Introducing the fourth installment in our Vertical Deep Dive Series, where we examine the inception, growth, decline, and other major trends in each of the top verticals in mobile. In this article,, we cover subscription app trends, the benefits and challenges of subscription-based apps and the key to their success within the app ecosystem.
Subscription business models have gained popularity in recent years with the top 100 growing 34% to $13B in 2020. Subscription apps range from dating, fitness and health to streaming. Global subscription revenue is expected to hit nearly $243 billion in 2022, while subscriptions will make up 86% of all digital content revenue by that same time.
Unlike traditional app payment models where users pay once to get access to an app, a subscription-based app model allows consumers to pay a recurring fee to access premium features. Hulu+ and YouTube, for example, offer an ad-free premium subscription account that users value because they get uninterrupted stream time of their favorite shows for a nominal additional cost. Users deem this small added cost valuable for the time saved watching ads. Ironically, the subscription model is a great way to monetize an app and gain loyal customers.
The focus of this model is rooted in customer retention versus acquisition. It is more financially beneficial for developers to focus on an existing paying user than to gain new users who may not be inclined to pay for a subscription.
While a subscription-based revenue model has many advantages, it can also present some challenges. Risk for churn and user drop-off is a potential outcome if the model isn't executed and maintained effectively Let’s take a deep dive into the benefits of a subscription-based app model along with potential trouble areas and the keys to success within the app ecosystem.
Pros of the Subscription-Based App Model
Subscription models instill a sense of loyalty for app publishers. When customers agree to pay a monthly fee to access an app, it means a higher lifetime value (LTV). Benefits of this business model also include favorability from the Apple Store, higher revenue and increased audience engagement.
Higher Ranking on the App Store
In 2016, Apple introduced a change in the app store to reward app subscription models over other pricing models by offering developers a 85:15 revenue split, as opposed to the former 70:30 split. This 85:15 rule only applies for subscriptions that last over a year – creating an incentive for apps to retain their existing users. Because of this change from Apple, subscription models are increasingly attractive, as developers could gain 15% more revenue back from Apple.
Monthly Payments to Steady Income
Subscription models also offer a steady and recurring income for developers and therefore, higher overall revenue. Because of the consistent nature of subscription-based apps, companies can predict the revenue that will be generated each month and use this to prioritize future strategies. Developers are able to customize ads based on their consistent user demographic as opposed to having inconsistent users month to month.
Allowing the user to have flexible payment options, from annual payments to smaller broken up monthly payments, can be an attractive draw as well. For example, if the app offers a monthly fee of $8 – this is much more digestible for consumers, who would likely be much more agreeable to this payment term, over the alternative of paying an upfront $100 for annual use of the app.This lowers the barrier to entry of app adoption, driving more users to download,pay, and subscribe.
With audience engagement as the ultimate goal of the subscription-based model, users will interact more with an app that they have invested in. Regularly paying to maintain their access to the app oftentimes can be a sole trigger for the user to actually use what they are paying for. How many times have we overheard people mention, "I'm paying for it... I might as well use it!" Developers can use this self incentive as more of a pseudo sandbox opportunity to access “loyal engagement” by A/B testing new features and tools. Learnings can help to better respond to the preferences of their audience, and value to both the user and the app developer.
Challenges of the Subscription-Based App Model
With all the benefits that come with a subscription-based business model, it seems like a winning strategy every app should implement into their structure. However, as with anything that could seem too good to be true, there are a few challenges that come with this particular retention strategy to be mindful of before you consider adopting it.
Expectation vs Reality
When users pay for an app, the expectation is that it should live up to high expectations, since it should be worth the money they have invested. This means that companies operating under a subscription based business model should constantly be innovating by adding new, exciting features to their app product. Consistent updates, limiting bug issues and glitches are essential to sustain users. Introducing innovative, new, and valuable features to the user interface allows for this cost to value comparison to be positively realized. A lack of these elements may cause subscribers to cancel their memberships or be less inclined to buy premium updates. After all, would you pay for something if it doesn’t work or if you perceive the value to be less than you pay for it?
