Cashing in on success: Advertising or Subscription?

The web has provided many companies with new and lucrative ways of accessing markets and consumers. The history of the web is also littered with examples of failed or over-inflated companies unable to realise the potential of commerce in the internet age.

Perhaps the most obvious evolution in online business models is the move in recent years from subscription models (such as Friends Reunited) towards advertising based revenue models (such as Facebook). The developments in online business models are far from complete, with constant readjustments and innovation in what is still a very nascent market. Youtube has been identified as a service which may in the near future move towards a mixed-model approach, introducing a subscription stream to its business model in part as a response to user objections to advertising.

There are five commonly accepted approaches to monetising web-applications, Paid Apps, In-app Purchase, Virtual Currency, Advertising and subscription models . Each model has its benefits, and of course its weaknesses, the appropriateness of each strategy depends very much on the type of application in question.

Paid Apps are apps that require the user to purchase a version of the application on their device. This may be appropriate for an application or service that is very confident of its product, to the extent that they can place a value on the app and promote it sufficiently to generate an income. In App Purchase is most commonly associated with ‘free’ applications known as ‘freemium apps’ where the is no initial cost, but there are incentives to buy extra features or access to further content within the app. Virtual Currency approaches allow users to buy currency within the app or game that can be used to enhance the user experience. Advertising within applications allows companies to access their consumers within the app. The potential for targeted and specific advertising is appealing to brands and the app is usually free to use. Advertising can be negatively received by users, particularly if it is intrusive or bandwidth hungry. Subscription models incur significant overheads for the developer and can be unpopular with users, however this approach may be appropriate for apps with content that is in high demand (such as popular news or magazine content).

The choice of revenue stream for an application is incredibly important to get right. The type of audience, amount of traffic and and the overheads associated with an application or service all have an impact on which model is appropriate.

References: 

Perez, S. (2015). YouTube Confirms Plans For An Ad-Free, Subscription-Based Service. [Blog] techcrunch. Available at: http://techcrunch.com/2015/04/08/youtube-confirms-plans-for-an-ad-free-subscription-based-service/ [Accessed 12 Apr. 2015].

Kanada, P. (2013). Which Can Be Best Mobile App Revenue Models?. [Blog] The App Entrepreneur. Available at: http://theappentrepreneur.com/mobile-app-revenue-models [Accessed 12 Apr. 2015].