How Subscriptions Are Driving App Revenue & Retention

Subscriptions are more than a niche: services like Spotify and Headspace prove that users are willing to shell out money for content they regularly use.

App Annie’s chief marketing officer, Al Campa, predicts that subscription-based monetization will be the future of games. Non-gaming apps are already seeing success with subscriptions: this month Tinder reached the #1 top grossing position on the iOS charts. As more developers adopt the model, it’s worth a look at why subscriptions are inevitable for developers and users alike.

Easing design tension

Instead of needing wave after wave of new users, subscriptions incentive developers to focus on content creation and retention. Customers truly get their money’s worth instead of being gated by in-app purchases or feeling regret over paying premium prices for apps that don’t live up to their expectations.

The app stores are also becoming partial to subscriptions, which suit the shift in the market away from new users and toward full smartphone penetration in most countries. Apple is rewarding subscription-based apps with a 85/15 revenue split from the usual 70/30 for each user who stays subscribed for more than a year, while Google one-ups its biggest rival by offering the same without the year long wait.

Higher user engagement

Mobile users are notoriously picky about where they spend: less than 5% make in-app purchases. But developers have long known that users who do spend, also retain for much longer.

Subscriptions both increase the proportion of users who spend and increase this retention curve even more. Some 62% of subscribers use their apps multiple times a day, versus just 48% of free users. SaaS companies—pioneers of the subscription model—see an almost 100% monthly retention rate, in stark contrast to mobile’s 5%.

Not a revenue backwater

Historically, subscriptions earned developers more than freemium or paid apps, but the business model never developed on the two big mobile platforms. But now that subscriptions have arrived, they do seem to work on mobile, as they have on every prior platform. Content-based apps lead the way: for instance, Pandora’s streaming service’s subscribers already account for 20% of revenue.

But there are opportunities in other verticals as well, any app business model that has succeeded with freemium no doubt has potential for a subscription model as well.

Developers who want to try subscription-based with their current monetization model can measure revenue from subscriptions through the Tenjin dashboard. If you’d like to try the dashboard, you can sign up for free, or email us at sales@tenjin.io for setup help.

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