11 Essential Tips for Monetizing Apps through In-App Purchases

Posted on April 2, 2012

Source: applethat.com

Difficult to offer trials, hard to charge for updates and downward pricing pressure are all complaints that are angled towards Apple’s iOS App Store. Yet there is a very good charging mechanism that, when used right, can bring great monetization benefits: In-app purchasing.

John Siracusa on 5By5’s Hypercritical on Friday 30th March 2012 suggested that there were many problems and downsides with in in-app purchasing, and that was the grain that inspired this post. My belief is that in-app purchasing done wrong can lead to a lot of negative consequences, but when done right is a great tool.

How to do In-App Purchasing Wrong

1.Bait and Switch: Many applications use in-app purchasing to charge people for essentials once they have downloaded the application. Typically, an application will be offered for free on the app store, but there will be little you can do with it without spending on in-app purchases. This makes people feel cheated so can result in negative reviews on the store and a lack of word of mouth publicity.

2.Nickel and Dimming: Be it on the app store or elsewhere, people hate to be Nickel and Dimmed. It’s an awful experience to be constantly asked to spend an ever increasing amount of money on different items you need for the application, especially if it’s hard to use the application without it.

3.No Discernible Value: Don’t offer or force users to buy features where there is very little discernible value to that feature, or where they are forced to have features that they are unlikely to use. They will feel cheated.

4.Kids’ Games: One of the first big scandals of the in-app purchasing age was linked to kids’ games where children were buying virtual goods through in-app purchasing without their parents consent. Virtual goods are a good way of making money, but forcing kids to have to buy them is a sure way to annoy the money spending parent. Pas chic.

How to do In-App Purchasing The Right Way

1.Provide a Usable Version: One of the big complaints of the app store is that users cannot try out an application. Well, why not offer a cheap or free version with limited functionality, and then offer more through in-app purchasing? Getting the balance right here is key. The base version must be usable, but limits should be set so that the user has time to determine that they get a lot of value from the app, but will get much more after making the purchase.

2.Freemium: The freemium business model is to give a light version of your service away or free and then to offer extensions, often as subscriptions, in bundles that are loosely related to a customer’s usage needs. The App Store’s subscription pricing mechanism is great for this. The freemium model is great if your app connects to an external resource where there is a consumption of something on a usage basis, e.g. server time or disk space.

3.Sell Feature Packs: Sell solid features or groups of features in bundles/packs that are useful for users, and where they can clearly see value. This has he benefit too of avoiding that users feel they are being Nickel and Dimmed. It’s important to include some of your best work in free versions so users can get a taste of how good some of the bought versions will be. Path does this with photo filters and Paper has done this with artistic functions. The trick is not too bundle too many unrelated features together so the user feels they are not getting value from their spend. It’s all about clear, understandable user value. If you’re not sure, speak with a product management or product marketing professional to help you determine this.

4.Charge for Upgrades: So you create and launch an iOS app and gain one-time revenue from its sale, but then there is an expectation that you fix bugs and you continue to grow the application. The problem for most developers is that there is no tangible source of revenue from current customers for these new upgrades. Think about upgrades as essentially new features. Bugs you fix for free, but charge for new features as feature packs. It may change your typical roadmap as you’re looking to create similar feature bundles, but will make sure your upgrades are focused on monetizable content. Oh, and don’t forget to throw in a few things for free.

5.Don’t Cut off your Nose to Spite your Face: Don’t charge for upgrades that you want all of your users to have because it will make your life easier or your application so much better. You don’t want to be in a situation where you’re stuck supporting a lot of users on old features because they won’t pay for new ones.

6.Don’t Get Greedy: Remember to treat your users with respect – they’ve paid money for your app and it should deliver a great amount of value, must work really well and bugs should be fixed. Celebrate your users and offer them great features at a fair price.

7.The App Store is Cheap: Even with in-app purchasing, the app store remains a low charging environment. You might want to charge $20 for your new features, you might feel that your 200hrs of development work merit that, but your users most probably won’t want to pay more than $2.

Applications that provide a lot of value to users deserve to be paid for, and application creators deserve to be paid. Most iOS owners are happy to pay for value. In app-purchasing offers the perfect opportunity to allow users to take an application for a test-drive and really buy the parts of it that offer them the most value. It actually allows developers to respect their users and serve them in a more individual and targeted way. It’s just great product-value centric marketing.