how brands communicate with consumers. People with targeted audiences are now the focus of advertising efforts. Influencers can tap from small to larger audiences thus, giving companies another way to promote their products. Indeed, influencers make money by selling digital products via sponsorships and affiliations, brand ambassadors programs, and physical products.
Podcasts make money in several ways. The primary sources of revenues from podcasting come from affiliate marketing, advertisements (in the form of pre-roll, mid-roll, post-roll), sponsorships, selling your own products, or by using podcasting to sell consulting services. Podcasting is an effective marketing and distribution channel, and it can be integrated within a business model.
Influencer marketing involves the marketing of products or services that leverages the popularity, expertise, or reputation of an individual. Influencer marketing is often associated with those who have large social media followings, but popularity should not be confused with influence. Influence has the power to change consumer perceptions or get their audience to do something different.
Instagram makes money via visual advertising. As part of Facebook products, the company generates revenues for Facebook Inc. overall business model. Acquired by Facebook for a billion dollar in 2012, today Instagram is integrated into the overall Facebook business strategy. In 2018, Instagram founders, Kevin Systrom and Mike Krieger, left the company, as Facebook pushed toward tighter integration of the two platforms.
TikTok makes money through advertising. It is estimated that ByteDance, its owner, made over $17 billion in revenues, for 2019. While we don’t know the exact figure for TikTok ads revenues, given it counted over 800 million users by 2020, it is a multi-billion company, worth anywhere between $50-100 billion and among the most valuable social media platforms of the latest years.
Account-based marketing (ABM) is a strategy where the marketing and sales departments come together to create personalized buying experiences for high-value accounts. Account-based marketing is a business-to-business (B2B) approach in which marketing and sales teams work together to target high-value accounts and turn them into customers.
Ad Ops – also known as Digital Ad Operations – refers to systems and processes that support digital advertisements’ delivery and management. The concept describes any process that helps a marketing team manage, run, or optimize ad campaigns, making them an integrating part of the business operations.
Venture capitalist, Dave McClure, coined the acronym AARRR which is a simplified model that enables to understand what metrics and channels to look at, at each stage for the users’ path toward becoming customers and referrers of a brand.
Affinity marketing involves a partnership between two or more businesses to sell more products. Note that this is a mutually beneficial arrangement where one brand can extend its reach and enhance its credibility in association with the other.
As the name suggests, ambush marketing raises awareness for brands at events in a covert and unexpected fashion. Ambush marketing takes many forms, one common element, the brand advertising their products or services has not paid for the right to do so. Thus, the business doing the ambushing attempts to capitalize on the efforts made by the business sponsoring the event.
Affiliate marketing describes the process whereby an affiliate earns a commission for selling the products of another person or company. Here, the affiliate is simply an individual who is motivated to promote a particular product through incentivization. The business whose product is being promoted will gain in terms of sales and marketing from affiliates.
The bullseye framework is a simple method that enables you to prioritize the marketing channels that will make your company gain traction. The main logic of the bullseye framework is to find the marketing channels that work and prioritize them.
Brand building is the set of activities that help companies to build an identity that can be recognized by its audience. Thus, it works as a mechanism of identification through core values that signal trust and that help build long-term relationships between the brand and its key stakeholders.
According to inbound marketing platform HubSpot, brand dilution occurs “when a company’s brand equity diminishes due to an unsuccessful brand extension, which is a new product the company develops in an industry that they don’t have any market share in.” Brand dilution, therefore, occurs when a brand decreases in value after the company releases a product that does not align with its vision, mission, or skillset.
The brand essence wheel is a templated approach businesses can use to better understand their brand. The brand essence wheel has obvious implications for external brand strategy. However, it is equally important in simplifying brand strategy for employees without a strong marketing background. Although many variations of the brand essence wheel exist, a comprehensive wheel incorporates information from five categories: attributes, benefits, values, personality, brand essence.
The brand equity is the premium that a customer is willing to pay for a product that has all the objective characteristics of existing alternatives, thus, making it different in terms of perception. The premium on seemingly equal products and quality is attributable to its brand equity.
Brand positioning is about creating a mental real estate in the mind of the target market. If successful, brand positioning allows a business to gain a competitive advantage. And it also works as a switching cost in favor of the brand. Consumers recognizing a brand might be less prone to switch to another brand.
Business storytelling is a critical part of developing a business model. Indeed, the way you frame the story of your organization will influence its brand in the long-term. That’s because your brand story is tied to your brand identity, and it enables people to identify with a company.
Content marketing is one of the most powerful commercial activities which focuses on leveraging content production (text, audio, video, or other formats) to attract a targeted audience. Content marketing focuses on building a strong brand, but also to convert part of that targeted audience into potential customers.
One of the first mentions of customer lifetime value was in the 1988 book Database Marketing: Strategy and Implementation written by Robert Shaw and Merlin Stone. Customer lifetime value (CLV) represents the value of a customer to a company over a period of time. It represents a critical business metric, especially for SaaS or recurring revenue-based businesses.
