The App Developer Business KitLearn how to grow your app idea into a successful business.
From an idea to anaAppUnderstand the principles for success, and hear advice from some of the world’s top app developers.
GrowthAttract more users, expand into more markets and use analytics to improve your app.
Thinking BigHow to go from one great app to a portfolio of great apps, and important considerations for expanding your business.
Nine TipsQuick tips to help you shape your app project.
What are the ingredients forThere’s no magic formula for creating an app that will
gain millions of users. But you can certainly improve your chances of success by
following the right principles. Here we explain what those are, and share valuable
advice from some of the world’s top app developers.
a successful app?
Before building your app, consider who your ideal user would be. Are you building a
game for a certain demographic? Is it for people in a particular country or region,
or do you want your app to have global appeal? Knowing your user before you build
your app will help you make strategic decisions from the beginning. And it will
make the design process easier because you’ll be building the app to a narrower
We spoke to Polish app developer Szymon Klimaszewski whose Blood Pressure app has become one of the most downloaded health apps from the Google Play Store. He set out to build a blood pressure monitoring app that was quick and easy to use. He expected the app to be popular with older users and this influenced his approach to design.
“When I thought about building it I knew I wanted an app that can be used quickly, in five seconds. I considered who the users would be and this led me to create a simple design that doesn’t have a lot of hidden features or buttons. For most people the app is very intuitive and quick to use.”
Do you know the market trends?Knowing what’s popular
in the app stores is an important part of coming up with a winning concept. Of
course, the idea here isn’t to mimic successful apps, but rather understand the
overall direction of the market and consumers’ tastes. You don’t want to spend
months building a gaming app with a style of play that users grew tired of a year
ago. Free services such as App Annie provide insights into
what’s trending in the app stores, with info on many app subcategories, and also
top download charts by country. You’ll be able to tell the relative popularity of
puzzle games vs shoot ‘em ups, for example. At the end of the day, it’s easy to get
seduced by your own ideas and build apps based on your likes and dislikes, but make
sure it’s grounded in what people want.
Tuyen Nguyen, Mobile Developer Advocate at Google, stresses the importance of knowing the market:
With millions of apps available, it’s important to differentiate your app from the
rest. That’s something you’ll think about a lot before building your app, and
careful analysis of the market can help you find a niche.
Artavazd Mehrabyan is the founder of PicsArt, an app development company with a passion for photography. Their wildly successful PicsArt Photo Studio app is the most popular photo-editing app on Android with over a million ratings. He set out to build a feature-rich photo app unlike any other – and with that came risks.
“Our team was having a discussion about the lack of a good photo-editing app on mobile. There was the perception of mobile as a limited platform with limited capabilities. At the time, photo apps were fairly simple and were being created to solve one or two tasks. But we believed they would become more powerful in a short amount of time, and we started development on our photo app in 2011. By combining multiple tools into one single photo studio it was risky, because we were developing a bigger application that takes a longer time to download, and we never knew if users would accept it or not. But it offered users something new, and eventually led to tens of millions of downloads.”
72% believe an important characteristic of a good quality app is one which opens quickly
Mobile Apps Consumer Study, AdMob and Parks Associates, Oct 2013
Many of the successful app developers we’ve spoken to over the last year have an
incredibly strong focus on creating the very best experience for their users.
Toni Fingerroos is the founder and CEO of Fingersoft, the company behind Hill Climb Racing, the globally popular racing game with more than 100 million downloads across all platforms. When he set out to create a racing game it was extremely important to him to build a brilliant user experience; he concentrated on refining the physics engine which controls how the vehicles move and respond.
“When we build apps our main focus is on gameplay. I realised something important as I went through the process of building Hill Climb Racing, I realised that everything should be kept simple. Everything started working much better from that point on. Keep it simple. To me, the fact that users like what you’ve made is key to the definition of a successful app.”
Apart from gameplay, making sure your app works flawlessly is important too. Untested and buggy apps just won’t cut it when users can uninstall apps and download an alternative in seconds. A well-honed user experience can be the difference between failure and success. AdMob research shows that 72% of US smartphone users believe an important characteristic of a good quality app is one which opens quickly, and 70% thought that ease of navigation was important to the overall app experience.
Funding your appThere are many different options for funding an app, some of which may surprise you. In this chapter we explore the established methods and those which are more unconventional.
Does your app need funding? Whether or not you need funding for your app depends on the type of app you’re building and your personal situation. You don’t want the potential build costs to be a barrier to development, so it’s worthwhile anticipating what they could be from an early stage. Some examples:
Productivity, social or gaming apps which require retrieving a user’s work, communications or level may require a cloud storage solution.
