Subscription app developers might be better off charging more

Global Subscription App to Buy Funnel

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Counterintuitively, subscription app developers are likely to find greater success by charging users more for their apps than less, according to a new report from Liftoff.

The app marketing firm analyzed data gathered between June 2016 and June 2017, and categorized app subscriptions into low-cost monthly subscriptions ($0.99 to $7), medium-cost monthly subscriptions ($7 to $20), and high-cost monthly subscriptions ($20 to $50). The findings suggest that lower-priced subscription apps don’t necessarily draw in users more than high-cost ones do.

Subscription apps are becoming increasingly popular among developers, in part because app vendors, Apple and Google, are making them more appealing as a monetization model. The two companies updated their subscription-based revenue models for developers in 2016 to increase the share of revenue developers get from 70/30 to 85/15.

Developers wanting to take advantage of the higher revenue cut have to take into consideration things like the cost versus the benefit of charging more or less for an app, the type of app, and their target platform:

Overall, the Goldilocks principle holds well for the subscription app model. Medium-cost monthly subscriptions have the highest conversion rate at 7% — significantly higher than the conversion rate for the high-cost category (0.7%) and the low-cost category (1.4%). Middle-range subscription apps also boast the lowest subscriber acquisition rate, averaging just over $106.
The app's function is a key factor in consumers' willingness to spend. Must-have apps like utility apps, with a 2.3% conversion rate, have a 64% higher install-to-subscribe rate compared with nice-to-have apps like dating apps, with a 1.4% conversion rate. This is likely because the registration process for dating apps is difficult and time-consuming, producing a high drop-off rate, as not all users are willing to commit to recurring monthly fees compared with apps that users deem a must.
iOS users are more expensive to acquire than Android users. At $5.60, the cost to acquire an iOS user to install a subscription app is 55% higher than an Android user, at $3.60. However, the gap between platforms shrinks if these users decide to subscribe to — or continue paying for — an app.

App developers long considered the "pay once and play" model — in which users pay up front an app and aren't prompted to make in-app purchases — the best way to generate revenue. But as more "free-to-download" apps entered the market, users increasingly opted for these experiences. These apps offer microtransactions for in-app goods and services, and in-app ads.

As the app ecosystem expands further, it will become increasingly challenging for developers to compete in a crowded market. Overall, global gross app revenue will double to reach $102 billion by 2020, according to recent projections by App Annie. As a result, app monetization strategies need to shift at least as quickly as consumer trends and preferences in order for developers to capture a piece of this growing market.

Laurie Beaver, research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on app monetization that:

Provides key factors driving the expected growth of global app revenue
Evaluates the top app monetization strategies
Looks at emerging trends to help developers navigate the app ecosystem
Explains the challenges that developers face to compete in the app market
And much more

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