Subscription-Based App Burnout?
We’ve all seen those commercials that claim to find and remove all your monthly subscriptions that keep hitting your bank account. Yes, subscription app burnout is real and there is an app for that too!
Customers who frequently sign up for these types of apps may be tired of paying for subscriptions or simply might need to downsize their monthly expenses. With the drastic growth in popularity of subscription-based apps, odds are users are paying for multiple different apps already. While this is a major challenge in maintaining a constant user base within this business model, there is a very realistic solution to use this as an opportunity to create further value within your app.
It is essential that the customer knows how they are benefiting from the app, and why they signed up to pay for an app in the first place. A huge factor in reducing this concern is the connection the company has with their customers, how they use the app, and what new features users would really value. If users feel that an upgrade or membership is worth it for the premium features or add ons, they’ll be more inclined to continue to pay for the subscription and use the app.
Like all apps, subscription apps focus on retaining their users, and user churn can be just as prevalent as this business model’s biggest enemy. To put it simply, churn is the percentage of users that unsubscribe from an app (users lost on a monthly basis). Churn converts directly into lost revenue and if churn outpaces acquisition – an app loses money.
So, how do developers combat churn while staying relevant in this ever-growing space?
Keys to subscription-based app success
Some user churn is inevitable for every subscription app. However, there are a few ways to lower the churn rate and make sure that users are engaged for the long term within an app.
Free trials and onboarding
The onboarding process can make it or break it when it comes to longevity of users. Start with a free onboarding stage – that guide users through the core features of the product and focus on the most valuable features. Then, once a user has a basic understanding of the app, educate them on what comes with a paid subscription. Highlight the benefits of a paid experience and what features are unlocked with this membership.
Offering a free trial can help get users comfortable with the idea of subscribing to an app. All apps approach this differently – some offer one week free, others go as far as the first two months without charge. For example, Spotify offers their premium service for 99 cents in the first month. The key is to make sure that users do not churn after this free trial.
Segment with high value messaging
After the free trial ends, try segmenting users based on their conversions (still on the free trial vs premium subscription, etc), then show different messaging based on their levels of engagement. For example, showing annual subscription options to the more engaged users versus monthly options for those who haven’t committed to the premium platform yet. Having personalized, informative messaging around key features and opportunities that come with a subscription service may also help keep users engaged with the app.
Retarget to maintain engagement
A key to success for subscription-based apps is to start retargeting campaigns early on. The main focus of these apps is to retain users, so in order to keep that a priority, it is integral to have these strategies implemented from the get-go. Feed the segmented users who are showing lesser engagement during the free trial stage right into the campaign rather than waiting until they come back organically.
Subscription business models have become increasingly popular in recent years and are a great way to monetize an app and gain loyal customers. The focus of this business model is based around customer retention over acquisition – the key to success is minimizing churn.
- Benefits - Subscription-based apps are favored by the Apple store, provide a steady income for developers and drive a higher level of user engagement. They tend to see a higher revenue than one-time purchase apps and instill a sense of loyalty with their audience.
- Challenges/Opportunities - Even with all the benefits that come with subscription apps, there are challenges that come with this particular retention strategy. There is a need for constant innovation on the developer side and the risk for subscription-app burnout by users (there’s also an app to help with this burnout!)
- Keys to success - Start a retargeting campaign early on! In order to limit user churn, it is integral that developers make sure their onboarding process is seamless and that they make sure to target users who have dropped off during the free trial process. Another key is offering a free trial before users have to commit to a subscription gets them comfortable with the platform and encourages them to play around with the app. After this trial ends, try segmenting users based on their conversions (still on the free trial vs premium subscription, etc), then show different messaging based on their levels of engagement.
Interested in learning more about how YouAppi’s retargeting platform helps retain users for subscription based apps? Contact us here!