Location-based apps that provide directions or proximity information (e.g. a user’s distance from a local store) may require map licensing fees.
Apps that access proprietary software, such as APIs or development engines (for games), may incur licensing fees, and you may need to purchase more than one package if your app is cross-platform.
If you're building a very rich app that needs ongoing development work, you may need to contract or hire developers long term.
Consider hardware costs too; you’ll probably want to equip yourself with devices for the platforms you’re building for, to enable testing.
Here, we consider established and emerging methods of funding. Established methods
of funding are the traditional sources of investment such as self-funding and
business loans. Newer, non-traditional methods include crowdfunding. Our rundown
examines the merits of each one.
If your app has minimal costs then self-funding can be a preferable option. If you’re developing the app full time, project manage your development time effectively so it doesn’t exceed the budget you’ve set aside to support yourself day to day.
Many developers have success with no outside investment. Park Young Ok, creator of Bouncy Ball, a game with more than 10 million downloads on the Play Store, is an example. Park was working in a normal job after graduating from university, but wasn’t fulfilling his dream of building a video game. One day, a senior executive where he worked told him, “You need to do what you love in order to become successful”. Park quit his job and focused on making games, “I received no investment. You may say that the impulsive decision to give up my job security was a sort of ‘investment’.” Explaining his decision to self-fund, he said “Any investment from a third party carries a risk. An investment of that kind can make developers or development teams stressed out. This is why I have never seriously considered seeking funding.”
Another option is to partner with other app developers, perhaps those with skills complementary to your own (e.g. graphic design, ability to code on different platforms), to form a company, work on the same project and split the costs.
The traditional route for a small business is perhaps a less well-trodden path for app developers. This can be attributed to the infancy of the app economy and perhaps the lack of familiarity that banks have with the various business models. But that doesn’t mean this method is off limits. Banks will back businesses with a good strategy and you’ll need to provide a business plan with forecasts of your expected return on investment.
Friends and family
What better way to measure the worthiness of your concept than by asking close ones to invest? True, these should be the very people who have faith in you regardless, but their willingness to match that confidence with cold, hard cash will say a lot for your idea. Traditional models involve offering a percentage share of profits to your investors, or simply repaying their investment at a rate more favourable than you’d obtain from a financial institution.
Angel investors should be able to offer something valuable in addition to financing: market expertise. When seeking an investor look for those that specialise in app development. Their experience and connections may help you further down the line, with aspects like marketing your app, and you’ll be able to use them as a sounding board on a regular basis. In this relationship, the investor will probably own a share of the business and may take an active role in important decisions.
Venture capitalistsNewer app developers may not
immediately think of venture capitalist funding as an option, but VC funds have
seen app developers as serious investments for a while now. Investment bank
Digi-Capital reported that funding for mobile gaming apps reached $876M in the year
up to Q3 2013.
For the developer, tapping into the right networks to set up meetings takes more effort, and there’s the perception that a product has to be on the verge of going ‘prime time’ before an investor will be interested. However, opportunities do exist.
At what point did you decide your app required funding? “We started the app in August 2010, and by September 2011 we were looking for funding. At the time, things were working because we had our day jobs so we could pay for the servers. Then we’d be working from home at night. But we had problems juggling our jobs and working on the app. We didn’t have enough revenue from the app to support all of us, so we couldn’t quit our jobs unless we were prepared to live off credit cards. We wanted to take a safer approach so we considered other options.”
When did venture capitalist funding become a realistic option? “I flew to San Francisco to meet with some people I knew who also had a start-up. Their start-up was part of an incubator and they encouraged me to join an incubator program and also seek funding. Previously I thought VC funding would be only for really big things, but after that trip I realised that all kinds of apps can get funding. As we were going through the incubator process someone got in touch with us who’s an expert in acquisitions, and he knew a lot of investors. He introduced us to venture capitalists and we struck up relationships with people who went on to become our investors.”
What are the benefits of venture capitalist funding? “Investors are generally well connected, so they put you in touch with start-ups you may not otherwise have known. This can lead to partnerships and give you conversations with lots of experienced, smart people who can provide you with sound business advice. Also, aside from the security, once you have funding you can move faster and plan ahead with more confidence.”
CrowdfundingCrowdfunding is increasingly popular; it’s a way to raise funds from members of the public looking to invest in, or back, a great idea. Typically it works like this: you promote your app on a crowdfunding website and specify the amount you’re looking to raise. You explain your app, showcase a demo if you have one, and outline how you’ll spend the funds. You may need to outline the terms of investment as well; in some cases this amounts to offering investors a percentage share in your profits but this isn’t always so.
