The best time to start monetizing is now

Finding the opportunity in the mobile app market

The mobile app market has grown explosively over the past several years. Early on, game apps and the rise of performance marketing drove it. Then e-commerce, once mostly web-based, moved into apps. More recently, mobile content businesses including OTT services have taken off, pushing the market larger still.

As of 2023, the mobile app market was worth $533 billion a year and still growing. But the field has filled with strong apps, and competition is fierce.

Is there still room in a market like this? And if there is, what strategy does a new app need to succeed?

‍

"Doesn't a good product win on its own?"

Until just a few years ago, revenue wasn't a requirement when judging an app's potential. Set aside games and commerce, where revenue is the point. For everything else, potential was often judged on how many users an app held and how often it was used (metrics like DAU, stickiness, and retention) even with no revenue at all.

With no revenue today, a strong enough product could still win recognition for its potential, raise a large round, or get acquired. So publishers focused on bringing in new users rather than on profitability. At the extreme, some ran negative margins to acquire users aggressively.

‍

Focus on product growth, or monetize first?

The market has shifted

The current has changed. As the market matured, revenue became a requirement when discussing a successful app. Over the past few years, publishers raising capital with no revenue model have grown rare, outside a few exceptions, and from Series B onward, revenue results achieved through a clear model carry real weight.

This isn't only about publishers that need funding. If you aren't aiming to raise, monetization matters even more for self-sufficiency. And for an individual developer, monetization is also how you get an honest report card on your app.

‍

"Isn't DAU just latent revenue?"

Instagram, Snapchat, and TikTok abroad, and KakaoTalk, Toss, and Karrot in Korea, are the textbook cases: focus early on user experience and community, secure a large user base, then introduce varied monetization strategies.

This approach lets you concentrate on product quality while minimizing user resistance to monetization, which is highly effective for pulling in large numbers of users fast.

But here's the catch: for the strategy to hold, the service has to meet a hard set of conditions all at once:

1. unique enough to capture market share,
2. facing few competitors, and
3. mainstream enough to be used by a large share of the mobile app population.

Even meeting every one of these guarantees nothing. And however strong the product, a team that doesn't weigh a revenue model alongside growth can struggle later to fit a suitable monetization model to the app. Growing an app without monetization also carries a heavy burden of upfront capital to cover costs.

Clubhouse, which grew fast but still struggles to monetize, is one example.

‍

Small wins before the big swing

A journey of a thousand miles, and monetization, begins with a single step.

Looking at recent market trends, here's what we'd suggest to startup publishers for steadier growth: rather than taking on risk and burning cash for one big swing, experience small wins and grow step by step.

The core advantages of monetizing from the early days of a service:

(Beyond just earning a little to help cover the bills…)

1. You get an objective read on your product's value from consumers.
2. You understand your buyers' persona and can target them sharply.
3. You can grow with a product direction that balances quality against the revenue model.

‍

You get an objective read on your product's value from consumers

A product with no monetization at all is comparatively easy to make feel valuable to users, which means that read isn't objective. From the user's side, there's no ad to get in the way, no payment or subscription required, nothing to lose. Some users may even stick with a product slightly weaker than a competitor's, simply because there's nothing about its monetization to push back on.

But unless a product is built as a nonprofit, monetization comes eventually. So what matters is learning whether a real consumer (not just any user, but one willing to pay a fair price) intends to consume this product.

A consumer is someone who pays a fair price for goods and services in the market and enjoys them.

A simple example: make bags and hand them out free on the street, and people take one without a second thought. There's no cost, so there's nothing to weigh as a sensible purchase. But put even a $1.00 price on it and a good share of them will hesitate.

A product seller has to have their product's value judged through the interest of consumers. Put bluntly, the opinion of a "user" who isn't a "consumer" can become noise that undermines that objectivity.

‍

You understand your buyers' persona and can target them sharply

Once you know which consumers buy your product, how much spending power they have, what need drives them, and how much they'll pay, you can adjust your pricing, and go further, marketing the product in ways that capture more of their attention.

Back to the example: when you hand out bags free on the street, the people who take one are too varied to share anything in common. Only once you price it and sell do you learn that your buyers are mostly women in their 30s, that they buy your bag because it's lighter than the alternatives, and that they'll pay up to $3.00, and you can build a sharper sales strategy from that.

The voice of real consumers, not an undifferentiated crowd, matters enormously. The more of this data you gather, the clearer your consumer persona and your product's direction become.

‍

You can grow with a product direction that balances quality against the revenue model

A seller raises revenue in two broad ways: sell more product, or earn more margin per sale. To earn more margin, the usual move is to raise the price, and that has to be backed by product value, so you try to raise quality. But even here, understanding the consumer persona lets you take a more efficient strategy.

Back to the bag: as a premium move to justify a higher price, switching to heavy leather would be a serious mistake. Consumers buy your bag because it's lighter than the alternatives, and they'll only pay up to $3.00.

But what if quality drops just slightly while cutting unit cost by more than 50%? What if you then lower the price to $1.00 and sell to far more people? That's well worth a try.

‍

Closing

What we want to say, in the end: for all but a small handful of apps, the best time to start monetizing is right now. Set aside the funding-winter lens: it's also how you reflect the opinion of consumers, not just users, as your product grows.

Now that we've answered "when" to start monetizing, it's worth talking about "how." Which model fits your app (advertising or subscription, the two most common monetization strategies) and where to put more weight: we'll cover that in a later post.

‍