Some history
The App Store was originally created with the possibility to only sell your app one time: the first time it was bought / downloaded. There was no opportunity to try-before-you-buy, or to download and ‘upgrade’ by buying the content later. To help with your app purchase or download decision-making, you could only rely on ratings and screenshots.
For years, developers had to rely on organic growth of the potential user-base to grow downloads; but in that scenario, once market saturation was reached, there were no more downloads and no more revenues.
To evolve their apps and drive incremental revenues from existing users, publishers created different app bundles like Things, the app from Culture Code, who released version 1, 2 and 3 to make people purchase more than once.
A year after this initial release, Apple introduced in-app purchases for consumables and non-consumables, but it was only in 2011 that subscriptions were introduced and only to publishers. We had to wait until 2017 for this to be made available to 25 app categories.
At that time users mostly subscribed to content (newspaper, books or videos) or cloud services and storage. Subscriptions really kicked off with Covid - app use soared and with it the potential to upsell to content-hungry consumers.
The rise of subscriptions
For decades consumers have been used to the idea of subscriptions, but not necessarily In-App. Subscriptions is a relatively new business model in the app industry, and with that, the idea of subscribing in-app is also relatively new to consumers. Netflix and Spotify were the pioneers that challenged the traditional advertising monetisation model.
However, it took Apple 9 years after Spotify launched to start transitioning from regular song purchases to a subscription business, and even then they had to acquire Beats Music to speed up the process.
The conjunction of advertising revenues going down and society’s readiness to adopt the idea of paying for more content (or less advertising), contributed to making subscription the fastest growing business model on the App Store and now the dominant one.
Subscriptions: The virtuous business model
Subscriptions offer a good balance and a clear contract between customers and publishers; customers don’t have to pay the full lifetime price of a service, product or software from the start, and can try it for free. Publishers get recurring revenues.
Subscriptions offer a wide variety of plans instead of a one size fits all approach. From a short duration for temporary use, to a long duration for committed users; from “Basic” plans to “Pro” plans, publishers can now offer in-app, a wide variety of prices to match users' needs.
Since users have now bought a level or service, or content, the publisher is encouraged financially to continually improve its app to provide new services or contents instead of letting the app die. At the same time the publishers are provided the money to sustain these evolutions.This makes for a mutually beneficial relationship between app user and publisher.
New app privacy rules also had a positive influence on the rise of subscriptions - the reduction in quality of user-data has increased the occurrence of poorly targeted in-app advertising. In the end, it’s true that consumers would rather pay (or pay more) to avoid being annoyed by adverts.
Finally the monetization of a service no longer relies on how much revenue AdMob will put your way. With a subscriber user-base, publishers have a more tangible way to forecast and grow their revenues.
Subscriptions are now baked-in to consumer expectations of apps. There are a few exceptions of course, such as indy developers, who may not have the resources to constantly update their content to continually provide additional value, and the gaming industry, which tends to operate in an ad-revenue or ad-hoc in-app purchase ecosystem.
How to be successful with subscriptions?
It’s necessary to start with a great product or at least a great feature, but here are 8 monetization strategies that have helped our customers grow faster:
- Onboarding: 50% of the subscriptions are taken during the first session and 50% of them are completed within the first 90 seconds. A successful user onboarding is key to securing the initial subscription - it must be a perfect conversion funnel. Understand your user by asking questions and adapt the funnel accordingly. Tomtom recently shared how they increased their MRR by 85% by improving that first session experience.
- Trial duration: You need to find the sweet spot between giving enough time to initiate the habit loop and not giving everything away for free. For example, apps in the utilities vertical can have a 3 day trial, as the ‘a-ha’ moment is expected to arrive quickly; whilst fitness or meditation apps will need to offer a longer period.
- Package composition: Most apps adopt a freemium approach with some features that are free and others that are paid for. Analytics is key to understanding what makes your free users come back for more; position the additional features behind a paywall or set a daily usage rate to encourage users to subscribe.
- Price elasticity: Finding the right price is never easy, especially in a global market. Start by setting a price defined by your competitors then A/B test it. You shouldn’t test a price that is just 1$ or 2$ away, but try 50% less and 50% more expensive. Don’t be afraid to raise the price as it also impacts users’ perception of your product’s quality.
- Poison picking: If you want your users to engage for a longer period like 1 year, make the annual cost look better by always showing a monthly equivalent price that is barely cheaper.
- Upsell: When you notice that a user has subscribed to a monthly plan and is heavily using it, offer them a cheaper annual plan. It will raise the LTV and also reduce fees from Apple (15% after 1 year).
- Winback: Customers will stop their subscriptions - this is the perfect time to ask them why they loved your app and why they’re leaving. These insights are vital to improving your app and this engagement also offers you a chance to deliver the user a winback offer with a discount. If you do this, adjust the discount according to the total revenues generated by the user and always offer the discount on a yearly plan.
- Improve by audiences: Once you’ve reached an overall optimal user-level, it’s time to enhance your users by audience group. Identify your low performers (demographics, geographics, motivation etc) and test all the previous strategies on these subgroups. Start with the biggest cohorts.
Never stop learning
The subscription business model is ever-evolving, with new strategies and insights emerging daily. The era of innovation and proliferation is ongoing.
At Purchasely, we've observed some previously under-performing strategies become successful with time. This highlights the importance of consistently reassessing past results and revisiting past ideas. Never stop testing and iterating; do not take any outcome - whether positive or negative - for granted.
Expect that some efforts will need to be discarded along the way. Efficiency in terms of time and resources is crucial. Those who persist in iterating will make incremental steps that quickly accumulate into significant progress.