Innovative digital commerce Part I: Why basic monetization isn’t enough
It is no secret that generating revenue online is more challenging now than ever before. Ads, pay-for-downloads, and standard e-commerce monetization models are tired strategies. Users:
have grown weary of ads: 46% of iOS users and 38% of Android users would consider making a purchase to have an ad-free experience, and between 2015 and 2019 ads have moved from #6 to #3 reason users delete apps.
don’t convert in freemium models: only 1% of users opt for the premium account;
have stopped downloading apps they have to pay for: only four apps on the Top 100 list required payment before downloading according to PCMag;
demand a much higher value proposition before being convinced to give you their credit card; etc.
To make money in 2020, the monetization strategy you choose to employ must not only become a part of the user experience (UX), it must make it better. And we know, that is a hard thing to do…
Lucky for you, our experience in the field has given us insight into what to do to cut through all the noise, and we have distilled here for you.
1. Monetization 101: Available strategies
As a reminder let’s take a brief look at the monetization strategies that are out there and most commonly used. If you are confident you know what they are, feel free to scroll on down to number 2.
Perhaps the simplest monetization method, an ad-based user experience, can be seamless at its best, but a nuisance and intrusive to the user experience at its worst. There are a few ways to implement an advertisement revenue model:
Contrary to popular belief, you don’t have to sell your own products to adopt e-commerce as your revenue stream. Whether you have your own store or generate affiliate revenue from product referrals, this ‘transactional model’ serves as a foundational block to monetization. Shopper conversion rates on mobile apps are roughly three times greater than on traditional internet sales experiences, so integrating an e-commerce platform into your mobile app can greatly reduce user turnover.
Freemium and Subscriptions
The freemium route offers customers a free product or service, but encourages them to upgrade to a paid version in order to unlock features that improve their experience or make their lives even easier. A spinoff of the freemium model, subscription-based, or paywall, offers users featured content or capabilities, typically on a monthly or annual payment plan. The auto-renewal nature of paywalls guarantees a continuous revenue stream.
Streamlining the conversion process and making the paid features especially enticing is crucial to the success of these models as it can create frustration if upgrade prompts or feature limitations are intrusive.
Similar to the freemium model, in-app purchases allow companies to provide a free product to their audience while offering additional paid features to generate profit. Gamification represents an increasingly popular and extremely lucrative model, as developers have become quite innovative in boosting in-app spending. However, most app stores take a hefty percentage of the profits from these ancillary purchases.
Charging your users an upfront fee on the app market is incredibly difficult to execute successfully. The audience is the deciding factor for this strategy: while regular customers will likely be immediately turned away by a price tag, this model has proven to be more successful in the B2B market.
2. Case studies: the do’s and don’ts
So out of all the strategies available to you how do you choose?
Well, we are here to argue that it’s less about the monetization strategy itself (though choosing one that makes sense is important), but more about how it interacts with your user experience.
Users today are flooded with apps and most if not all have some form of monetization strategy. They are also savvier than they used to be, have different expectations, and are increasingly wary of overt monetization. And why is that? Because it negatively impacts their user experience. It’s the same reason why you would not buy something a salesperson is aggressively shoving in your face: you buy the product because you want it, not because someone is telling you you need it.
In short, to maximize your chances of success, your monetization strategy has to be integrated with or actually add to the user experience.
To illustrate, we are going to use “case studies” extrapolated from our experience. Each example will embody a different approach to e-commerce/subscription monetization. These differences in approach for similar models will help illustrate the importance of user experience integration.
The “case study” business: The app we are monetizing is an e-commerce app for an existing company that has an e-commerce website. They want the app to be an extension of the website that will allow users to subscribe, manage their subscription, and purchase/view products.
Example 1: Missed Opportunity -Traditional Monetization
UX + Monetization:
The user experience is designed to allow users to access their purchased products. To avoid the apple store fee for in-app transactions:
Subscriptions are redirected to the website
A wishlist feature is added: users can browse and save products to purchase them on the website
This allows users to convert while avoiding app transaction fees. Monetization is somewhat integrated into the UX, but breaks the conversion flow.
The app, though successful, is the perfect example of traditional monetization strategy implementation: a trade-off between maximizing revenue and user experience quality. Though in no way fatal to the business, the desire to bypass fees results in a slightly more convoluted user experience.
Example 2: Successful - Seamless Integration
UX + Monetization:
The user experience makes it very simple for a user to manage their subscription and purchase/access all their products.