Viable way to raise a significant amount of funds in a short period of time.
Crowdfunding can give you the opportunity to be creative and flexible in the terms you set between you and your investors/backers. It depends on what you can bring to the table, but some options include offering a lifetime subscription to the app instead of profit sharing, or even perks like T-shirts for lower funding goals. No doubt, a more attractive deal will yield more market backing.
Listings on crowdfunding sites are usually free, or have success-based models, and you can translate this experience into early promotion (and perhaps validation) for your app and an opportunity to recruit beta testers.
If you place your project with a crowdfunding platform just focused on apps, such as AppStori or AppBackr, the community will have a good understanding of apps and you’re more likely to receive insightful feedback.
It’s difficult to predict if your app will be funded at all, or how long it will take to reach your desired amount. In some cases you need to secure the full amount you’re requesting before you get the funds, so it’s all or nothing.
If you’re successful, it’s usual for the crowdfunding service to charge a fee. That could be on top of other fees for processing the funds.
Not all apps are accepted into these programmes but this can also be a good thing, serving to keep the quality of apps high.
“I was being regularly approached by app entrepreneurs who wanted to find
out if a) their app was a good idea, and b) if I could somehow help them fund
it? This scenario happened again and again and got me thinking whether there
could be an online platform that takes “the crowd” and empowers them to help
these ideas come to market.
So, from there, I started AppStori with a co-founder, and we officially soft-launched in mid-2012 with a pilot group of developers on our curated platform. We made a decision not to accept every app that submitted to the platform, and vet them the same way that an accelerator would by looking at filters like the team, product idea and commitment."
After we launched, the feedback we received was that a lot of the value that
app devs were realising from AppStori was in how it helped them with the
marketing (and beta testing) prior to launch, a problem which is becoming acute
as more apps flood the market. There is a real and growing challenge of how you
get discovered and validate what you’re working on.
It became clear that funding was only one of the pain points for app developers, which is why we like to think of AppStori as not just crowdfunding, but as crowdsourcing. Really, you’re developing a brand, your market position and you’re getting real market feedback. I think that app developers, in this era where there is so much clutter, need to expose their idea much earlier to a wider market and develop marketing strategies, all of which we help support.
When you build a product you need to think about marketing from the get go, so we force developers to work on that early on by asking them to put a promo video together. They need to think about how they will represent themselves to the broad market, say what they are building, and what value it represents.
For AppStori users – those backing the projects – it’s a way to empower them in the app creation process.
They can support friends on the platform, and also discover other apps that are coming through the pipeline. It’s a combination of discovery, participation and rewards. The rewards tend to be items like T-shirts or other goodies that may be relevant to the app. When we set out to build the platform we wanted to lower the barriers to bringing developers and consumers together. This is why we decided to adopt a success-based model instead of profit sharing, which would mean revenue sacrifices for developers and the addition of several degrees of complexity. Instead, we wanted to keep the proposition clean and build a higher quality base of projects for people to support.
We’ve had quite a few successes where apps have been fully funded for the amount they were seeking. For instance, we have an app called Sooligan (based in Arkansas, US) which is a local discovery app for people in new cities looking for things to do. They were part of an offline accelerator and were going through that process when they joined AppStori. They raised more than $2500 to help refine and launch their mobile app. A lot of people think of innovation occurring in the usual places like New York or the Bay Area, but there are a lot of interesting ideas all over, and our platform breaks down those geographic barriers.
Arie Abecassis Arie is co-founder of the recently launched AppStori and a Venture Partner at DreamIt Ventures.
He’s been actively involved in the New York tech community as an investor and entrepreneur, and currently sits on the boards of SeatGeek, Adaptly and BiznessApps.
— Boulder, CO
Tech Tips For Building Your AppSo you have your great idea and you’re sitting down to start writing your app. Where do you begin?
The Android training
guides are a great resource for beginners and experts alike. These guides range
from building your first app to supporting different devices, as well as best
practices for improving user experience and optimising for performance.
For iOS, there are also design resources available to help you optimise your applications to conform to the latest version’s design best practices.
A great supplement to these guides are live presentations that discuss various coding designs and tips for building quality apps. In particular, the DevBytes series provides easy to consume bytes of information on important concepts in Android and iOS. The Android Design in Action series highlights user interface best practices from real applications, and links to samples that show how you can implement these best practices in your own application.
User Interface Best Practices
Here are some things to think about when developing your application's user interface.
