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How to monetize your mobile app

Monetizing your mobile application isn't easy. In this SearchCIO tip, three experts share the secrets behind monetizing their mobile apps and offer advice on how you, too, can develop a successful app.

Businesses large and small are being urged to develop mobile applications that will capitalize on the mass consumer adoption of mobile devices. But what are the odds of developing a mobile app that will pay for itself, much less be a runaway hit?

Not great, according to a panel of experts at a recent Boston summit on the future of mobile computing for business. Beyond the estimated 1.75 billion mobile users downloading apps, there is also a legion of 3 million mobile developers, according to Matt Gross, CEO of Mobile First Software, a mobile strategy consultancy based in Boston. Of these developers, 50% make less than $100 a month, 20% make up to $1,000 a month, and 1.6% make $500,000 a month, he said.

Still, there are best practices that aspiring mobile app developers can adopt to increase their odds of success, the panel said. Here are their tips:

Form an effective product strategy -- then prepare to tweak it

Nick Bogovich, executive director of GSN GamesNick Bogovich

Nick Bogovich, executive director of GSN Games, a maker of social casino and gambling games for TV, online and mobile apps, stressed that it is important to put in the work to validate the business model.

"We didn't [just] go out and say, 'Hey, we're going to build a slot machine and make it really cool,'" Bogovich said. "You might have a really great idea, but if you can't figure out on paper how that great idea is going to make money for you, chances are, by the time you build it and put it out in the market, you're not going to figure it out then either."

One way to help ensure your app makes money is to figure out where users spend most of their time within the app. Analyzing user experience is critical to managing your build costs, Bogovich said. And sometimes the aspect of the app your users find most valuable is not the reason you developed the app.

 "You may have an idea of what your app is going to stand for and what it's going to look like," Bogovich said, "but you'll soon find that as soon as you put it out in the market … the market's going to react, and you might find there's a particular part of your experience you didn't realize people are finding value in."

Free goes 'freemium' to build loyalty

This certainly proved to be the case for Lose It!, a popular weight loss app that was developed in 2008; the app has been downloaded over 20 million times, and has helped people lose a collective 33 million pounds, according to co-founder and CEO Charles Teague. Up until 2012, the popular app was free, he said. However, when he and his team analyzed the success rate of Lose It! and other weight loss industry apps, they discovered users fell into two distinct groups: people who quickly gave up on the app and loyal customers who stuck with it.

Identify the key performance indicators (KPIs) that define success

Whatever model you ultimately decide to use in order to monetize your app, don't forget to measure how well your app is doing. GSN's Bogovich stressed it's important to identify your KPIs and establish target values ahead of launch.

"Once your apps are out in the marketplace, you should know how many users you expect to be using your app on a daily basis, what percentage of those users are going to be monetizing within your app, and how much money each of those users are going to be spending within your app," Bogovich said. "[This] can help you generate your target daily revenues, for example."

Said Bogovich: "At the end of the day, if you plan well, if you make decisions like these along the way, you'll be in a good position to succeed."

Charles Teague, CEO of Lose It! Mark KasdorfCharles Teague

"What you see in weight loss is a very high attrition rate, but then mashed with that are users that love your product, [because] you've actually created a very substantial change in their life," Teague said. He cited the example of a user who credited the app with helping her lose enough weight to reverse a diagnosis of pre-diabetes.

As a result of this research, Lose It! changed its product strategy by creating a better version of the app that people would pay for -- Lose It! Premium -- to capitalize on those loyal users by providing more value to them.

But offering a premium version doesn't mean you can get away with making your free version a "crapplication," as it's known in mobile app dev circles. Teague warned that taking shortcuts can cause you to turn off free users, which are your "acquisition pool" for the paid version of your app. While the conversion rates from free to premium are not high, every conversion counts when monetizing your app, he said.

Competitive pressure

Though the freemium model worked for Lose It!, it does not come without its challenges.

One is all the other free competitors that will inevitably put pressure on the free version of your app as well as on your paid version, Teague said. They represent an alternative (and possibly a better one), and while this is good for customers, it's tough for companies working in this space.

Another challenge is pricing. In this case, Lose It! focused on comparables that weren't apps. For Lose It!, that comparable was Weight Watchers, which charges around $250 a year to use its online services, Teague said. Compared with what Lose It! charges ($39.99 in app purchase), Lose It! looks cheap.

And then there is the fundamental problem associated with monetizing any motivational app: How do you lure back users who fall off the wagon, so to speak? "How do we convince you to come back to Lose It! after you've decided to have that pizza?" Teague said.

Still, he said, "freemium turned out to be exactly the right model for us, and I think mobile turned out to be a great platform for freemium business models."

Monetization through acquisition

But, for would-be mobile developers, there is still another way to go.

Mark Kasdorf, CEO and Founder of Intrepid PursuitsMark Kasdorf

"We made the decision to kind of give up on monetization," Mark Kasdorf, CEO and founder of Intrepid Pursuits, a mobile strategy consultancy in Cambridge, Mass., said in reference to Timbre, his company's signature mobile app.

Founded in 2012, Timbre is a live music search app that takes all the live bands near the user's location at that moment, puts them into a playlist, and allows the user to purchase tickets to a show. In 2014, the app was acquired by Seatwave, an international marketplace where people can buy and sell tickets for everything from concerts to sports games to theater performances.

"We didn't optimize those purchasing experiences; we didn't focus on selling more tickets," Kasdorf said. "We focused purely on, 'Let's build a huge user base. Let's get people to absolutely fall in love with our app. Let's become critical.'"

From the beginning, Kasdorf said, Timbre was developed for the purpose of acquisition. This meant Kasdorf and his team had to ask themselves questions like: Who needs their app? Why would Google or Apple or Ticketmaster or Amazon need their app?

"We stopped caring about whether we were making money, and we started caring about [building] a company to be acquired," Kasdorf said.

For Kasdorf and Timbre, this monetization strategy paid off.

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