A streamlined user experience that feels seamless and is perfectly integrated with the monetization strategy. This results in a successful app that is popular with users and drives revenue for the company.
Example 3: Innovation - Adding to the UX
UX + Monetization:
The company realizes that a traditional implementation of subscription and e-commerce will not go beyond what users expect. They decide to create a new user experience and innovative subscription service in one:
A streamlined user experience allows user to easily view and manage all their products
A low friction subscription process encourages users to convert (eg. number of taps to conversion is kept very low)
The subscription management system goes beyond standard tracking features (eg. adding pausing)
A highly rated innovative user experience that drives subscription revenue at above industry standards in terms of volume, conversion rates, and customer loyalty/retention.
We can’t say it enough, so we’ll say it again: adding any monetization strategy will impact the user experience. Having a highly successful monetized app means that no compromise is possible: your monetization strategy must at the very least integrate seamlessly with the user experience.
3. How to go above and beyond
Prioritize the User Experience
Most apps out there look at their audience and try to find the right balance/trade-off between user experience and monetization. We disagree with that approach. Making sure your monetization strategy has a small to non-existent negative impact on the user experience is the bare minimum in our opinion. We believe that you should actually consider ways in which your monetization strategy can add to it, but in order to do that, you have to keep UX at the top of your priority list.
YOUR GOAL In order to innovate, you need to reframe your way of thinking from “how can I add a monetization to my app” to “how can my monetization strategy add-value to my app.”
Finding a way to add value will require a complete understanding of your users' wants, needs, and pain points. We recommend creating customer profiles that outline a potential user’s:
Jobs: anything a person is trying to accomplish, whether it’s a task to be completed, a problem to be solved, or a need to be satisfied.
Gains: outcomes and benefits of completing a job, such as cost-saving measures or general happiness.
Pains: roadblocks that make completing one’s job difficult, annoying, or impossible.
For more information on creating a customer profile, we suggest Strategyzer’s Value Proposition Design.
YOUR GOAL To understand your users’ expectations and how to not only meet them, but exceed them.
Break down your audience’s demographics, age range, and fields of work to understand your users’ spending frequency and dollar amounts. Keep in mind that spending habits also vary between iOS and Android users. On average, iOS shoppers will spend 2.5 times more than Android users will on in-app purchases.
YOUR GOAL To understand how willing your audience is to spend money in your app, what they are willing to spend it on, and how.
Your Business model
Investigate your business and potential revenue models: crafting the right strategy that entirely aligned with the value you create for users, their expectations, and fits within your company’s vision isn’t an easy task. Here are a couple of questions and starting points to think about how your monetization strategy and business/value add can align:
What is your competitive advantage/unique differentiator? Would people be willing to pay for it and if so, how much would they be willing to spend?
Think through your user experience/customer journey and feature set. Identify any “natural” monetization strategies.
Consider any and all moving pieces that can affect your users’ experience interacting with your brand (eg. marketing initiatives like email campaigns)
Think about the goals of your business short term (eg. make money or grow user base) and long-term. Will monetization support or hinder those goals?
What are your competitors’ strategies? What works (best practices, pricing etc.)? Is their user experience affected in any way?
Look at each monetization strategy’s engagement rate and predict revenue stream: is it enough/worth it when applied to your business?
YOUR GOAL To understand how your business model and value-add can become a monetization strategy that adds to the user experience.
Consider a Mixed Model
If several strategies seem to fit the bill for a particular app, a blend of different revenue generation schemes can be used. For example, many apps employ the freemium idea to offer their users an ad-free experience on a rolling payment basis. Again, the most important ingredient in a successful, profitable app is the seamless integration of the monetization method in order to generate high conversion and retention rates.
There was never a one size fits all approach to apps in general, and when it comes to choosing a monetization strategy, that is especially true. To be highly successful requires new levels of innovation and effort from businesses. But there is one guiding principle that will help guide implementation and contribute to success: the user experience.
UX has always been a key component of any app, but even more so for monetizing. Often, a successful strategy is one that is an extension of an existing business model, or a mix of several strategies. The key to success is often not the strategy itself but the manner in which it is implemented. An innovative experience that is non-intrusive and goes beyond user expectation and standard industry implementation has more chances of being successful. This requires a combination of three key components: prioritizing the user experience, understanding your value-add, and understanding your users.