- Make the app open quickly. When a user opens your app, they want to interact with it right away. AdMob research shows that 72% of users in the US and 78% of users in China believe a good app is one which opens quickly, and ranked this as more important than other characteristics of an app. To accelerate loading, only load resources that you need for your main screen, and load other resources on a background thread.
If you plan on showing a full screen interstitial ad when the app opens, only wait
for a couple of seconds. If the interstitial doesn't run fast enough, just move on
without showing one.
- Use high-quality graphics. Users value applications with high-quality graphics. In five major markets we surveyed, daily app users ranked ‘quality of graphics’ as the most important feature of game design. One simple improvement is to include higher resolution images for higher density devices, so the resources look sharp on every device.
- Build for multiple devices. Think about what your app should look like on a phone versus a tablet. Consider including different XML layout files for different screen sizes on Android, or separate xib layout files for iPhone and iPad.
- Build for multiple versions. Your app should be consistent with the design of the platform. For example, iOS6 relied on skeuomorphism (design imitation of real-world objects) whereas iOS7 adopted a flat design. Apps previously built for iOS6 should be updated to follow iOS7 design guidelines for users running iOS7, to provide a consistent experience across all apps. On Android, you’ll want to maintain compatibility with some older versions in order to reach a broader audience, but also take advantage of new design patterns to cater to newer devices.
- Use density-independent units. On Android, different devices have different densities. Use density-independent pixels (dips) instead of raw pixels when defining the size of your view, so that the view is the same physical size on each device.
Storing Application Data
When designing your backend to store your application’s data, think about what type of data you’re looking to store and which storage mechanism best handles that data. Is the data structured? Should it be readable by other apps? Are you only looking to store a few settings across user sessions? Answering these questions will help you choose the best native storage mechanism(s) for your app, like these for Android and these for iOS.
An alternative to storing data on the user’s device is to store it on servers outside of the application. Moving data to an external server allows you to build a single backend for multiple platforms, as well as track the user’s status across different devices if you have a signed-in user.
You can choose to run your own server, or integrate with an Infrastructure as a Service (IaaS) solution to help you reliably scale your application. Once such service is Google Compute Engine, and there are other solutions in the market. If you want to take advantage of this scalability without having to worry about managing the implementation details of IaaS, you could use a Platform as a Service (PaaS) solution such as Google App Engine. These services make it easy to set up a common data storage solution for all versions of your app.
Imagine you're about to download a note-taking application when you're asked to enable location access. Or how about access all of your contacts? Would you download it? Probably not. Some permissions are more sensitive that others, so only request permissions that are absolutely necessary to run your application. You can ask your friends to download your app and tell you if the permissions you're requesting are reasonable.
Location – Applications should NOT ask for location access for the sole purpose of providing better ad targeting, as it may discourage users from downloading your app. Of course, an app that lets you search for restaurants in your area may already need access to location, and can then also pass this information to request more targeted ads.
Contacts – Many users are afraid to give apps permission to their contacts because they’re afraid that the app could spam all of their friends. Make sure to have a convincing use case before asking for this information.
Device IMEI – Not only are device-specific identifiers sensitive, but they also aren’t great at identifying a single user. If the user has a phone and a tablet, representing a user by their device ID means you treat this user as two different users depending on the device they’re operating. A better implementation would be using Google+ or similar sign-in mechanism to log in a user, or use the Advertising ID if you’re just using this identifier for advertising.
Before you release your app, you should test on array of devices and OS versions and sizes. On Android, there are some OS differences in Samsung’s Galaxy devices compared to the stock Android Nexus devices. And devices like the Kindle Fire have a very different Android experience. Even on iOS, the newer iPhones are a different size. You’ll want to make sure your app looks and runs good on all devices.
You may also consider having a beta programme for a subset of users to try out a new version before it’s publicly released. This way you could address any reported bugs before launching worldwide.
Once your app is out in the wild, you may be stuck on what to work on for the next version. The comments left on your app can be a good place to start. If users are reporting bugs or crashes, address those issues to satisfy your users before working new features. Even if you’re getting conflicting feedback, determine what aspect of the app has the most volume of comments, and spend more time thinking about how to best
Through alpha- and beta-testing functionality, Google Play Developer Console lets you test two different versions of your app at the same time in addition to your production version. Learn more
Abide by design best practices
- Follow the Android training guides and iOS design resources to conform to the platform’s latest design best practices.
- Build your app for multiple devices. Use different layout files for phones and tablets and take advantage of the additional screen real estate.
Storing application data
- Figure out what your data storage needs are, and select the appropriate data storage mechanism.
- Consider using an external server so you can build a single backend.
