Apps that are launched as free versions can monetise through ads or subscriptions. However, ads come with issues of cost, privacy, user experience and security. At the same time, access to high-quality free content for an indefinite time also reduces users’ chances of subscription. Therefore, the best ad-free options for mobile app managers are using a hard-landing paywall (which forces users to subscribe or quit) combined with a limited free product trial or a soft-landing paywall (which offers both paid and unpaid options) combined with status-enhancing Exclusive Secondary Offerings.
In 2020, mobile apps earned a revenue of $111 billion (₹9337 billion) globally, with a year-on-
year increase of 24%. However, profits for mobile app firms are elusive as most of them start as free versions, intending to monetise their app down the road. Monetisation can be through ads or an ad-free model. Using ads comes with significant issues of cost, user privacy, data security, and user experience. Therefore, mobile app firms are looking for sustainable ad-free monetisation models. A study looks into various monetisation methods to answer the question: How should a costless, free app monetise its services for its existing user base while remaining ad-free?
The study found that a hard-landing paywall (a mandatory payment option to access the
app) leads to higher conversions among existing users who are familiar with the app. A soft-landing paywall (a payment option that allows limited access to the app for free but requires a subscription for full access) doesn’t result in many conversions among existing users as they are reluctant to pay even small amounts for online content, especially after getting it for free. The availability of the free content reduces the perceived value of the subscription. Therefore, despite encouraging new users to explore the app, it doesn’t help much with monetisation.
The study also found that including exclusive “secondary” offerings (ESOs)—which could be
additional content or benefits—in the paid option doesn’t encourage subscriptions. Contrary to expectations, ESOs offered with hard-landing paywalls can lower the app's perceived value. When evaluating the options separately, users might attribute the payment to the ESO rather than to the main app. As the ESO is not the main benefit of the app, they are reluctant to pay for it. In a sense, the inability to identify the value for the main content leads to a “less is more” attitude among users, and they are less inclined to subscribe to the app when it offers ESOs. This behaviour is known as “preference reversal”.
Just like ESOs, “sold-out” options are a popular tool for boosting sales but come with a similar caveat. Find out how this tactic affects retailers and what they can do here.
Interestingly, the effect of offering ESOs with a soft-landing paywall is very different. In a
hard-landing condition, users either pay or leave. Therefore, ESOs have no real benefit for users. However, in a soft-landing condition, both free and paid users exist. ESOs, available only to paid users, thus become an exclusive element that can be obtained only through subscription. This exclusivity-seeking behaviour results from a product delivering uniqueness and status benefits, and it encourages free users to upgrade to the paid version of the app.
This study has important actionable implications for mobile app managers, especially in
scenarios where originally free apps are looking to monetise. App managers cannot afford to offer free content indefinitely as it is detrimental to the rate of subscription. However, to attract new users, they can provide some free content for a limited trial period so that users can familiarise themselves with the app content. At the point of decision-making, a hard-landing paywall will be far more beneficial for raising subscriptions and generating revenues.
They can also be careful when offering in-app freebies or ESOs. Offering ESOs with a hard-
landing paywall hurts subscriptions, so they will benefit by avoiding such an offer. Instead, they can offer ESOs if they choose a soft-landing paywall subscription, especially ESOs whose status and exclusivity benefits are clear and significant. Such ESOs work better in sectors related to fashion, music, hairstyles, etc.—essentially, sectors that offer products or services symbolic of identity. So, mobile app managers of such sectors can consider combining a soft-landing paywall and ESOs to optimally monetise their app.
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