- I started Vivino 13 years ago,
and always got the same question.
"The app is free, how the heck do you make money?"
That's what we're gonna talk about today,
how to make money from apps,
and there are many ways to make money,
to monetize an app in 2023.
This is Raw Startup. (upbeat music)
I'm the founder of Vivino, the world's largest wine app,
and wine community with over 60 million users
all over the world.
The app has always been free, and yet we're still here.
How the heck is that possible?
And yes, this is something I know a thing or two about.
We look at the biggest five ways to make money off apps,
and I will show you examples in every single category.
We look at how much money
there is to be made in each category,
as well as the good and the bad.
This list of five doesn't have all the ways
you can make money off apps,
but probably 90% of how money is made in apps today.
With that, let's get started.
Number one, sell products or services.
You basically facilitate the sale of a product or a service,
and this can be done in many ways
with very different complexities.
From a very low complexity affiliate deal
to full-on e-commerce in many countries.
Examples are Vivino,
we have a full marketplace in the app
where users can buy wine.
Amazon is another great example here.
This can also be done with nonphysical products,
like hotels, flights, or car rentals.
In that space, we have apps like booking.com and Skyscanner.
Usually you get a cut,
some kind of commission on everything sold through the app,
that's how you make money this way.
Let's have a look at how a sale can be made through an app,
and this is important because the complexity changes a lot.
Affiliate, basically sending buyers
to somebody else that does the e-commerce, complexity, low.
Marketplace, a marketplace with many vendors,
one good example here is Etsy,
but Amazon also has a marketplace, complexity, high.
Drop shipping, you take orders,
but somebody else does most of the shipping, et cetera,
complexity, medium.
Full e-commerce, you run a full e-commerce shop
just like Amazon, complexity, high.
Now, let's look of a look at the good and the bad
when it comes to selling stuff in your app,
and we're starting with the good.
It's a feature, and doesn't really get
in the way of your app.
There's a big upside if customers buy a lot,
and you get a cut of that.
The bad, can be low margin, really depends on the category.
Hard to scale, especially internationally.
Adds considerable complexity depending on the model.
All in all, this is a very complicated way
to make money off an app, and yes,
this is something I have extensive experience in.
Number two, digital subscriptions, and this is a big one,
have a paid digital subscription
where users pay monthly or annually.
This model is very popular for many reasons,
we'll get to that.
This model is especially good for apps
that are used on a regular basis,
monthly, weekly, or even daily.
Apps that use this model
that you probably have heard about already are Netflix,
Disney+, Max, used to be HBO Max,
as well as most other streaming apps.
And dating is a big category here.
We even did a full video on the dating app, Smitten,
check that out later.
There's also a lot of health and wellbeing apps
that use this model.
Apps like Reflectly, the journaling apps,
Strava, the biking app, MyFitness Pal for calorie counting,
Headspace, the meditation app, and many, many more.
When it comes to how is you charge, and what you you charge,
the strategies vary a little bit.
A very common way of doing it is having a free app,
then adding a few features, and you pay for that,
that's known as freemium.
Others are paid only,
maybe you get a short trial,
but then after that you have to pay to use the app.
Prices vary depending on the service,
value, and the category.
We see prices all the way from a few dollars a month
all the way up to 20, $30 every single month.
If you have a free app,
the number of users that are willing to pay
can vary from say one to 10%.
My impression is that most apps are between three and 5%.
Okay, let's have a look at the good and the bad.
The good, instantly global, high margin,
recurring and predictable.
The bad, not for occasional used products,
some markets and people just don't like subscriptions.
All in all, this is a fantastic way to monetize an app.
This is a reason why it's very, very popular.
Number three, advertising and sponsorships.
Basically putting ads or some kind of advertising
into the app,
it could look something like this, or even interstitial ads,
they take over the full screen and the user has to wait.
They're more intrusive, but they will pay better.
You will need some volume,
you'll need a lot of users to make money here,
or it can be very, very targeted.
Then you can make a little bit of money.
Showing ads to a small group of people.
Say 200 people is not gonna get you very far.
You will need a lot of users, but the usage is wide,
it's used in all kinds of different apps.
The good, pretty easy to do.
There are platforms like AdMob,
and it's a pretty simple way to make money.
The bad, can be intrusive.
Users often don't like banners,
and advertising in general takes a lot of volume
to get a good revenue,
usually millions of users before it becomes meaningful.
Number four, sell digital goods.
This is sometimes referred to as in app purchases.
Basically you pay something to unlock a feature
or get something special inside the app.
These days it's mostly used in games
where you can buy things like skins,
weapons, extra lives or turns, levels.
These are split into two categories,
consumables and non consumables.
Consumables are things that you buy, and then you use them,
and then you need a new one.
Non-consumables, you buy once, and that's it,
maybe it unlocks a feature or something like that.
The cool thing about consumables
is that people keep buying them.
It's almost like a subscription.
This can be used outside games,
but you have to be a little creative.
If you know any good examples, put them in the comments.
The good, instantly global.
There is a willingness to pay in certain categories,
especially games.
The bad, not recurring,
unless it's consumable, then they sort of keep coming.
This is a good way to monetize,
especially in certain categories.
Number five, sell data.
When you have an app, the usage of the app
usually generates some data,
and there might be people willing to pay for that.
With the Vivino for example,
we know a lot about what people like to drink,
what's trending upwards, and what's falling out of favor.
This data can have a lot of value for people
in the wine industry,
and it is something we make money from at Vivino.
All that said, please be very careful.
It's okay to sell some high level data,
but you can never sell user data.
We would never do that.
The rules are very strict, especially in Europe with GDPR,
those rules are coming in the US too.
I think California is leading the pack.
The EU will give you a massive fine
if you break those rules.
Meta just got a $1.2 billion fine for selling personal data,
so be very careful, or just don't do it.
On top of that, apple really values privacy.
They do not want you to sell any sort of user data.
You are making an app,
and you should really be friends with Apple.
Anonymized data about users and behaviors,
trends and so on is okay,
but any sort of user data is a no-go.
A lot of hustlers in this space,
they'll try to put some SDK into your app,
and sell the data, stay away from that.
And the good, doesn't get in the way of the product.
There is money to be made in some categories.
The bad, so many things, especially on what you sell,
so be careful here.
All in all, this is a bit of a minefield,
so if in doubt, don't do it.
Here's the list of the full monetization strategies.
Very often you can combine things,
and then you have a really good revenue.
This way you monetize different kinds of users.
Some users are willing to pay for the app,
others are willing to see ads.
If you know other creative ways of making money on apps,
please let me know in the comments.
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Thank you very much for watching Raw Startup.
Now stop watching, go build something.
(upbeat music)