It’s clear that apps and websites are leading the charge when it comes to big startup success stories. Headlines are ripe with tech-savvy companies driving innovation with new consumer experiences and new productivity tools, and the founders making big bucks as a result. How do they do it?
Here’s a short list of potential roads to success:
1. Create a profitable service and collect revenue
2. Create a popular service and take your company public
3. OR create a popular service and look for acquisition
Option 1: Create a profitable service.
You need to collect money from somewhere. Methods differ slightly for websites and apps, so we’ll go through them one step at a time.
Making money from apps
For apps, charging for a download is a pretty antiquated strategy that doesn’t promote mass adoption well. The only real exception I can come up with would be highly targeted apps that serve specific industries. If the app is instrumental to someone’s job and it is the best tool around, then you can probably charge for it. You might even be able to justify a subscription fee.
Since most app development is with the mindset to target consumers, any new consumer app will be competing with hundreds of thousands of free apps. Free apps or “freemium” apps are risk-free for users to try out, which makes convincing users download the app enormously easier. Gain more insights how to accelerate revenue with freemium apps.
This leaves you with a couple alternatives. The two common options for apps are in-app purchases (IAP) and advertisements.
• Traditional in-app advertisements are ridiculously easy to implement, but the revenue they generate is a slow trickle. Your app won’t be making you rich, but it may serve as a nice supplementary income.
• In-app purchases take a bit of planning to execute well. If you do it right they are much more profitable than ads. Either the user pays for service (as in Uber or any mCommerce) or the user buys small enhancements to the default user experience (also known as freemium apps).
These aren’t the only ways to make money, they are just the most common. If you can come up with a different business plan, go for it! That’s part of the entrepreneurial process. Some ideas to kickstart your brainstorming session:
• Custom advertising strategy: make business deals for brands to somehow featured in the app (for instance Promoted Tweets, or Foursquare’s location-based promotions).
• Take a cut of transactions: if users make transactions through the app, you can take a small fee. Paypal or Snapchat’s Snapcash do this with money transfers.
Making money from websites
You can’t charge people to access your site. You can charge a subscription fee for online services, which is very common—though I highly recommend offering a lengthy free trial to funnel people in. Rich website design trends that will blow you away.
You can run ads from ad networks, which tend to be more effective online than in apps, but unlikely to really make you the big bucks. A better way to do ads is to create a custom advertising solution, just like you might do in an app. For examples of custom advertising look at Twitter, Facebook, or Yelp.
Ecommerce is another way to go if you have any goods to sell. It’s pretty straightforward and effective! You can also go the way of Etsy or Ebay and simply provide a storefront for users to sell their own goods, in which case you’ll need to charge subscriptions or take a cut of revenue, etc. There are a lot of options, obviously.
Alternative strategy: prioritize users
Another way to go is to forget about revenue, or at least put it on a back burner, and instead focus solely on acquiring users. Why? Because users have value. Snapchat was valued at $10 Billion without any monetization strategy because it had lots of users.
Twitter went public in 2013 while still taking overall losses on their bottom line. How is that possible? Well, they had roughly 230 million users active each month and that number continued to grow. The revenue potential was clearly high, and that made them valuable. That’s not a unique story among tech startups; Box did the same thing last year. If you are aiming for IPO you need to show revenue but not necessarily profit. People are more interested in growth.
So how do you go about acquiring users?
• Step one: focus purely on the user experience. Make the app amazing. Iterate continually to improve the app.
• Step two: market it in every way you know how.
• Keep doing both these things until you are successful. It’s a simple formula, but a challenging path to take.
Once you get the users, you can start courting businesses for acquisition or shift your focus to revenue generation. Whatever you choose to do, the point is that once you have users you have the leverage you need to move forward. There’s an inherent risk in this strategy, in that you won’t be collecting money to stay afloat, but that’s what investors are for! I’d suggest look beyond the curve and plan your strategy. Find out right here how venture capitalists think before investing.
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