Many mobile app developers have traditionally set a business model wherein consumers are asked to pay for a mobile app download or a mobile subscription service. As more and more apps continue to saturate the app stores, it has become increasingly difficult to convince consumers to pay for an app when so many free apps are available. This makes it tough for paid apps to gain the customer base needed to generate a significant flow of paying users. As such, app developers are now turning towards different methods of monetization, including in-app purchases.
In-app purchases differ from paid downloads by letting the consumer download the mobile app for free and opt to pay for purchases within the app at a later time to enhance the overall experience. This provides the publisher with an opportunity to interact and engage the user beforehand, making it an easier proposition to up-sell them consumer at a later point. Mobile game makers have successfully executed this model through the use of virtual goods. These virtual goods can include items within the game, personalized avatars, access to additional levels or other customized offers. These virtual goods are often sold for small amounts, allowing the developer to engage the consumer in repeated micro transactions over the lifetime of the app. Zynga has long been a pioneer in this space, and more recently NaturalMotion, a mobile game publisher based out of the U.K., conducted $12 million dollars in in-app purchases during a single month. Those small micro transactions sure add up to big chunks of change when processed over a large user base!
According to a recent study by OPA, 24% of smartphone users have purchased some form of mobile content over the past year. Yet only 14% of smartphone apps downloaded by these same users were paid apps. These statistics indicate that many content purchases are happening after a consumer has conducted an app download, and show a changing trend in mobile consumer behavior.