It’s nothing new, we all know that mobile games have dominated app stores for the past several years. In fact, a study recently found that of the top twenty grossing apps, 87% of total revenues came from games. Clearly, they’re doing something right.

It’s logical then that gaming is typically the first category to innovate and implement new app monetization strategies, which are often then taken on by non-gaming applications.

So, what is mobile gaming doing right? And how can non-gaming applications achieve similar success? Let’s take a look.

From premium to freemium

In the 80s and 90s, before smartphones were ubiquitous, gaming companies sold their games on a premium business model where, for example Super Mario was sold at a fixed price (~$50). To play, you needed to purchase the Nintendo 64 (~$200) separately. Then, once you had the N64, you could drag your parents back to the store and beg for three more games.

Recommended Reading
What are Rewarded Video Ads and How Can They Help App Developers Monetize?
How to Monetize with Subscription-Based Apps (5 Easy Tips)
Best Practices: Where to Place an Interstitial in Your App

This business model lasted years. After all, it worked. So, when mobile devices started becoming more popular, gaming developers naturally treated this new market just as they did in the 80s and 90s. But this time, the console was the mobile device and the game cartridges were the apps, meaning each mobile application was sold for a fixed price on the App Store, typically at $0.99.

In October 2009, things began to change. Apple emailed developers that they’d now be accepting free apps backed by micro-transactions. In 2010, a year later, the percentage of free apps was still low, but steadily growing, with two free apps featured in the App Store Top 50 in January, ten in October, twenty in November, and so on. 

It was undeniable, the paid apps model was dying. In recognizing this, most mobile games replaced this monetization strategy with the freemium model. (The only notable game that is still premium is Minecraft.) Still, several non-gaming apps were stuck relying on this same monetization model for quite some time. In 2013, at least half of the Productivity, Medical, Business, Healthcare & Fitness, Navigation, Catalogs, Lifestyle, Photo & Video, Travel, and Weather applications still required a one-time payment.

271644It took a while to catch up, but today, these numbers are down to roughly 5%. Evidently, gaming developers were on to something.

In-app purchases for all

In 2009, freemium apps – apps either offered as a “lite” version for free or those which offer in-app purchases – slowly became the norm. It was in 2012, however, that this app monetization model really took off. (In 2012, free apps jumped from 80% to 90%.) Suddenly, in seeing gross premium numbers quickly decline, headlines on Mashable, GigaOM, and Forbes declared, “Premium is Dead” and “Freemium is the Most Profitable.”

In a study recently conducted by eMarketer, researchers discovered that just 33% of mobile users in the US are willing to pay upfront for mobile applications, meaning the second consumers see that an app requires a premium purchase, they simply continue scanning the App Store or Google Play for a free version of the same product.

Before long, most apps in the App Store and Google Play were freemium. Today, there are over two million free apps on Google Play, compared to just two hundred thousand paid apps – a huge testament to power of the freemium model.

The rise of in-app ads

It was around the same time, in 2013, that in-app advertising began gaining traction as well. It grew 1.7x from 2013 to 2014. Still, the IAP model was always more popular and lucrative, with revenue growing 211% between 2013 and 2014 compared to 56% for in-app advertising.

Nevertheless, in-game advertising continue to see strong growth. Why? Because, as consumers’ activity and attention increasingly moves from desktop to mobile, advertisers are looking for ways to reach their target audiences on this medium. In-app offers the best chance to do so, with users today spending a whopping 90% of their time on mobile in apps rather than the mobile web.  


In addition, because researchers predict that the number of mobile users willing to pay for apps will continue to decline in the next four years, in-app advertising serves as a critical additional revenue stream for developers looking to monetize their apps.

Best of both worlds

Today, we’re beginning to see savvy developers using in-app ads to actually drive in-app purchases, resulting in a hybrid monetization strategy that addresses both paying and non-paying users.

To do this, many gaming developers are using “reward-based ad units,” such as rewarded videos and offerwalls, as a way of allowing non-paying users to access in-app currency. Instead of paying for premium features, they simply watch an advertisement.

Interestingly, users who watch a lot of rewarded videos often end up becoming paying users. In allowing users to continue playing the game for longer, and by exposing them to premium features enabled by in-app currency for “free,” their retention ultimately increases. Once they’re hooked, these users are more likely to make in-app purchases.

