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Picking the right app monetisation model

For most B2C publishers, and for quite a few B2B publishers too, apps are rapidly moving from the wish list of ‘projects we ought to do’, to take centre-stage in future business strategy. Top-down directives are being issued to do something quick, writes Dominic Jacquesson.

By Dominic Jacquesson

In part, this reflects a healthy recognition that apps are a critical new channel for media consumption. It also reflects a panic not to get over-taken by more innovative start-ups, in a repeat of the early years of the internet. But amidst this zeal and urgency, there lie two dangers – at opposite ends of the spectrum.

At one end, publishers are being tempted to spend significant amounts of money to develop bespoke apps, with fairly mediocre results. Much effort goes into the software specification, and into the project management. Much less resource is available to consider monetisation, nor how this herculean one-off effort is going to become an embedded element of the publishing cycle (let alone how it might be extended beyond Apple devices to cater for Android, Blackberry, etc). On the other hand, at least this approach ensures that key staff in design, production and editorial get a genuine training in the dos and don’ts of app creation, and can participate in an informed discussion of where and how to take the initiative forward.

The second, and in my mind the more dangerous approach, is a box-ticking exercise to churn out an app which is little more than a digital facsimile of the print edition. Admittedly, the costs are fairly low. But so are the results. Outsourcing the app development process so completely and clinically is effectively a denial of the profound impact that apps will have, and of the fundamental re-thinking that ought to be prompted amongst magazine and newspaper publishers around the world.

Of course, between these two extremes are a growing diversity of apps which are popping up almost daily. What follows is a rough-cut attempt to catalogue and categorise them, with a focus on iPad apps, and on the basis of a simple premise: “Show me the money.”

There are nine commercial models for apps:

* Sponsored

* Ad-supported

* Freemium

* One-off payment

* Issue-based payment

* In-app issue purchase

* Digital newsstand

* Standalone subscription

* Integrated subscription

It should be noted, before we dive in to look at each of these approaches, that plenty, if not the majority, of content apps employ a combination of two or more of these monetisation approaches, often to powerful effect.

1. Sponsored

Securing a big-ticket sponsor to underwrite part or even all of your app development costs may not be an approach which is available to all publishers, but it is extremely handy if you can achieve it. The Guardian’s successful photo-a-day Eyewitness iPad app (90,000 downloads in its first month, before the iPad even launched in the UK) is still sponsored by Canon, and the Guardian claims that it only took two days to develop. This is also a neat illustration of how to use an app to showcase and leverage existing content, building brand awareness and digital credibility in the process. Sponsorship has also formed a critical component of the iPad app strategy for the Financial Times and for the New York Times, amongst others. In each case, exclusive but time-limited sponsorship (Hublot for the FT and MicroStrategy for the NYT) allowed free-distribution of the app, building up a large number (400,000 in the five months to October in the case of the FT) of regular users, who were then targeted for conversion into regular paying subscribes once the sponsorship period lapsed. Ben Hughes, deputy chief executive of the FT, recently said that its iPad app is now responsible for 10% of all new digital subscriptions – which, standing at 180,000 in total, represents a sizeable chunk of overall FT subscription revenue. USA Today launched its free-trial iPad app on the back of strong sponsorship, and by managing to extend these deals and sign up extra sponsors, it has been able to extend its subscription-free period and further build its user-base and usage. This looks like a good model which is going to be followed by many other publications with strong brands and advertiser relationships.

2. Ad-Supported

Ads in apps often appear simply as a result of a digital-edition facsimile. In this case, there is no interactivity enabled, and it is very doubtful whether incremental revenue has been extracted from advertisers purely on the basis of additional visibility via app copies. In other cases, where the basic print issue has been turbo-charged with interactive extras, such as with Condé Nast’s Wired iPad app, the same advertisers are probably already paying a premium for their app show-casing. Whilst we’re still at the land-grab stage for securing app downloads, sponsorship has been the preferred model, guaranteeing higher visibility for client brands, and enabling free distribution by publishers. As the app market matures, we can expect to see advertising developing within paid-for apps, with the tantalising prospect of re-creating media’s twin-revenue model. Also expect innovation with in-app adverting payment models, particularly with payment-per-lead (I’d recommend the Auto Trader iPhone app as an admirable example of re-imagining content and revenue-models for the mobile world), and with the streaming of ads from networks within apps for monetising spare inventory.