- For scalability, use an IaaS or PaaS solution.
- Snapchat uploads hundreds of millions of photos daily using Google App Engine.
Minimise permissions usage
- Only ask for permissions that are necessary for your app
- Don’t use Device IMEI to define a unique user – use the Advertising ID if you’re only using this ID for advertising.
Perform extensive testing
- Test on array of devices and OS versions
- Consider having a beta program prior to a full launch
- Check your app’s comments to help guide future development
Increase app engagement and installs with
If you have a website, when users sign in with Google, they can be prompted to download your app directly to their Android device. Set up is easy: you simply register your project and app clients via the Google APIs Console to link your mobile app to your web application.
Over-the-Air Installs provides an effective growth vector on Android. When a user signs in with Google, we detect eligibility (own an Android device + don’t yet have your app), and then bring up the Google Play screen. On average, 40% of users download the app during registration.
Are you seeking an easier way to grow users with hassle-free, one-click sign-in? Google+ Sign-In is a simple, trusted way to let people sign in with their Google credentials.
With minimal effort, you can add a trusted registration system that’s familiar to users and consistent across devices. Google+ Sign-In lets users skip high drop-off registration forms and avoid having to remember yet another username and password. This makes registration faster and more secure, and reduces support costs for forgotten usernames and passwords, and you don’t need to build your own authentication system.
Learn how music app Songza grew their user base with Google+ Sign-In in this case study.
Songza is a music app that streams just the right music at just the right time. Whether working, relaxing, or at the gym, Songza users hear an expertly-curated playlist that fits the moment. By enabling Google+ Sign-In, Songza increased their registered users across all platforms.
Increased registrations across all platforms
Since launching Google+ Sign-In, daily registrations have increased across all platforms and sign in options. Google has quickly become the most popular sign-in option for Songza users on Android, with 40% of users choosing Google. Google+ Sign-In also helps increase Android distribution. 37% of web users opt-in to instantly over-the-air install the app on their devices, leading to an improved, consistent experience across mobile and desktop.
Listening to the right music at the right time is now easier
Google offers people a simple and secure way to register with Songza by authenticating with their Google credentials. Songza has added app activities into Google Search results, so people can see the most popular playlists being listened to by Google users on Songza. Surfacing interesting, popular content from Songza in Google Search provides more opportunities for new users to discover the service.
App Activities in Google Search
Making money from your appWhat are the different ways to make money from your app? Here we explore different business models and new ways that app developers are solving the problem.
The Google Play Store amassed 50 billion downloads by mid 2013, a mere five years
after the first Android app was downloaded. That’s been driven by
the wide choice of useful and entertaining apps, but also the diversity in how apps
are priced. How apps earn money now versus only a year ago has changed
considerably, and these trends should influence your monetisation strategy.
The rise of free apps
It’s telling that the top ten grossing apps across both major app stores are free. Users have embraced free apps, and Gartner reported that 89% of all apps downloaded in 2012 were free. AppBrain’s analysis of the Play Store indicates that 82% of apps are free out of the 860,000 apps available.
Growth of in-app purchases
This type of monetisation is forecast to account for 64% of app revenue by 2015. AdMob surveyed game-playing smartphone users, to ask them what percentage of their recent spend on gaming apps could be attributed to in-app purchases. Respondents in the US indicated that up to 89% of their gaming spend was on in-app purchases, and the other markets surveyed were at a comparable level.
Ways to monetise
How you monetise depends on the type of content that you’re offering and how users engage with it. We recommend that you think about monetisation as you’re creating your app, not as something you plan to figure out later on. You’ll want to come up with a solution that’s right for you and makes sense to your users. We’ve outlined the different monetisation options below; you don’t need to settle on one, consider mixing and matching business models to meet the needs of different users of your app.
Tuyen Nguyen, Mobile Developer Advocate at Google, believes developers need to be flexible in their approach to monetisation: “Developers should evaluate frequency of use and potential download volume. For example, if they build a utility app that users open once a week, then ads may not provide the highest monetisation opportunity. However, if your app experiences high usage frequency, then ads can provide great revenue potential, since revenue tends to grow as impressions increase. Developers will have to weigh the opportunity cost of an upfront payment (paid downloads) against future revenue opportunity that comes with monetisation models such as in-app purchase, freemium or ads. It's important to remember that monetisation models can be complementary, rather than competing, if employed correctly.”
One of the first apps available on the Apple App Store was offered for sale for $999.99 and unsurprisingly, there were not many takers. Today, even really good apps priced at $0.99 can meet resistance from consumers; as evidenced by the rise of free apps.
