The Hitchhiker’s Guide to In-App Purchases

Developing a mobile app or game can take as much as 6+ months of work and 6-digit budgets of investments, hosting expenses not even included.

Major app stores like the Google Play Store and Apple’s App Store require publishers to pay a fee to acquire developer status. Apple charges developers a $99 annual fee to retain the ability to publish and upkeep their apps on the storefront. Considering all these expenses on the publisher’s side, almost no free app can truly be free. 

So how is a plethora of mobile apps free to download? How do publishers provide users a free app and manage to make up their expenses for app launch and become a profitable and successful mobile business? Another question to follow, is how did the mobile market become so lucrative for publishers after the App Store was first introduced in 2008, along with the iPhone 3G? The answer to all these questions is in-app purchases.

Mobile app markers use the term “freemium apps”. The idea behind is to offer apps for free and charge users for features through in-app purchases. In this article, we explore the use-cases of different in-app events and provide the best practices to grow ROI through in-app monetization.

Consumable in-app purchases

Consumable purchases have a simple concept behind: the app offers goods that can be purchased several times and have limited use before a customer will need to buy them again. A great example of that is Reddit social media platform coins. They resemble real-life currency and can be used to award other Reddit users. The currency helps sustain the platform while letting people highlight their favorite posts with awards, adding sentimental value to the experience, which in turn boosts user retention. Receiving Gold or Platinum awards on Reddit gives the post creator coins as a reward for their effort, and it serves to encourage people to create more relevant, high-quality content. The graph below shows Reddit’s monthly revenue before and after Reddit coins were introduced, creating statistics based on the number of Reddit Gold awards being gifted by users. As seen from the graph, the numbers skyrocketed after the introduction of that feature.

In mobile games, this type of in-app purchases comes in the form of extra lives in titles such as Candy Crush or energy in games like Shadow Fight. The purpose is to give the player a certain amount of attempts at making progress and allow the player to skip the wait time by paying a small fee. This type of monetization is similar to arcade games that give players a second try in case they fail. Premium currencies are also used quite often. Some gameplay features or cosmetic additions may require a special type of currency to unlock, like Minecoins in Minecraft, that can be used to purchase community-made maps, player skins, and game behavior packs. To acquire that currency, players need to pay real-world money for it. Community creators can submit content and earn a portion of the revenue generated from player purchases. This kind of profound community interaction can create a cycle where creators are encouraged to make better content, which in turn attracts player attention and results in sales that ultimately end up encouraging further submission of new content.

Non-consumable in-app purchases

Non-consumable in-app purchases are one-time transactions that are done in order to unlock certain app features, remove ads, or upgrade to a “pro” or a full version of an app or a game. The most common tactic for implementing it is allowing users to download the app and testing the app’s features or content for free, and locking certain features behind a one-time payment. After the payment is complete, those features become available to the user permanently.

The category of creative apps provides a good array of examples for this monetization model. From beautiful wallpapers offered by Backdrops, to powerhouses for artists, such as MediBang Paint, to games, such as Geometry Dash, non-consumable purchases allow users and players to unlock the apps’ full potential, remove ads, or unlock the required content by paying a fee. Customers can use the app as much as they want without paying a dime and make a deliberate payment when they rape enough for it. If users are satisfied with their app experience, they are likely to pay for unlocking more features out of their goodwill.

Saying the difference between two in-app monetization approaches can seem to be challenging in the case of mobile games. We recommend using a simple rule of thumb: if a feature is unlocked by paying money directly, then it’s a non-consumable purchase; if there’s a currency present that you have to buy first before getting the items you want, then it’s a consumable purchase.

Auto-renewable subscriptions

This monetization style has seen quite an explosion in popularity in recent years in the form of subscriptions. There’s a high chance that you’re already paying for a subscription service, like Netflix or Spotify premium, and it’s almost guaranteed that you’ve naturally stumbled upon it at least once. Auto-renewable in-app purchases are set installments that users have to pay once for a certain period of time. Most commonly, publishers set their subscription model to a per-monthly payment, with some offering 3 months or a full year.

There are countless examples of apps that utilize this service. You most likely have Google apps pre-installed if you’re on an Android phone. They include such apps as Google Drive, YouTube and YT Music. These three services offer subscription plans with extended functionality: providing some additional cloud storage, removing ads, or allowing you to store videos and songs locally, which is useful while you are traveling, staying in the areas with a poor network coverage o if you want to save on mobile data usage.

The same is true for iOS users, with Apple’s own ecosystem of apps requiring a monthly or annual payment in order to use them. On the App Store, there’s an entire Apple Arcade section, which offers countless titles for a monthly fee. Some publishers can also use subscription bundles. They include multiple services at a reduced total price, offering more value to customers, thus increasing total average revenue, despite the apparent loss of profits from discounting all services to fit them into a bundle. Examples of that include Apple One and Adobe Creative Cloud. Both offer the entire range of services at different price, with the most expensive offerings giving the paying customer absolutely everything the service provider has to offer. 

Non-renewing subscriptions

Non-renewing subscriptions have come to change modern online gaming to the way we know it today. Starting with Fortnite: Battle Royale, gamers have witnessed the rise of “battle passes”: limited-time subscriptions that offer the customer rewards for using the product throughout a certain time frame, known as a season. In games, these rewards are mostly cosmetic, but sometimes, paid seasons might include exclusive gameplay elements or even progression towards the overall story of the world the game franchise is set in. 

Many mobile games provide the reward loop of season-themed cosmetics that players can use to express themselves and showcase their dedication to the game. Examples of that kind of system include Final Fantasy VII: First Soldier, Fortnite: Battle Royale, and Call of Duty Mobile. 

However, some games take it a step further and provide real gameplay advantages to people who pay for the non-renewing subscription in the form of season pass content. Racing games, such as Asphalt 9, offer copious amounts of valuable premium currency on top of giving paying customers cars that are objectively some of the best in their class, with free alternatives taking a long amount of time to unlock. All of these benefits serve to significantly speed up player progression and without paying for every season pass starting from the original launch of the game, it’s completely impossible to fully unlock everything the game has to offer. 

Despite these frustrations, this battle/season pass model is incredibly lucrative, which is why more games adopt it. According to relatively recent data from 2019, over 20% of top-grossing mobile games feature some variation of this monetization scheme, and the rates only seem to be rising each month. It’s incredible how many mobile games have adopted this model since then.

Which in-app purchases model is best-suited for my app?

After going through each type of in-app purchases, this would be the logical question to ask. Like with most things in life, it mostly varies from person to person, or in this case, from app to app. The general advice boils down to ultimately satisfying the customer while benefiting the publisher with revenue. If you want to test the models in advance, our [SplitMetrics A/B Testing] services will help you find your best option by comparing easy-to-read results.

Though, as empirical evidence may suggest, consumable and non-renewing purchases are popular among publishers in the mobile gaming market, and designing games that properly take advantage of those models has proven to be lucrative. As for non-consumable purchases and renewable subscriptions, apps in other categories reap great benefits from them by offering more features to paying customers. But, as you’ve seen with the example of Reddit, deviating from established trends can sometimes bring better benefits than going with the flow. Fortnite’s battle pass system solidifies that, as it redefined the games-as-a-service model when it first introduced that monetization tactic.

Whichever type of in-app purchases you choose to implement, our qualified team at SplitMetrics Agency will help you along the way to fine-tune your app’s monetization to ensure audience retention and increase the revenue your app will generate.