By: MassLight Team

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The popularity of mobile apps increased significantly after the introduction of the first iPhone in 2007, which marked the beginning of the smartphone era. With the growing popularity of smartphones and the app stores, such as Apple’s App Store and the Google Play Store, mobile apps became more accessible and easier to develop and distribute. By the 2010s, the number of mobile app downloads and usage had skyrocketed, with consumers using apps for everything from gaming and social media to shopping and financial management. The rise of mobile apps has since transformed the way people interact with technology, and it continues to be a major growth area in the tech industry.

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A unicorn in the tech industry refers to a startup company that has reached a valuation of over $1 billion. It is difficult to determine the first unicorn mobile app as the exact valuation of private companies is not publicly disclosed. However, one of the early mobile app companies to reach unicorn status was Uber, which was founded in 2009 and reached a valuation of over $1 billion by 2011. Uber revolutionized the transportation industry by allowing people to book rides through a mobile app and quickly became one of the fastest-growing companies in the world. Even if they never reach unicorn status, mobile apps can be profitable for several reasons. Here, we dive into the top 4:

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1. Monetization through in-app purchases and advertising
2. Subscriptions and paid downloads
3. E-commerce
4. Increased engagement

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Monetization Through In-App Purchases and Advertising

Many apps are free to download, but offer in-app purchases or display advertisements to generate revenue.  An in-app purchase occurs when users pay for additional features or virtual items within an app. For example, a game might allow users to purchase virtual currency to progress faster or access special items.  Advertising, on the other hand, involves displaying ads within an app. Advertisers pay to display their ads, and the app developer earns a revenue share. There are different types of advertising, including banner ads, interstitial ads, and rewarded videos. Banner ads are small ads that appear at the top or bottom of the screen, interstitial ads are full-screen ads that appear between app transitions, and rewarded videos are ads that users can watch in exchange for in-app rewards. Both in-app purchases and advertising can be effective ways to monetize an app, and many app developers use a combination of both. The key is to find the right balance that offers value to the user while generating enough revenue to sustain the app's development and growth.

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Subscriptions and Paid Downloads

Some apps require a subscription or charge for the initial download, providing a steady stream of income for the app developer.  With subscriptions, users pay a recurring fee, usually monthly or annually, to access premium features or content within the app. This model is often used by content-based apps such as news, music, or video streaming services.  According to a report by Data.ai, worldwide consumer spending on app subscriptions grew by over 35% in 2020. This growth can be attributed to the increasing popularity of subscription-based services, such as music and video streaming, as well as the rise of mobile-only subscription services, such as meal delivery and fitness apps.

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Paid downloads, on the other hand, involve users paying a one-time fee to download the app from an app store. This model is commonly used for productivity, gaming, or utility apps. In some cases, apps that were originally offered for free may switch to a paid model after gaining a significant user base. However, the popularity of paid downloads has declined in recent years as app users have become more accustomed to free or low-cost apps, and as app stores have increased their commission fees. As a result, many developers have shifted towards alternative revenue models, such as in-app advertising or subscriptions, to monetize their apps. Nevertheless, paid downloads remain a viable option for some types of apps, particularly premium games and productivity tools, where users are willing to pay a premium for a high-quality experience.

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Both of these models provide a direct source of income for app developers, as they receive a portion of the revenue generated from app store sales or user subscriptions. The app stores also receive a commission from app sales and subscriptions, providing a secondary source of income for the app developer.

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E-Commerce

E-commerce generates revenue for mobile apps through the sale of goods or services directly within the app. This can include physical products, digital products, or services such as booking a ride or ordering food delivery. The app acts as a platform for businesses to reach customers and make sales, either by offering their own products or by facilitating sales for third-party merchants.  Mobile shopping apps make it easy for consumers to purchase products directly from their devices, providing a new revenue stream for businesses.

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Revenue is generated in a number of ways, including transaction fees for sales made through the app, commissions on sales made by third-party merchants, or a percentage of the sale price for products or services sold directly by the app. In some cases, e-commerce mobile apps may also generate revenue through advertising or sponsored products.  According to a report by Statista, global m-commerce sales are expected to reach over $3.56 trillion by 2023, which is a significant increase from $1.35 trillion in 2018. This growth can be attributed to the convenience and accessibility of e-commerce mobile apps, as well as the increasing use of mobile devices for shopping and the growing popularity of mobile-first shopping experiences.

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E-commerce mobile apps offer many benefits for businesses, including the ability to reach a large and growing mobile audience, the convenience of making purchases directly from a smartphone, and the ability to personalize the shopping experience through features such as push notifications and personalized product recommendations. As a result, e-commerce mobile apps have become an important part of the overall landscape, providing a significant source of revenue for app developers and businesses.

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Increased Engagement

Apps can provide businesses with new ways to engage with customers and increase brand loyalty, leading to repeat purchases and higher lifetime value. Increased engagement with a mobile app can help generate income in a number of ways. Firstly, increased engagement often leads to increased user retention, which can in turn lead to higher lifetime value for each user. This is particularly important for revenue models such as subscriptions or in-app purchases, where users are more likely to make additional purchases or extend their subscription if they are highly engaged with the app.  Secondly, increased engagement can lead to higher conversion rates for in-app purchases or other monetization options, such as ads. For example, users who are highly engaged with an app are more likely to click on advertisements or make purchases within the app. This increased revenue can be a direct result of increased engagement.

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Finally, increased engagement can also help to improve the app's reputation and visibility, leading to more positive word-of-mouth recommendations and higher organic download rates. This can result in a larger user base and a more diverse revenue stream, as a larger user base provides a larger audience for advertisements and in-app purchases. Overall, increased engagement is a key factor in the success of a mobile app and is often directly linked to the app's ability to generate income. By keeping users engaged and providing a high-quality user experience, app developers can increase their chances of success and drive revenue growth.

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The profitability of a mobile app ultimately depends on its ability to solve a problem for users, offer unique value, and attract a large enough audience to generate significant revenue.  There are several ways to create a mobile app, such as writing code from scratch,  drag-and-drop builders, hiring a development team, and outsourcing the development process.  Each has its own advantages and disadvantages; the best method for creating a mobile app will depend on factors such as your budget, resources, and the complexity of the app you are creating.  

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