Customer segmentation is a marketing method that divides the customers in sub-groups, that share similar characteristics. Thus, product, marketing and engineering teams can center the strategy from go-to-market to product development and communication around each sub-group. Customer segments can be broken down is several ways, such as demographics, geography, psychographics and more.
Developer marketing encompasses tactics designed to grow awareness and adopt software tools, solutions, and SaaS platforms. Developer marketing has become the standard among software companies with a platform component, where developers can build applications on top of the core software or open software. Therefore, engaging developer communities has become a key element of marketing for many digital businesses.
A digital channel is a marketing channel, part of a distribution strategy, helping an organization to reach its potential customers via electronic means. There are several digital marketing channels, usually divided into organic and paid channels. Some organic channels are SEO, SMO, email marketing. And some paid channels comprise SEM, SMM, and display advertising.
Field marketing is a general term that encompasses face-to-face marketing activities carried out in the field. These activities may include street promotions, conferences, sales, and various forms of experiential marketing. Field marketing, therefore, refers to any marketing activity that is performed in the field.
interaction with a brand until they become a paid customer and beyond.
Funnel marketing is modeled after the marketing funnel, a concept that tells the company how it should market to consumers based on their position in the funnel itself. The notion of a customer embarking on a journey when interacting with a brand was first proposed by Elias St. Elmo Lewis in 1898.
Funnel marketing typically considers three stages of a non-linear marketing funnel. These are top of the funnel (TOFU), middle of the funnel (MOFU), and bottom of the funnel (BOFU). Particular marketing strategies at each stage are adapted to the level of familiarity the consumer has with a brand.
A go-to-market strategy represents how companies market their new products to reach target customers in a scalable and repeatable way. It starts with how new products/services get developed to how these organizations target potential customers (via sales and marketing models) to enable their value proposition to be delivered to create a competitive advantage.
The term “greenwashing” was first coined by environmentalist Jay Westerveld in 1986 at a time when most consumers received their news from television, radio, and print media. Some companies took advantage of limited public access to information by portraying themselves as environmental stewards – even when their actions proved otherwise. Greenwashing is a deceptive marketing practice where a company makes unsubstantiated claims about an environmentally-friendly product or service.
Grassroots marketing involves a brand creating highly targeted content for a particular niche or audience. When an organization engages in grassroots marketing, it focuses on a small group of people with the hope that its marketing message is shared with a progressively larger audience.
Growth marketing is a process of rapid experimentation, which in a way has to be “scientific” by keeping in mind that it is used by startups to grow, quickly. Thus, the “scientific” here is not meant in the academic sense. Growth marketing is expected to unlock growth, quickly and with an often limited budget.
Guerrilla marketing is an advertising strategy that seeks to utilize low-cost and sometimes unconventional tactics that are high impact. First coined by Jay Conrad Levinson in his 1984 book of the same title, guerrilla marketing works best on existing customers who are familiar with a brand or product and its particular characteristics.
Hunger marketing is a marketing strategy focused on manipulating consumer emotions. By bringing products to market with an attractive price point and restricted supply, consumers have a stronger desire to make a purchase.
Integrated marketing communication (IMC) is an approach used by businesses to coordinate and brand their communication strategies. Integrated marketing communication takes separate marketing functions and combines them into one, interconnected approach with a core brand message that is consistent across various channels. These encompass owned, earned, and paid media. Integrated marketing communication has been used to great effect by companies such as Snapchat, Snickers, and Domino’s.
Inbound marketing is a marketing strategy designed to attract customers to a brand with content and experiences that they derive value from. Inbound marketing utilizes blogs, events, SEO, and social media to create brand awareness and attract targeted consumers. By attracting or “drawing in” a targeted audience, inbound marketing differs from outbound marketing which actively pushes a brand onto consumers who may have no interest in what is being offered.
Integrated marketing describes the process of delivering consistent and relevant content to a target audience across all marketing channels. It is a cohesive, unified, and immersive marketing strategy that is cost-effective and relies on brand identity and storytelling to amplify the brand to a wider and wider audience.
The marketing mix is a term to describe the multi-faceted approach to a complete and effective marketing plan. Traditionally, this plan included the four Ps of marketing: price, product, promotion, and place. But the exact makeup of a marketing mix has undergone various changes in response to new technologies and ways of thinking. Additions to the four Ps include physical evidence, people, process, and even politics.
Marketing myopia is the nearsighted focus on selling goods and services at the expense of consumer needs. Marketing myopia was coined by Harvard Business School professor Theodore Levitt in 1960. Originally, Levitt described the concept in the context of organizations in high-growth industries that become complacent in their belief that such industries never fail.
Marketing personas give businesses a general overview of key segments of their target audience and how these segments interact with their brand. Marketing personas are based on the data of an ideal, fictional customer whose characteristics, needs, and motivations are representative of a broader market segment.