AdMob surveyed mobile apps users in the US, UK, Japan, South Korea and China, asking if they would be willing to pay for an app. In all markets except China, the majority of respondents said they only download free apps.
But that’s not to say paid apps are dead as a business model. In fact, downloads of
paid apps are forecast to grow to 21.6BN by 2017, from 8.1BN today,
as more people switch to smartphones and quench their thirst for all types of apps.
Users will pay for quality apps that solve a problem or provide their device with
enhanced features. For example, the utility app, SwiftKey, is an easy-to-use keyboard for Android phones and has
earned over a million downloads while priced at $3.99 (or local currency
equivalent). While it’s possible to find a niche and paying users, don’t bet
against a competitor offering a similar app at a lower cost, or the cheapest price
Free to Paid (Freemium)
With this model you offer your app for free, then charge users for advanced features. Users will pay to upgrade their app if the extra features truly add value. For example, the free version of the TuneIn Radio app allows listeners to tune into any radio station in the world, and has garnered more than 50 million downloads. TuneIn Radio Pro is a paid version, and has all the features of the free version as you’d expect, but comes with the added ability to record any of the 70,000 radio stations. The record feature addresses the pain-point of listeners, who no longer have to miss their favourite content. Even when priced above $6 (or local currency equivalent), it’s proved compelling enough to earn more than one million downloads.
But a word of caution: when it comes to paying for apps, users don’t like surprises. If you’re offering a freemium app, make it clear in your app store listing that users who download it will have to pay to access more features or progress through the game. If you don’t you’ll swiftly receive bad reviews from users complaining they’ve been hoodwinked, even though the original app download was free.
If people don’t like paying up front for apps, some don’t mind paying for items within apps once they’ve started to use them. The rise of in-app purchases over the past two years has happened quickly, and it’s set to account for more than 40% of app store revenues by 2017, versus the 17.3% it contributes today.
The rise of in-app purchases has gone hand-in-hand with the popularity of gaming apps. Selling virtual currency or items like extra power-ups to enable faster progression through games has been a big hook for users. Toni Fingerroos, developer of the massively successful Hill Climb Racing game, derives a portion of his revenue from in-app purchases: gamers can unlock levels or enhance their racing vehicles either by playing the game and collecting coins, or by purchasing coins.
He considered his approach to monetisation carefully. “I thought about it from the very beginning. I thought about adding enhancements that users would have to purchase to advance through the game, but then I thought it’d be better if everything could be free for the user just by being good at the game. Coins for in-app purchases make sense for my users if they want to finish the game quicker.”
But Toni warns that you have to strike the right balance between free features and in-app purchases:
Other challenges include increasing the number of users of your app who are prepared to make in-app purchases. AdMob research shows that it’s a minority of users who make those kinds of purchases (see the chart below), so it’s likely you’ll earn no revenue from most of your user base if you’re dependent on this as a single monetisation strategy.
Ad revenue has been a cornerstone of the app economy for several years, and continues to be both a reliable source of income and an innovative solution for hundreds of thousands of apps. According to Marvin Paul, co-founder of shopping list app Out of Milk, ads are a tried and tested way to earn revenue: “The benefit of banner ads is that it’s a mature model and it’s understood by developers, advertisers and users. Newer monetisation methods can be unproven and sometimes you don’t want to be the guinea pig to try someone else’s business model.”
How you earn from ads
To place ads in your app, you sign up with an ad network, such as AdMob, install the SDK and choose where you want to place your ads. All ad networks have policies about what types of apps are allowed to show ads and where ads can be placed in order to maintain the quality of the network. You earn revenue when users click or view your ads, and developers are compensated on a cost-per-click (CPC), cost-per-thousand impressions basis (CPM) or other variations such as cost-per-install (CPI). You earn a cut of the revenue based on how much the advertiser is prepared to pay for the click, impression or install, and the ad network earns commission.
To be successful with advertising, your app should have a significant number of users and high engagement, to increase the chances of clicks on the ads.
Ads help maximise your revenue
A distinct advantage of advertising is that it can be used in conjunction with other business models. For example, it can be complementary to in-app purchases where only a small percentage of users actually make a purchase. You can earn money from the rest of your users by showing them ads. Many developers want to ‘protect’ their loyal in-app purchase users by not showing them ads. This can be achieved by segmenting users into groups of those who you want to see ads and those who you don’t. Your ad network can then serve ads to the first group to help you maximise your app’s revenue.
