In-app purchases enhance recurring revenue streams, report says

In today’s highly mobile and digital business world, companies are deploying a number of innovative techniques to generate a more steady stream of recurring revenue. This is becoming increasingly noticeable with the growing presence of mobile applications.

A study by Gartner highlighted a new way to generate recurring revenue when it found the most successful mobile applications are rather inexpensive – if not free.

“In terms of the apps that consumers are buying, 90 percent of the paid-for downloads cost less than $3 each,” said Sandy Shen, research director at Gartner. “Similar to free apps, lower-priced apps will drive the majority of downloads. Apps between 99 cents and $2.99 will account for 87.5 percent of paid-for downloads in 2012 and 96 percent by 2016.”

Since consumers don’t want to pay out the ear for mobile solutions, decision-makers need to implement new strategies to build brand loyalty and retain clients. This has led to the deployment of in-app subscriptions. The research firm said using an in-app purchase business model can be a more effective method of attracting and retaining customers.

Gartner said there is a significant difference between upfront and occasional recurring payments, as forthright charges can often be disappointing and discourage customers from returning to a company in the future.

Importance of recurring revenue
In-app purchases open up a unique door to recurring revenue streams, allowing businesses to make a profit even when other sales fall through. Gartner noted that in-app purchases will account for 41 percent of store revenue in 2016.

“App stores should support in-app purchases as soon as possible as this offers a new path of monetization and helps to attract developers as they attempt to extend an app’s momentum by providing easy access to upgraded services and functionality,” said Brian Blau, research director at Gartner.

A study by Aria Systems revealed that nearly half of all businesses in the United States either have or are in the process of creating, investigating or deploying recurring revenue offerings. As the macroeconomic landscape continues to send mixed signals throughout the private sector, implementing a recurring revenue model will become more important if firms want to remain competitive.

“[For] those companies who are not yet providing or considering offerings that generate recurring revenue, they need to consider doing so or risk getting left behind,” said Tom Dibble, president and CEO of Aria Systems.

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The Forrester Wave: Subscription Billing Platforms, Q4 2015

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