This model is very appealing; it’s a way to get the most out of both paying users and non-paying users, two groups that should not be mutually exclusive but are often treated as such.

Given what we’ve seen about the trailblazing role mobile games play in the evolution of app economics, it will be interesting to see how this hybrid monetization strategy evolves moving forward. As of now, we see just a handful of gaming developers (33%) implementing this model, but it’s reasonable to assume non-gaming apps will pick up this monetization model as well.

ironSource Blog

The Source

Predicting Trends for Mobile World Congress 2019

Mobile World Congress 2019 (aka MWC’19) is fast approaching. Here is everything you need to know. Let's take a peak at the big reveals, innovations, and industry predictions you can expect. What is MWC? MWC is the biggest and most..


How to Monetize and Advertise Word Games

In this episode of LevelUp, Andrew Stone, President at Random Logic Games gives the lowdown on word games including best practices for monetization, user acquisition, and design. Read on for edited highlights from Stone’s podcast: Who is playing mobile word games? “While women 25-40 are the target audience, word games have mass appeal and viral..


Best Conferences for Mobile App Developers in 2019

With 2019 off to an excellent start, we thought it would be great to give you a little heads-up at some of the developer conferences for mobile apps and games happening this year. Mobile App conferences are a great opportunity for developers to learn, network, create, and play your part in the app and mobile..


설날 트랜드 리포트 2019

2019: 기해년 여름 트랜드 리포트와 겨울 트랜드 리포트를 따라, 설날을 맞이하는 시기에 맞춰 개발자들은 어떠한 일들을 예상해야 할지에 대한 리포트를 발표하였습니다. 설날은 전세계에서 가장 주목받는 명절 중 하나로, 전체 인구중 거의 20%정도가 기념 합니다. 음력으로 치는 명절이기 때문에 매년 날짜가 달라지기도 하지요. 이번 설날은 2월 5일이며, 년은 기해년 입니다. 설날을 맞이하며 한국의 인구는 휴식을 취할수..


What app developers should expect during the Chinese New Year

Nitsan Regev is a BI analyst at ironSource. 2019: The year of the pig Following our end of summer trends report and our winter holiday report, we decided to take a look at what developers should expect during the Chinese New Year. The Chinese (or Lunar) New Year is one of the world’s most observed..

Ad Monetization and User Acquisition: Q&A with Tapps Games

Ad monetization and user acquisition are two sides of the same coin. For example, UA teams are dedicated to realizing true app growth, whereas ad monetization teams are driven to generate revenue. Taking this into account, it’s almost logical that gaming companies will have these teams separated. Each team has different goals that at face..


What’s the Hype with Hyper-Casual Games? Part 3: Marketing

In our final chapter of LevelUp’s hyper-casual series, Ryan Davies, Digital Marketing Manager at Kwalee, shares his thoughts on running successful user acquisition campaigns for hyper-casual games. Read on for edited highlights from Davies’ podcast: Failing “Failing is critical, especially for hyper-casual games because you’re dealing with such a fast rate of content. You have..

Nordeus Talks Ad Monetization, Brands, and App Industry Trends

Nordeus, a Serbian mobile game studio, is far from being the new kid on the block. Their hit title Top Eleven has been live for nearly a decade and has 200 million registered users, across Facebook, iOS, and Android. While Nordeus’ games are more IAP focussed, in-game ads still provide a significant source of revenue..


The Future of Programmatic Mediation

In this episode of LevelUp, Pieter Kooyman, Chief Advertising Officer at Miniclip, sets the record straight on ‘programmatic mediation’. He defines the term and predicts what the mobile industry can expect to see in the new year. Read on for edited highlights from Kooyman’s podcast: Many names “Let’s start by listing all the names surrounding..


2018’s Most Popular Level Up Podcasts

2018 was quite the year for ironSource’s LevelUp Podcast. We launched the LevelUp podcast, produced 13 episodes (and 2 seasons!), generated thousands of listens, and made some awesome friends along the way. With the new year upon on us, we thought to curate a list of our most listened to LevelUp podcast episodes with some..

Interested in becoming an ironSource partner?

We’d love to hear from you.