May 25, 2013

Thinking About Revenue Models

I’ve been germinating a few start-up ideas in my head for a few weeks now. The most promising of which are mobile apps ideas. I’ve also been thinking a lot about the non-technical details. How could I make this actually work? How would I start a business and be profitable?

I’m not a fan of the in-app purchases model. Why? It’s too easy to ‘trick’ someone, even unintentionally, into spending more than they intended or realize. A while back I taught a seminar on Facebook app development. During that time period I had a conversation with someone about one of the games in particular and he lamented accidentally spending $40 on one of the more profitable games. It wasn’t obvious to him he was being charged until it was too late. How often do we click “next”, “next”, “next” without really reading the screen when a popup prevents us from playing a game? I’m not even considering the less scrupulous app makers who target kids to get them to make in-app purchases with their parents’ phones. In-app purchases can be designed well, but that’s hard to do. While accidental purchases may be profitable for an individual game, at least in the short term, it’s bad for the consumer and bad for the app ecosystem.

I’m also weary of advertisements in apps. I have a word search puzzle game on my phone and I am always accidentally clicking on the ad because it’s too close to the search screen. While profitable for the game maker, it’s annoying for me and a looser for the company who paid for the advertisement. It’s an erroneous click, and extremely unlikely to result in a purchase, but the company who paid for the advertisement has to pay for the click just the same. Advertisements need to be placed with care. It’s a delicate balance to be seen (and thus generate revenue) but not interfere with app functionality.

The app I’m thinking of creating is one I would personally benefit from. I want other people to enjoy using my app, too. I want them to gain value from using it, and to not be annoyed by it. I want to be profitable, yes, but not at the expense of my customers. It’s more likely to spread through viral marketing that way, which might, dare I hope, even make it more profitable.

I’m becoming more and more a fan of the tiered pricing model. There have been numerous articles that have crossed my twitter feed about it, this one being the most recent. The idea is simple: some people want the bare basic functionality (low tier), while others will pay for more services (high tier). By offering multiple tiers of service, you can cater to your different audiences. You’re less likely to loose sales, because the the price conscious have an option, but you don’t loose out on extra revenue from those who would pay more. The article is specifically talking about ebooks, but the same principle could be applied to anything.

On the other hand too many choices can be paralyzing, so best to stick with just a few choices.

Right now I’m envisioning a three tiered system for my app. A free ad-supported app (with ads in a non-obnoxious place that don’t pop up on every.single.screen) a mid tier (.99 – 1.99) ad free version, and a high tier ($4.99-9.99) version with extra functionality.

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