What is an In-App Purchase?

An In-App Purchase enables consumers to download apps onto smartphones and mobile devices in order to buy products, goods or services within the app itself. Games drive traffic with free downloads, providing the majority of revenue for in-app purchases. App developers can also get revenue from advertising within the app. The most popular apps are free downloads. However, even if a game app has a free download, players must purchase additional points, game currency or hints in order to continue playing. App developers also get revenue when users subscribe to a service within the app. Magazines, newspapers and ongoing services like Netflix and music streaming services encourage consumers to make auto-renewals as an in-app purchase.

Why an In-App Purchase Matters

  1. It incentivizes app developers

    App developers create and sell their apps so they can make money. Games, in particular, can deliver major revenue to ambitious web developers. Developers work out a revenue split with the platform on which they have their app. For example, Apple pays developers 85% of an app's revenue while keeping 15% for the company. With the earlier 70/30 split, web developers felt they weren't getting their fair share of the returns. Apple also encourages web developers to push the benefits of subscriptions services within the app. To do this, Apple cut another 15% from its revenue if the developer encouraged a subscriber to maintain their subscription for a year. So, subscriptions can be an incredible way to add revenue with in-app purchases.

  2. It has different purchase models

    Consumers can make purchases within an app in different ways. For example, with a consumable purchase, gamers get a set number of points, virtual currency or game hints with a free game app download. But after play is over and the items are gone, gamers have to purchase any products they need for subsequent games. With a non-consumable purchase, the game items or upgrades may be more expensive up front. But the benefit is that the gamer only pays once for the items. After the initial purchase, the gamer gets a free transfer of the items to other mobile devices. These items include game upgrades, unlimited game hints or additional accessories. Users can also purchase subscriptions with an in-app purchase. Doing all these functions within the app keeps users happy and gives the web developers high engagement and user retention metrics.

  3. It pays to personalize

    Because so many users abandon their carts just before the purchase, marketers are always looking for ways to encourage users to continue their purchasing journey. Marketers may review a customer's browsing history and behavior while in the app. An add could pop up showing a user's favorite item that's on sale or in a different color. Additionally, marketers have inventive ways of using content to target a message to the user. For example, if the cart was abandoned before the purchase, a push notification may remind the user that their item is still available. Or a push message can mention that the item is selling out quickly. Such a message can encourage the user to go ahead and make the purchasing decision. Advertisers realize that personalization brings higher user engagement. Personalizing a user's experience within an app can lead to greater revenue.

Why an In-App Purchase Matters

  1. It's an upsell opportunity

    Popular apps like Pandora or Spotify know how annoying frequent ads can be in between songs. With an upsell, a subscriber benefits from a more pleasant online experience. The very idea of listening to music without ads and without time limits can motivate a user to go from free listener to paid subscriber.

  2. It benefits from games

    Downloading a fun game for free makes a user feel like a winner before the game even starts. Once play is engaged, the app has lots of built-in tools to get users to purchase points, hints, accessories and more. That initial free download turns into a powerful investment at the moment of purchase. With an enjoyable online experience within the app, the user returns again and again, creating positive life-time value.

  3. It increases loyalty

    Users who engage an app to make a purchase will visit the app frequently if the purchase was efficient, secure and convenient. Most major airlines get a considerable amount of revenue from their apps. Consumers can easily purchase tickets, make upgrades and more.