3. Freemium

The FT and the NYT have also built freemium models into their iPad apps. The FT has cleverly integrated its well-known metered access paywall within its iPad app, so that registered users are allowed to access only ten free articles per month, tracked across both web and app channels. The NYT allows unregistered access to four sections, but registration opens up all twenty five – under the aforementioned sponsorship deal for now. Both the FT and the NYT allow in-app registration, so that users are not expected to exit the app and go to the website to register. Again, expect this registration-model to be copied by many other titles in coming months. Other magazine publishers, such as Fortune, have deployed a freemium approach with in-app issue purchase, where the current (or a back-) issue is packaged for free with the app, with subsequent issues available for purchase.

4. One-Off Payment

This approach is more visible in smartphone apps than for the iPad – probably reflecting the land-grab for iPad app downloads. The Guardian’s iPhone app, launched in December, costs £2.39. Although it achieved a respectable 100,000 downloads in two months, recent bad reviews illustrate a danger of going down the paid-route; a failure to keep enhancing the app with emerging features (such as social sharing of articles) leads to grumbling from paying consumers. The potential damage to the Guardian’s otherwise impeccable digital brand credentials needs to be weighed up against a pretty slim revenue contribution, once you deduct Apple’s 30% cut. I expect a diminishing number of new content apps to follow this monetisation approach, although it will remain relevant for one-off publishing spin-off apps, such as the $4.99 LIFE Wonders of the World photobook.

5. Issue Based Payment

Creating a new app for each issue you publish is obviously only an approach that could ever be taken by monthly (or less frequent) titles. Condé Nast has employed it when it launched its GQ iPhone app, and its Wired iPad app. The latter has now migrated to an in-app issue purchase model, which is fairly sensible; expecting consumers to search for and download separate apps every month was never going to be a sustainable model. So expect the app-per-issue approach to wither away as in-app issue purchase platforms become the norm.

6. In-App Issue Purchase

Growing in popularity with magazine publishers, this model involves the download of a branded ‘shell’ app by the consumer, which incorporates an issue-by-issue viewer, and usually supplemented by push notification (this is the iPhone and iPad equivalent of pop-ups, in this case alerting the user each time a new issue becomes available in the app). Issue-based app software which is integrated with the production process (ie InDesign) now favour this approach, such as Woodwing Enterprise, being rolled out by Time Inc’s magazine stable, and by digital-facsimile platforms such as PixelMags and DigitalPC. The big question, in the absence of a clear subscription model from Apple, is how sustainable in-app issue sales can be. Impressively, after selling 105,000 iPad sales with its launch issue, Wired (US) is still sustaining about 30,000 sales five months down the line – a hefty 37% of its newsstand copy sales. However, the less techie the title, the lower this percentage drifts, with Popular Science iPad sales at 12% of newsstand, down to 1% for mainstream titles such as Glamour and Men’s Health. Also worth noting is that titles which focus on more in-depth articles seem capable of bucking this trend somewhat, with GQ iPad sales floating at around 7% of newsstand.

7. Digital Newsstand

The leader here is Zinio, which had already established a credible web-based digital-editions newsstand. Zinio is a very easy and cheap way to deploy an app version of a magazine, and as a result it already has hundreds of titles available through the Zinio-branded in-app shop. Purchases (both subscriptions and copy sales) take you to Zinio’s website, by-passing Apple’s 30% commissions, although requiring credit card details to be re-keyed. The other downside is that these are digital facsimile editions, without any interactivity or reformatting to make text legible on the iPad screen.

8. Subscriptions

It is now seven months after the iPad’s launch, and Apple has yet to release details of its app store subscription model. Frustrated, publishers have tried all manner of permutations to test how far Apple will let them go. Apple has offered a fairly tenuous rationale for allowing both the Financial Times and People magazine to operate an integrated subscription model independent of iTunes, whilst blocking Sports Illustrated at the final stage following app submission. The point that needs to be held on to here, is that consumers are more likely to blame publishers, rather than Apple, if they are forced to pay twice in order to access the same brand / content through different channels – print, web or app. The hope is that, as an industry, we will stand firm and not accept Apple dictating terms which deny consumers from accessing content that they have already paid for, and which also deny publishers access to a direct reader relationship. It won’t be long before tablets running Android and other operating systems bring some overdue competitive pressure to bear on Apple, forcing it to re-think its approach.

It seems clear that apps, particularly on tablets, offer publishers a not-to-be-missed opportunity to generate significant revenues whilst countering falling print circulations and saving costs. There are some emerging winners and losers amongst the varied approaches for monetising apps. But success depends critically upon adopting approaches which put the needs of our audience first – rather than the approach that is most easily slotted into existing internal systems and workflows…