What is an in-app purchase?
An in-app purchase (IAP) is a product, feature, functionality, content, or subscription that a user can buy within a mobile app. Users make in-app purchases via the app store, a debit or credit card, or through a third-party provider like PayPal or Stripe. Available through Apple App Store for iOS and Google Play Store for Android devices, in-app purchases generate revenue and boost user engagement, conversions, lifetime value, and retention rates.
In-app purchases vs. other mobile app monetization
There are a few ways developers can encourage mobile app spending. A prime example is charging for app downloads. However, this creates a barrier to entry before a customer ever interacts with your app. This is why almost 97% of Android apps in the Google Play store are free to download. Additionally, you can display ads within the app. Unfortunately, in-app advertising is expensive and is often ignored by users.
Due to the drawbacks and challenges of charging for app downloads and in-app advertising, many app developers choose to offer in-app purchases, which are more enjoyable and less intrusive than ads and tend to boost user engagement.
Types of in-app purchases
There are four types of in-app purchases:
- Auto-renewal subscriptions: Products or services, like streaming services, that app users purchase on a recurring basis. Example: Spotify
- Non-renewable subscriptions: Products or services purchased for a period of time. Example: Magazine subscriptions
- Consumables: One-time-use products (like extra lives in a game) that can be used up and then repurchased. Example: In-game currency
- Non-consumables: Products like ebooks or advanced features that can be purchased once and reused indefinitely. Example: Advanced editing tools in a photo app
Pros and cons of in-app purchases
As with any monetization method for apps, in-app purchases have their pros and cons.
- Revenue generation: Because most apps are free to download, in-app purchases give developers a way to generate revenue without charging for the initial app download.
- Increased engagement: If someone invests money in the app, they’re more likely to continue using and exploring it.
- Understand user behavior: Tracking in-app purchases makes for valuable data about user behavior. This data provides insights to help you make your app more relevant and appealing.
- Cross-sell opportunities: If you offer multiple products or services within your app, you can use in-app purchasing as a way to cross-promote.
- Poor user experience: Overzealous developers may include too many in-app purchase opportunities that lead to a poor user experience. When users feel bombarded by purchase prompts, they disengage.
- Development and monetization challenges: In-app purchases make developing, implementing, and managing an app more complex and costly. Not all apps are suitable for in-app purchases.
- Competition: With millions of apps available on users’ mobile devices, your pricing and features must be competitive to attract customers.
- Regulations: Depending on the country and region, there may be specific restrictions on in-app purchase offerings.
- Fraud: Fraudsters often take advantage of digital platforms like apps, using fake credit information to make purchases. Cost-per-action campaigns are particularly vulnerable to fraud.
When done right, in-app purchases can drive significant revenue for mobile app businesses. Here are some things to keep in mind in order to experience the best chance at success:
- Transparent pricing: Clearly display the price of in-app purchases and indicate if any charges are billed on a recurring basis.
- Valuable offerings: Your in-app purchase offerings should provide real value to users and be differentiated from your free app offerings. Make sure users know exactly what they’ll get if they make a purchase.
- Seamless user experience: Reduce the likelihood of dropoff with smooth purchase experiences and convenient payment methods.
- Special offers and discounts: Incentivize users to convert with limited-time discounts on in-app purchases. Use in-app messaging and push notifications to make users aware of special deals.
- Free trials: If applicable, let users try before they buy. Make sure you clearly communicate the trial terms — and if they’ll be automatically billed when the trial ends!