ITEC2706M
Mobile Technology: Design and Use
Lecture 6
Fall 2023
Business And Revenue Models
Most of the time, a user does not want to spend even 99 cents for downloading a mobile app.
Therefore, whether or not your app is free might very well make the difference between whether it gets downloaded among the hundreds of other apps that are also competing for user’s attention in the search results.
Whether or not you decide to charge for your app depends hugely on the type of the application and your business model.
Business And Revenue Models
In the following situations, you may want to charge for downloading the app:
Apps used for commercial purposes where the user is expected to use the app in their business’s operation.
For example, a Customer Relationship Management (CRM) app used by salespeople of organizations to manage sales, accounts, contacts, quotes, etc. falls into this category.
A medical app used by hospital staff to quickly measure radiation levels during a radiological examination.
The above apps are seldom given away free of charge by their creators.
Business And Revenue Models
In the following situations, you may want to charge for downloading the app:
Apps containing a lot of specialized content example: preparatory material for a standardized exam such as a legal bar exam, a government services exam, and standardized entrance examinations for professional courses.
Apps that contain very specific and detailed instructional content, such as how to fly a specific kind of Boeing jetliner, or a complete course on the design of electronic circuits.
Apps containing subscription-based content such as magazines, news media etc.
Business And Revenue Models
In the following situations, you may want to charge for downloading the app:
Digital books - also known as eBook Apps.
Apps built for personal or commercial use, which is backed by a data service of some kind that you have built. For example, a truck routing app that knows how to route a truck driver from point A to B by using only truck safe or truck friendly roads.
Business And Revenue Models
While deciding which revenue model to use:
The first question to ask yourself is whether your app will be used for commercial purposes by users.
If so, then it should be priced using rules that are similar to those that govern the pricing of business software such as MS office, commercial database products, etc.
Pricing Models for the apps for commercial use:
License-based models:
Per User unlimited timeframe license:
• This type of license is also called a perpetual or unlimited use license.
• This works well if your app allows users to log in and you have a way to track the number of users using the app via the backend database.
• Majority of paid apps fall into this category. You pay for the app once before downloading it. After that it’s yours to keep without any additional ongoing costs to you.
License-based models:
Subscription model:
• As with the per-user model, you charge on a per user basis but the user has to pay the license charge on a monthly or yearly basis. This is the most common type of license model in existence among software companies as it guarantees a steady monthly or yearly licensing revenue for the software company.
• If you are selling an enterprise mobile app (as against a consumer app such as a game), you may also want to have a tiered pricing structure.
• In tired pricing, you would set a certain license cost per user or per user per month or per user per year for say 0-10 users or subscriptions.
• Another license cost tier for say 11-100 users or subscriptions and yet another license cost tier for greater than 100 users or subscriptions.
• The license cost in each tier can be somewhat discounted as compared to the one in the previous tier.
Pricing Models for the apps for commercial use:
License-based models:
Unlimited users (Enterprise) license:
• If the number of users is expected to be very large or potentially unknown, then you could charge a fixed (typically large) license amount for every month or year of usage.
• This type of license works well if your app is going to be used by an unspecified number of users within an enterprise setting.
Pricing Models for the apps for commercial use:
Usage-based models:
• In a usage based model, you are metering the usage of your application or certain key features of your application (such as a document conversion or a sensor measurement, or a financial transaction) and charging the user based on how many times that activity is performed.
• Obviously, you need to have a robust way of metering usage in your application’s backend.
• Usage based pricing is also called ‘Pay-per-Use’.
Pricing Models for the apps for commercial use:
Usage-based models:
• For mobile apps, one of the most successful ways to generate revenue is to offer the app for free but charge the user for premium content via in-app purchases, effectively a ‘Pay-per- Use’ approach.
• Most of the well-known app stores such as Google Play Store and Apple App Store have very well-developed support for handling in-app purchases and funneling the revenue from them to the mobile app creator’s bank account.
