Here are the results from our third month's App Teams survey and poll, for December 2016.
Twitter Poll – What KPI do you use to analyze your app marketing performance
This time around we had a good-sized number of respondents for the Twitter poll (we create two polls, with the the aggregated number n > 30).
CPA (Cost Per Acquisition, calculated as cost divided by conversions) came in third place as the top app marketing KPI based on the aggregated results, while retention statistics like DAUs (Daily Average Users, determined as the number of active users per day) or MAUs (Monthly Average Users, determined as the number of active users per month) came in last.
So what makes LTV (Lifetime Value of a User, which can have many calculations; see our article on KPIs for more details) and ROAS (Return on Ad Spend, calculated as revenue divided by cost) the most popular KPIs, and what's the difference between them?
The popularity of ROAS and LTV can be explained by the twin mobile marketing pressures of high user acquisition costs and low user retention. Advertisers want to use a metric that helps them understand yield; that is, either that their dollars are generating a positive return (ROAS) or that they aren't paying more than they make per user (LTV). While CPA (or the more effective CAC, Customer Acquisition Cost) tells advertisers how much they are paying per user, and retention numbers offer insight into whether users are sticking around, they lack the hard components of cost and revenue, respectively, that ROAS/LTV both offer (while LTV doesn't factor for cost, it offers a maximum value that can be used as CPA/CAC in acquisition efforts).
ROAS is an easier metric to use, which simply measures what % of ad spend was returned as new revenues over some period of time. The issue with ROAS is that it can under-estimate the value of a user if the period of time is too short, and so LTV is generally considered the most appealing KPI. The challenge with LTV is that it requires a lot of data to calculate and is also based on historic data, extrapolation and averages, and must be constantly re-calculated as variables, such as user retention or purchase trends, change.
App Teams Survey Question #1 – How do you make money from your app?
Most of the 19 respondents indicated that their apps were monetized via in-app purchases (79%). The second most popular monetization method was in-app ads, at 53%. For these folks, increased visibility and ease of measuring in-app ad revenue is likely a very welcome thing.
The fact that IAP was the most popular response supports conclusions from research in our post about the different app monetization methods, which pointed to IAP becoming the most popular method by 2017.
The popularity of in-app ads was also to be expected; people have been conditioned to receive products and services for free, meaning that ads have become not just a tolerated, but an expected part of everyday life. While in-app ad revenues require many active users before generating a significant amount of income, in-app ads, like affiliate and E-commerce are not subject to Apple or Google's 30% store revenue tax.
Paid download, once the most preferred and safe money-making strategy, is now one of the least common monetization methods, coming in at 11%; E-commerce also earned only 11%, but requires a specific business model. 11% of respondents also indicated they made money from affiliate revenues, such as Ibotta or Button.
As a bonus, we examined the individual responses and found that 10/19 respondents selected a combination of monetization methods. The most popular combination was in-app ads and IAP, and the second most popular combination was in-app ads, IAP and affiliate revenues.
The 12% of the 17 respondents who said they were using app indexing combined to form a majority (58%) who either said that they were currently using or were interested in using app indexing. That said, the opposite side of this coin is that nearly half (42%) of respondents didn't care to bother with app indexing. Perhaps we'll ask a question next month to uncover the structure and makeup of priorities for app teams.
These survey results and the potential that app indexing represents for mitigating the abysmal average user retention rates common for mobile apps points to the potential for app indexing to become a big trend in 2017. We see whether app indexing will begin trending as largely dependent on two factors: ease of adoption (where Apple spotlight search struggled and it seems Google's Firebase tech is making headway) and potential volume (where Google is well-poised to succeed vs. Apple's failure).
Here's a link to the article referenced in the survey for more reading.
App Teams Survey Question #3 – Do you feel that your app's performance (as defined in your own words) since launch has:
In light of the many issues of app discovery that we wrote about, we asked this question to see whether challenges in the app industry would be mirrored in the general sentiment of app teams. The answer was a resounding no, with a powerful 89% rebuff of the idea that things were getting worse. In fact, nearly three-quarters of respondents indicated that their app's performance had improved since launch.
Our concern was that the headwinds of an increasing number of apps (competition), rising user acquisition costs and a glass ceiling on the domestic user base (vis-a-vis no increase in the number of apps people are downloading and declining growth in smartphone sales) would cause ROI from apps to decline, and touch off a subsequent divestment from the industry.
On the opposite side of the spectrum, reasons to be bullish on apps include record-breaking App Store revenues (though as always concentrated in blockbuster games and now from growth from China's App Store), new app formats (e.g. iMessage extensions), the near-future potential of VR/AR and the IoT, growth in marketing options (e.g. Apple Search Ads) and lastly improvements to monetization methods, which ties into the last survey question.
App Teams Survey Question #4 – Do you have a subscription, or do you plan to release one?
The Verge covered the new App Store subscription changes in-depth, but in general, the conclusion has been that subscriptions, with financial incentive support from Apple, are likely the future of making money from apps, just as IAP overtook monetization preference vs. in-app ads and paid download.
It was interesting to see then, that only a slight majority of 58% (11/19) indicated that they either did or planned to implement subscription purchases into their app; this also means that four respondents who said that their app included IAP had no interest in subscriptions.
While this is a small sample size, if we took these results to represent the industry at-large, we could draw a few conclusions regarding how the industry feels about subscriptions:
- The incentive for subscriptions is not sufficient (Apple's cut declines from 30% of revenues to 15% after a subscriber has been a customer for 1 year)
- Apple's guidelines for what constitutes a subscription purchase are too restrictive
- Subscriptions are not the correct bet for the industry
In any case, it's entirely possible that subscriptions may need some more work before they can become the best method for developers (and thus Apple) to make money from their apps. Providing developers with a better ability to offer discounts, revisiting the subscription requirements or allowing more control over subscription pricing could all be methods that Apple could use to encourage more subscription holdouts.
If you can think of a survey topic or question that you'd like to learn about next, send us an email or reach out to us on Twitter! Also, be sure to sign up to our email newsletter to receive the monthly App Teams Survey.
We hope to hear from you.
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