New ad formats push boundaries
Another benefit is that ad networks tend to innovate quickly, driven in part by the need to fast improve the experience of in-app advertising. The app ecosystem exploded so quickly that in the early days of app monetisation ad brokers simply took ad formats available on desktop and shoehorned them into apps. Typically this meant squeezing a larger banner ad into a 320x50 ad slot and hoping for the best (chiefly that the user didn’t have to squint too much to read it). When users rotated their devices, the apps would flip from horizontal to vertical or vice versa, but the ads stayed the same size. AdMob launched a new format to solve this called Smart Banners which automatically resize to fit the width of the screen no matter the size of the device or orientation.
Aside from this, it took several attempts before ad formats appeared which were
better tailored to mobile apps. It’s not all that different from say, the migration
of print ads to television in the 1940s, as brands simply transferred ad creative
from the established medium to the new one, without building a format
to suit the medium.
Nowadays, ad networks are creating formats which benefit each part of the ecosystem. One example is AdMob’s recent introduction of skippable video ad formats on apps, known as TrueView. With this format, a developer chooses a point in their app where the user is shown a video ad. This can be at a natural break in the game, such as between levels. Users watch the first 5 seconds of the ad, then a button appears giving them the chance to skip the ad and go back to whatever they were doing in the app. The format works well: users only watch what they want; advertisers get the satisfaction that a user watched the ad because they were engaged; and, developers earn significant revenue while offering users a less obtrusive experience.
Another example is how ad networks are moving beyond the traditional small banner. Interstitial formats create full-screen, immersive experiences during breaks in the app. They provide a larger canvas for advertisers to convey their message to users, and often yield good returns. Because of that, CPMs for interstitials tend to be higher than regular banner ads. In South Korea, the founder of Raon Games, Park Young Ok, added cost-per-click interstitials from AdMob to his Bouncy Ball app.
How to choose an ad network
When evaluating ad networks, consider the value they provide beyond eCPM; an equally important key metric to focus on is fill rate. An essential metric to use when comparing ad networks is to multiply eCPM by the fill rate, to give you the actual revenue earned per thousand ad requests. For example, let's say you are comparing two ad networks, A and B.
|eCPM||Fill rate||Revenue per thousand ad request|
|Network A||£1.00||90%||£1.00 x 90% = £0.90|
|Network B||£3.00||25%||£3.00 x 25% = £0.75|
Mediation is a technology which helps an app developer to maximise the number of ads showing in their app, and thereby earn more revenue. One of the most important metrics an app developer should track in their app is fill rate, which is the percentage of ad requests that are filled with ads. In an ideal world, an app developer’s fill rate is 100%, meaning that an ad is displayed to a user every time they generate an impression. The more ads users see the more likely they are to click and earn you money.
So how does this relate to ad mediation? Simply put, there aren’t many ad networks capable of providing app developers with a 100% fill rate. That’s because they don’t have enough supply to meet the demand. In other words they may not have enough advertisers running ad campaigns (or spending in large enough amounts) to show an ad for each impression your app serves. Enter ad mediation which enables you to show ads from multiple ad networks in your app, to immediately increase supply. There are several ad mediation services available, including AdMob’s which is free, and plugs into many networks. To make it work you set up ad mediation for your app, add the relevant ad network SDKs, then sort them by order of priority to serve ads to your app. You’d start perhaps with the network offering the highest CPM, then the next highest and so on.
An ad server will also be able to forecast how many ad impressions you can sell based on the projected traffic to your application so you can accurately project and reserve your sales.
Choose an ad mediation tool that offers yield
The most useful ad mediation tools provide yield management, which is a way to show the highest paying ad for each impression that you get in your app.
AdMob’s Ad Network Optimisation evaluates the CPM of each network in your mediation stack, and dynamically reorders them so the network with the highest CPM serves an ad to your app. Once set up, AdMob continually obtains the freshest possible CPM value from each ad network and compares them. In addition, you can enable the AdMob network to bid alongside other networks on a per-impression basis.
Subscriptions are another form of app revenue that can be appealing to developers, but again this model is highly dependent on the type of app you have and the value users see in it. Users subscribe to pay a regular amount (usually monthly) for new features, content or just to keep using the app. There tend to be three different types of subscription-based apps:
- Apps offering truly original content that can’t be found anywhere else (think comedy, art).
- Apps with a unique voice that users identify with – such as a magazine or newspaper – that fosters a great affinity with the brand.
- Apps that provide an ongoing service that represents good value and becomes integral to the user’s lifestyle (think music streaming apps).
Either way, it’s common for subscription-based apps to offer a free trial, or at minimum a reduced introductory rate. People need to fall in love with your app in order to make an ongoing commitment! As soon as users feel they can find similar content elsewhere at a lower cost, or they lose reason to engage with the app on a regular basis, then the subscription model can fail. AdMob research shows that 41% of smartphone users in China and South Korea stopped using an app because they found a better one.
