Last update: October 2021

4 mins to read - 2021/10/29

Hybrid Monetization: Combine In-App Purchases & Ads to Maximize Revenue

According to Statista, 96% of apps in the Google Play Store are free to download. All of these employ the freemium, or F2P business model, in which the basic app utility is free, but users can upgrade their UX or access premium features by making purchases or viewing ads as they go. The freemium model has proven to be incredibly lucrative, when done correctly. However, the mobile industry is in a state of uncertainty at the moment, as new data privacy developments risk disrupting the freemium model. Moving forward, it’s likely that hybrid monetization – a combination of micropurchases, ad viewing, and possibly yet-to-be-discovered revenue streams – will be the way to go.

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Hybrid Monetization: What Is It?

Up until now, in-app purchases (IAPs) have been the primary vehicle for F2P revenues. However, Apple’s recent changes to apps’ ability to track users’ IDFA has upended this model, as targeting of users for personalized IAPs will be more difficult. With apps only allowed to track IDFAs if the user gives their permission, Flurry has projected that only 15% of users worldwide will opt-in to having their data tracked. (With the number at 6% for app users in the US.)

Image Source: Screenshot from Flurry

There is similar concern regarding personalized ads, and experts are predicting that monetization tactics such as subscriptions, battle passes, and premium VIP tiers will become more common in the near future.

In an earlier era of mobile app monetization, apps either cost money to download, or users paid as they went by purchasing IAPs. The problem here was that only about 5% of users made purchases, leaving the vast majority of users non-monetized. Hybrid monetization is the strategy of combining both IAPs with carefully interspersed ads, in such a way as to maximize user retention and lifetime value (LTV). A study by Google found that mobile games that added ads to an already existing strategy of IAPs saw a 117% increase in revenues.

In many cases, these strategies include a more seamless integration of monetization with the app experience. For example, ads that reward viewers with in-game currency or extra lives for watching. Alternatively, watching an ad or purchasing an extra feature can result in more premium gameplay in a mobile game.

What Is the Right Ratio of Ads to IAPs?

It’s difficult to say, as every app is different. Successful hybrid monetization should complement the app UX, not disrupt it. And different genres of app – and even different demographics of app user – can have different tolerance levels for what is an appropriate amount of in-app advertising or IAP solicitations.

For example, hyper-casual games tend to be very ad-heavy, which works well with the type of experience that this genre of mobile game offers. Hyper-casual games are fast-paced, simple, and addictive, with no real narrative or strategy beyond simple mechanics – think endless runner games. Most players don’t mind more frequent ads, since there’s no story arc being interrupted. However, a more involved RPG or puzzle game that has frequent ad breaks may frustrate users, resulting in churn.

In many cases, in-app ads appear as interstitial images or videos that appear during natural breaks in the game. But they can also appear as banner ads on the top or bottom of the screen, or even as a mini-game that the user can engage with.

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Hybrid Monetization: Personalization is Key

Next-gen apps have a ton of competition for their users’ attention. As such, the old method of bombarding users with ads and IAP suggestions just won’t cut it. This is the age of data, and to get more bang for your buck, it’s crucial to leverage user data to assess how they might best generate revenues.

What kind of an app user are they? How do they engage with your game? What is their age? Using device activity patterns, what is their habitual schedule? Are they more likely to purchase a bundle of extra lives for $2.99, or will they continue playing the basic game loop for two hours until they defeat the level? Players who make micropurchases should be targeted with more personalized IAPs, so they continue to pay into the game. Whereas unmonetized players who would rather play for free should be shown occasional ads, so as to monetize their gameplay as well.

Ultimately, your goal is to make the most of the time the user spends in your app – monetize them, but don’t push them away by overdoing it. Interestingly, Google’s study also saw that type of game has a lot of influence over the success of implementing hybrid monetization. Casual games and action games saw the greatest benefit, with a potential of 78% and 74% increase in revenues respectively when ads were combined with IAPs. However, more involved strategy games only saw a 37% revenues increase, and role-playing games saw a paltry 17%.

Clearly, players of games that involve elaborate strategizing or involved storylines will have less patience for their gaming experience being interrupted by ads than players of more “snackable” casual and action games. And while even RPGs saw a minor increase in revenues, it’s important not to overdo it, or your retention rates will suffer.

How to Make the Most of Your Hybrid Monetization Campaign

When searching for that sweet spot of the right proportions of ads to IAPs for your app or game, a robust push notification campaign is the best way to make sure your users are coming back into your app day after day. OpenBack’s hybrid mobile engagement platform leverages device-side data, allowing you to hyper-personalize your push notifications – down to the very moment of delivery – and track all engagement, conversion, and retention metrics. This enables you to optimize your campaigns for best effect, while remaining fully data privacy compliant.

To learn more about how using OpenBack for your push notifications can help optimize your hybrid app monetization campaign, get in touch with one of our experts.

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