How to Explain Monetization to a Five-Year-Old

Imagine Alexander Graham Bell waking up from the dead today and finding out that the clumsy and awkward contraption he invented in 1876 has morphed into something so complex and powerful – the smartphone. 

This ‘phone’ hasn’t only become more practical and mobile, it has also become a computer, television, camera, music player, calendar, entertainment system, library, exercise companion, shopping assistant, and more. It can even talk to us! And all this has largely been made possible by apps which are now one of the most lucrative industries in the world.

If you’ve just decided to dip your toes into this highly profitable business, you need to start learning about all the things surrounding it and how to be successful in it. One of the most important terms you’ll hear is the mobile app monetization.

The first step to success is to understand what mobile app monetization actually is. Unfortunately, the traditional explanations can be quite complex, so let me try to explain it in terms that make sense even to a five-year-old:

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What is monetization?

Monetization means making money out of something. This refers to developing a product or service that people will pay to use or that can otherwise generate income for its maker. In the mobile app business, successful monetization refers to developing an app and earning good money off it for as long as you can.

The app can have a price tag or it can even be free to download and use, but the most important thing is that it offers its creator (called ‘developer’ or ‘publisher’) enough opportunities to earn money (i.e. to monetize it).

Monetization models

Monetization can take place in several ways. 

The first one is to place ads in an app so that users can click on them. Every view of an ad is called an impression and carries a certain value in money. Platforms called ‘ad networks’ connect you, the creator of the game with an advertiser – the person or company that wants to put ads in someone’s app. Thus, an ad monetization partnership is established, generating money for everyone involved in it. Advertisers earn income by getting customers for their product or service, while the app developer gets money from the advertiser for every click on the ad.

There are several main ad categories:

  • Banners: ads that are placed on the top or bottom of the screen and stay there while the app is being used;
  • Rewarded videos: video ads that reward users for watching them by giving them coins or something else of value in the app;
  • Playable ads: they allow users to interact with the ad and try out the app that is being advertised;
  • Notifications: these sometimes pop up on your device when the app is not being used, reminding the user of the app’s existence;
  • Offerwalls: specific pages in the app that have a list of items (coins, lives, customizations…) a user can purchase with real money or by doing something like watching a video.

The second method is to offer something of value that people will want to buy so they could continue using the app or just enjoy it more. This strategy is called in-app purchases (IAPs) and users can buy virtual coins, more lives or chances to use the app, customizations, new characters, levels, and more. 

The third most popular strategy for earning money from apps is to have people subscribe to your services for a specified period, paying for them on a monthly or yearly basis. This is how streaming apps like Netflix and HBO NOW make money.

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Some common mistakes

From time to time, in the process of mobile app monetization, developers will make mistakes. They’re only human, after all. Here are some of them:

  1. Not having a monetization strategy early on – before even starting with the app development, you need to have a clearly outlined strategy of how you plan to generate profit;
  2. Using the same strategy for all devices – there are significant differences between mobile platforms, so you need to tailor different strategies taking into consideration those differences;
  3. There is no diversity among strategies in one app – although ads are popular and easy to implement, limiting yourself to them means you’re wasting other opportunities for revenue;
  4. Treating all users the same – people respond differently to different strategies, so you need to analyze your users according to demographics and in-app behavior;
  5. Not getting any help – you could try but ultimately you wouldn’t be able to do most of these things by yourself. Which leads me to…

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Final thoughts

If you’ve decided to delve into this world and create an app, there is another thing to keep in mind – you’re not only making a means to earn money for yourself. You also need to bring something valuable for your users, be it a useful utility or a fun game.

Understanding the basics of mobile app monetization, best strategies to employ, common mistakes to be wary of, as well as the best platforms to help you out is the first step on this exciting road.

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