Meme marketing is any marketing strategy that uses memes to promote a brand. The term “meme” itself was popularized by author Richard Dawkins over 50 years later in his 1976 book The Selfish Gene. In the book, Dawkins described how ideas evolved and were shared across different cultures. The internet has enabled this exchange to occur at an exponential rate, with the first modern memes emerging in the late 1990s and early 2000s.
Microtargeting is a marketing strategy that utilizes consumer demographic data to identify the interests of a very specific group of individuals. Like most marketing strategies, the goal of microtargeting is to positively influence consumer behavior.
Multichannel marketing executes a marketing strategy across multiple platforms to reach as many consumers as possible. Here, a platform may refer to product packaging, word-of-mouth advertising, mobile apps, email, websites, or promotional events, and all the other channels that can help amplify the brand to reach as many consumers as possible.
Multi-level marketing (MLM), otherwise known as network or referral marketing, is a strategy in which businesses sell their products through person-to-person sales. When consumers join MLM programs, they act as distributors. Distributors make money by selling the product directly to other consumers. They earn a small percentage of sales from those that they recruit to do the same – often referred to as their “downline”.
The Net Promoter Score (NPS) is a measure of the ability of a product or service to attract word-of-mouth advertising. NPS is a crucial part of any marketing strategy since attracting and then retaining customers means they are more likely to recommend a business to others.
Neuromarketing information is collected by measuring brain activity related to specific brain functions using sophisticated and expensive technology such as MRI machines. Some businesses also choose to make inferences of neurological responses by analyzing biometric and heart-rate data.
Neuromarketing is the domain of large companies with similarly large budgets or subsidies. These include Frito-Lay, Google, and The Weather Channel.
Newsjacking as a marketing strategy was popularised by David Meerman Scott in his book Newsjacking: How to Inject Your Ideas into a Breaking News Story and Generate Tons of Media Coverage. Newsjacking describes the practice of aligning a brand with a current event to generate media attention and increase brand exposure.
A microniche is a subset of potential customers within a niche. In the era of dominating digital super-platforms, identifying a microniche can kick off the strategy of digital businesses to prevent competition against large platforms. As the microniche becomes a niche, then a market, scale becomes an option.
We can define pull and push marketing from the perspective of the target audience or customers. In push marketing, as the name suggests, you’re promoting a product so that consumers can see it. In a pull strategy, consumers might look for your product or service drawn by its brand.
Real-time marketing is as exactly as it sounds. It involves in-the-moment marketing to customers across any channel based on how that customer is interacting with the brand.
Relationship marketing involves businesses and their brands forming long-term relationships with customers. The focus of relationship marketing is to increase customer loyalty and engagement through high-quality products and services. It differs from short-term processes focused solely on customer acquisition and individual sales.
Reverse marketing describes any marketing strategy that encourages consumers to seek out a product or company on their own. This approach differs from a traditional marketing strategy where marketers seek out the consumer.
Remarketing involves the creation of personalized and targeted ads for consumers who have already visited a company’s website. The process works in this way: as users visit a brand’s website, they are tagged with cookies that follow the users, and as they land on advertising platforms where retargeting is an option (like social media platforms) they get served ads based on their navigation.
Sensory marketing describes any marketing campaign designed to appeal to the five human senses of touch, taste, smell, sight, and sound. Technologies such as artificial intelligence, virtual reality, and the Internet of Things (IoT) are enabling marketers to design fun, interactive, and immersive sensory marketing brand experiences. Long term, businesses must develop sensory marketing campaigns that are relevant and effective in eCommerce.
Services marketing originated as a separate field of study during the 1980s. Researchers realized that the unique characteristics of services required different marketing strategies to those used in the promotion of physical goods. Services marketing is a specialized branch of marketing that promotes the intangible benefits delivered by a company to create customer value.
Sustainable marketing describes how a business will invest in social and environmental initiatives as part of its marketing strategy. Also known as green marketing, it is often used to counteract public criticism around wastage, misleading advertising, and poor quality or unsafe products.
Word-of-mouth marketing is a marketing strategy skewed toward offering a great experience to existing customers and incentivizing them to share it with other potential customers. That is one of the most effective forms of marketing as it enables a company to gain traction based on existing customers’ referrals. When repeat customers become a key enabler for the brand this is one of the best organic and sustainable growth marketing strategies.
360 marketing is a marketing campaign that utilizes all available mediums, channels, and consumer touchpoints. 360 marketing requires the business to maintain a consistent presence across multiple online and offline channels. This ensures it does not miss potentially lucrative customer segments. By its very nature, 360 marketing describes any number of different marketing strategies. However, a broad and holistic marketing strategy should incorporate a website, SEO, PPC, email marketing, social media, public relations, in-store relations, and traditional forms of advertising such as television.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