Reward-based monetisation has emerged recently as an attractive option for app developers, because it creates benefits for all stakeholders in the app ecosystem. The basics of this model entails a developer setting goals within their app for a user to complete (for example, reach level 10 of a game or amass 1000 points). When the goal is achieved the user can earn some form of reward provided by a sponsor, for example $1 off coupon for a grocery item.
It compliments the ecosystem because developers can integrate a form of advertising which encourages the user to progress through the game to earn more rewards; advertisers provide something of value to the user and the offers can be tracked when redeemed; and finally users earn rewards for doing something they enjoy. Companies such as Lootsie and Kiip are proponents of reward-based advertising in apps.
An important decision for any app developer is ‘Which monetisation method should I use?’. There are several methods, including paid apps, in-app purchases and ads, but they don’t need to be mutually exclusive. We spoke with Keiji Takeuchi,representative director of Link Kit in Japan, about their Samurai Defender app which contains both in-app payments and ad delivery in a single app.
Worldwide distributionKeiji Takeuchi,
“I founded Link Kit in February 2011. We mainly develop software for smartphones. Samurai Defender is a genre game in the style of Tower Defence, where you defend a tower against an enemy attack using bows and arrows. The iOS version was released in March 2013, with the Android version following in May. As of September 2013 we’ve reached a total of 600,000 downloads.”
Tatsuo Sakamoto, AdMob
“Although it’s a samurai theme, is Samurai Defender being distributed outside of Japan? ”
“Yes, worldwide distribution started in June 2013. The highest downloads outside Japan are in Vietnam and Taiwan, and we’re currently focusing on China. Although there’s a high Android platform share in China, there’s no Google Play, so instead there are hundreds of local app stores, which makes it difficult to penetrate.”
“Hundreds, really? That’s a challenge.”
“In practice, if we could cover 10 app stores that would get us access to over 70% of users. But it changes rapidly so it’s difficult to keep up. Naturally there’s a risk associated with doing business without knowing the local situation. That’s why we have local partners, who we rely on primarily to provide user support. We don’t actually meet with these local partners; everything is done via email. We’ll get to this later, but we initially managed to meet up at the recent Tokyo Game Show.”
“So you’re working with partners you haven’t met! It must take some courage to work with partners from another country just using email and without meeting. What do you look for in a partner other than the size of the organisation?”
“We don’t work with large organisations but with those that are still small. We like to find partners who have the same enthusiasm as we do. We work to instill high motivation in our partners by setting up a scheme where success benefits both sides. App Monetisation”
“Samurai Defender uses both in-app purchases and ads as monetisation methods. Do you feel that in-app purchases are something of an obstacle for many casual game developers?”
“They can be. In-app purchases can provide great returns if implemented well, but if the game isn’t designed correctly nobody will be buying.”
“What proportion of Samurai Defender users make in-app purchases?”
“Almost 10% of users make in-app purchases in Japan, and almost 5% overseas. But in terms of income, ads bring in much more than in-app purchases; in-app purchases are only around 15% to 30% of income. If we had to choose between in-app purchases or ads, we’d have a pretty big lost opportunity.”
“If combining in-app purchases and ads becomes the norm, it looks like that would help app developers to improve monetisation. But of course many developers feel they have to choose between in-app purchases or ads. What do you think is the biggest hurdle?”
“Casual game developers who monetise using ads might be anxious about billing development. You have to incorporate a system into the game which makes users want to make a purchase, and that can seem challenging.”
“To what extent do you think users are annoyed by ads? Do ads have a negative effect on income from in-app purchases, for example, by reducing the number of users willing to make an in-app purchase?”
“I honestly don’t think there is any negative effect. We show ads to all users and see no negative impact on in-app purchase revenue. Firstly, we don’t display banner ads while a game is in play. Also, click-through rates (CTR) are not that high, so I don’t think we’re experiencing many accidental clicks. In the end, we have to ensure that the game is the main element and the ads are secondary, and ensure the user experience isn’t affected. As a company we work for genuine positive income. As well as banner ads, we incorporate offer wall ads.* Of course these add to our income stream, but they also widen the options available to users. They provide a way for those users who won’t pay under any circumstances to get access to items. We’re always looking for new ways such as this to monetise without being reliant on users making lots of payments.”
Best practiceAdMob research shows the majority of mobile app users prefer banner ads to be placed at the top of the screen, or between activities.
Continue reading to the next section: Growth.