What is In-App Purchasing?

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As of the first quarter of 2020, the App Store and Google Play have over 4 million apps combined. And among those apps, only 8.1% in the Apple App Store and 3.6% in the Google Play Store are paid apps. 

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How do these free apps monetize their work? There is a strategy apart from advertising that we are all aware of both as app publishers and users: in-app purchases (IAP). The monetization strategy based on in-app purchases started in 2011.

What is In-App Purchasing?

In-app purchases are extra content, services, special features, or subscriptions that users buy inside your app. That means that the user buys levels in a gaming app, shoes on a shopping app, or subscriptions on a health and fitness app.  

While they are on the stores, users can see whether an app offers in-app purchases just below the “Get”(for iOS) and “Install” (for Android) buttons.

Business Models: Freemium Model, Subscription Model, Paymium Model

The business model of apps that don’t require users to pay to download or use the app is the free model. The free model increases the likelihood of downloads and brand awareness. Publishers of such apps monetize them through ads. It is important to keep in mind that ads should be relevant and appropriate for the user segments. Obtrusive and inappropriate ads decrease engagement and retention.

In the freemium model, users download your app for free, and the app offers optional in-app purchases to give access to extra content, features, subscriptions, or services. This allows users to have an experience in your app and engage more if they are willing to.

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Image: PicsArt

The subscription model allows users to make in-app purchases to access content, features, and services for renewable and non-renewable durations. See the next section for more information about subscription options. Subscriptions can be offered as a part of freemium or paymium models and with other in-app purchase types.

If the users pay a one-time fee to download an app, this app runs on a premium or paid model. This model reflects a more traditional buying process where the user commits buying the product without trying it. The cost of download pushes users to evaluate your app’s value more carefully. So, if you want to have a successful premium/paid app, you should offer a premium experience with great functionality, design, and marketing.

Some apps require users to pay to download the app but also offer in-app purchases for additional features, content, or services. These apps run on the paymium model.  If you want to have a paymium model, make sure that you know your users’ expectations when they pay for your app and extra features. With the paymium model, you can lower the cost of downloading for users while using in-app purchases.

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Image: CARROT Weather app, Users pay to download and also make in-app purchases to benefit from services like notifications, customization, etc.

There are different types of in-app purchases. These are:

  • Consumable Purchases: These in-app purchases are the ones that you usually find in gaming apps, in the forms or lives or gems to go further in the app. Users make consumable purchases, deplete, and buy again. 
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Image: HowtoGeek
  • Non-Consumable Purchases: These in-app purchases allow users to reach premium features within your app. Once they are purchased, they don’t expire, such as additional filters on a photo editing app.
  • Auto‑Renewable Subscriptions: By making these in-app purchases, users gain access to periodically updated content such as news, streaming services, or magazines. This type of in-app purchase automatically renews the subscriptions and charges them until the user cancels their subscription. Spotify and Hulu offer auto-renewable subscriptions.
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Image: Upland
  • Non‑Renewing Subscriptions: Users buy access to content for a limited duration if you offer a non-renewing subscription. Hence, users need to renew it each time.

In-App Purchase Flow

To offer in-app purchases to your users, you need the StoreKit for iOS apps. You should first show the user the product (consumable, non-consumable, etc.). After they take an action, the StoreKit Framework connects to the App Store to process payments on behalf of your app. The framework then notifies your app and delivers the product. 

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Image: Apple

For Android applications, you should have Google Play Billing. Once the user takes action to make an in-app purchase, your app sends a billing request for the product. After the Google Play Store completes the checkout process, it sends purchase details back to the app. 

Image: App Samurai

Encouraging In-App Purchases

Offering Relevant Campaigns

It is important to know what your user is looking for and stay relevant to their expectations, wants, and needs. By following the user journey, you can get to know your user and send them targeted messages aimed at engagement and conversion based on their real-time activity.

In-App Messages

In-app messages are delivered when the users are using the app. So, you send your users in-app messages based on their behavior in your app. If they like a product, you can send them a promotional message.

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Image: Marketing & Growth Hacking

Push Notifications

Push notifications increase clickthrough rate by up to 23%. You can use push notifications to remind the user of your product, service, and any time-sensitive information. So, you can use push notifications as a tool to convey your in-app purchase message. 

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Image: BuildFire

Use In-App Stories

You can use in-app stories to grasp the attention of your users on your in-app purchase products. You have the chance to show what you have to offer the moment the user opens your app. You can easily show the value and functionality of the extra features, extra content, or subscriptions with the power of visual without any competition on the screen.

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Image: Storyly

If you have a health and fitness app, you can use in-app stories to reach your audience to encourage them to subscribe and upgrade their app to the premium version. Check out Storyly to discover how you can use the power of stories to boost in-app purchases.

Conclusion

Creating a great app is a big success, and making money out of it is a huge success. Many mobile apps, whether paid or free to download, use in-app purchases to monetize their apps. Although not every app is not suitable for in-app purchases if you think your app can have a place for them, follow the above practices to drive substantial revenue and increase conversions.

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