The Right Business Model

September 26, 2018

The goal of starting an app, or any kind of business for that matter, is to solve a problem or fulfill a need, while making a healthy profit to sustain/grow the business and make founders and investors happy.

This is why choosing the right business model and pricing correctly are two very important things.

We touched on the subject of app business models in our first, and most viewed post. We will now take a closer look at the most common ones, share the good & bad about them, and give some examples on each. So without further ado, let’s jump right into it.


Freemium

One of the most common app business models and our personal favorite. Under the freemium model, a basic version of the app is free for users to use, with access to extra features given at a price, most commonly in the form of a monthly/yearly subscription fee.

Anghami, Dropbox, Asana (a project management tool), Zoho Mail (an email platform), and Blinkist (a book summaries collection) are a few examples of very well-known freemium apps.

The Good

  • All users are able to see the value of the app for free, and those who find real value in it and would like to increase that value, pay for it

The Bad

  • It’s not easy getting the right mix of basic and paid features to maximize both, the value paid and unpaid users are getting, and the app’s profit margin. It’s also not a good idea to keep on altering what features are paid and what features are not, as this will probably annoy users


Paid Apps

Paid apps are listed on the online stores for a price and can’t be downloaded and tried for free; the only way to start using them is to pay for them upfront.

The Good

  • Simple and very straightforward

The Bad

  • App Store and Play Store take around 30% from each app sale
  • There is no recurring revenue because each user is paying for the app once and never again
  • It’s hard to convince users to pay upfront for an app when there are hundreds of thousands of free apps on the stores. Users are likely to pay upfront only if the app is very famous and getting good reviews from big blogs


In-App Purchases

Mostly used in games and is often referred to as the addictive model. We’ve all played games like Candy Crush or Farmville, and we’ve all been very tempted to buy extra lives just to play a few more rounds, or buy that power-up because it would help us compete better with our friends.

The Good

  • Extremely scalable since it’s virtual goods that are being sold
  • This business model has proven to be one of the most lucrative if the game/app is addictive enough

The Bad

  • A big number of users/purchases is needed in order to make healthy profits


Ads

Ads aren’t recommended because they negatively, and sometimes severely, affect user experience. They do however become a good option when they add direct value to users and are placed strategically in an app. A very good example of that is Snapchat’s discover page - all the stories on the discover page are ads, but they add direct value to the users.

The Good

  • Easy way to generate extra revenue

The Bad

  • Negatively affects user experience
  • Usually requires app users to be in the hundreds of thousands to impact revenue positively


Final Thoughts

Choosing the right business model might not always be easy. However, two factors should always guide our choice, and they are beautifully captured in a question we can ask ourselves: What business model best serves our users, and is most likely to maximize our app’s profit?

It’s a needle worth finding in the haystack.

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