• You could combine a usage based model with other types of
Pricing Models for the apps for commercial use:
Edition-based models:
• In edition-based pricing, the same app is offered in more than one version or ‘edition’, say Basic, Standard, Premium, and Deluxe.
• Each version contains additional features that are not present in the previous version.
• You can apply any license models such as per user perpetual license, subscription based model, unlimited user license or usage-based model to each edition.
• Typically, you would charge more per user as you go from Basic to Standard to Premium to Deluxe.
Pricing Models for the apps for commercial use:
Edition-based models:
• The most common use of the concept of editions in consumer mobile apps is that, often time the basic version of the app is free, but it contains advertisements thereby generating ad revenue for its creator.
• If you don’t want to be bothered with ads, you are encouraged to purchase a premium edition which is ad-free.
• You may wish to offer for free, a reduced content or reduced feature set version and charge for the premium version that comes with much more content or features.
Pricing Models for the apps for commercial use:
Some of the ways to pull in revenue through mobile apps:
Keeping the License-based, Usage-based, and Edition-based models in mind, the followings are some of the ways you could pull in revenue through your mobile app:
Offer a basic free version but enable the user to pay for additional features or content as and when they need it.
Offer the app for free but charge on a monthly/quarterly/yearly basis for subscribing to services that the app provides.
Charge a usually non-trivial amount for the initial download but offer subsequent content or features for free.
Some of the ways to pull in revenue through mobile apps:
Charge the user for the initial download. Also charge for subsequent updates, additional content, etc. This is not very common. But it is still a good option for the following kinds of apps:
Apps for which a tremendous amount of effort has gone into creating the content or algorithms being used in the apps.
When the app’s creator has had to spend a good sum of money to purchase the rights of somebody else to use some of the content or some specialized algorithms or software libraries that have been used in the app.
Partnership agreement:
You may also enter into partnership agreements with other vendors wherein they use your app as part of their overall product offering and pay you a royalty for each sale they make.
These agreements are usually complex legal documents.
Partnership agreement:
Ensuring the following things in the Partnership agreement:
Your partner does not use your product in ways other than what is explicitly described in the agreement.
They don't get to modify your product at will without your consent or without paying you an additional fee.
The agreement should state whether you are also transferring ownership of the source code and other artifacts to your partner so that they own it from now on and can use it as they deem fit, including completely altering, destroying, or reselling it to someone else.
Alternatively, you may wish to retain complete control of the source artifacts. In this case, you as the app developer is responsible for maintaining the source code.
Therefore, any new features, updates, content addition etc. would be made by you
Partnership agreement:
Advantages of the Partnership agreement:
The partnership model typically enables you to leverage potentially a much bigger marketing and sales engine of your partner’s organization.
It also gives you access to your partner’s customer base and to some extent frees you from having to invest in marketing and sales.
Business and Revenue Model
Partnership agreement:
You may create an app and sell it entirely to another company while you retain ownership of the patents that you may have filled for your invention.
This model generates continuous royalty income for you every time somebody profits from your innovative idea.
Business and Revenue Model
Closing Note:
In the case of consumer mobility applications, it may be more profitable to generate a stream of steady long-term revenue from in-app purchases than to ask users to pay up for the initial download.
The risk associated with the initial download is that the app may not be downloaded at all and thereby instantly lose out to the competition.
**** There are so many variations of the models that we have described that we need a full business school course
to do full justice to the material.
IMPORTANT ANNOUNCEMENTS
Mid-Term Examination:
October 30th- Mid-term Examination
Weighted marks: 15
Duration of Exam: 1 hour
Syllabus: Lecture 2 to Lecture 6 Project Proposal Submission:
1 page brief project proposal submission in the created folder of the course website, Moodle,
before the class on November 6th, 2023.
Quiz 3:
November 13th, 2023, on Lecture 5, 6 and 7 (Weighted Marks:
10).
