Mobile App Business Model Tutorial

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Understanding mobile app business models is perhaps the single biggest tool to help you during the planning stages of your mobile app to help you understand what kinds of apps may find success, and which will fail. It will also help you evaluate potential app features that you may consider adding to your app once your app is live. I can’t overemphasize how important this is to the health of your app business, and I hope you agree with me as we cover mobile app business models. One caveat I want to add is that because there are so many different kinds of apps, I am not able to cover specifics of different kinds of apps, and at times I have to make sweeping statements and assumptions. Please bare with me through that, and try to consider how the general points I make relate to the specifics of your app.

Before delving into business models, let’s first define what a business model is so that we are all on the same page, and are working from the same definition. Besides the many different accurate definitions of varying complexity for what a business model really is, this term is often used inaccurately, adding to the confusion.

Here, I’ll try to present a simple but effective definition of a business model. The business model is a bird’s eye view of your entire business, and how your business functions. It is a way to step back and take a look at each and every component of your business individually, and evaluate how well each individual component of your business works together with the other components of your business.

As you may guess, a business has many components, and things can quickly get quite complex. Luckily, mobile apps are relatively simple businesses, and many traditional components of a business simply don’t exist for apps. When it comes to apps, there is no shipping, handling of inventory, no logistics, no manufacturing of physical goods, often no rent to pay, and there are typically fewer employees needed than most traditional businesses.

For that reason, when it comes to apps, we can simplify our understanding of what is a business model. Let’s take another step back, and explore the three core components of any business, and let that be our business model evaluation for now. As you will see, this way of looking at things will get us 90% of where we need to be in terms of understanding our business model without much of the unnecessary details.

The three core components of any business model are: product, marketing and finances. Let’s cover these in more detail.

The first component of your business model is your product. Within this category, we should consider the resources it will take to create, maintain and continuously improve your app (or your company’s product or service if you have a different kind of a business), and what it would take for the product to be competitive in its business niche.

The second component of the business model is marketing. We must consider the product your company offers, and evaluate how you will promote that product. You must consider the natural marketing strategies for your product, and be able to estimate the kind of distribution potential your product has, and how attainable it is to reach the maximum potential with each of those natural marketing channels.

Lastly, you must tie all this together by evaluating the financial picture of creating your product, selling it at the right price and volume to cover your expenses, break even financially, and eventually reach your financial goals for your business.

Once you come up with a realistic plan which allows for the creation of a good product, ability to promote and sell that product, with all that being done profitably, you have a foundation for a winning business model.

Now let’s take a look at an average mobile app business model by looking at mobile app business models in this light. You may recognize that the biggest themes in creating a mobile app business is precisely the creation of the app, the promotion of the app, and the monetization of the app. We have essentially been discussing the business model components all along, without explicitly stating so.

Let’s start with the development of the app. If will be far cheaper to develop the app if you can build it on your own rather than having to hire someone. App development is the single biggest cost for just about all apps, and it substantially changes the financial dynamics of creating your app if you can create the app on your own. If you can’t develop the app on your own by having at least one software developer on your founding team, your business model automatically becomes far weaker. This is a very serious issue to take into account and not gloss over.

Marketing of your app, which is the next part of your business model, is not as black and white. Recall how the bulk of downloads for most apps comes from apps store search, and the next sources of downloads come from social sharing and publicity. First, consider how social/viral your app realistically is, and how much big press coverage your app will be able to get. Next consider how well you will be able to rank for your most coveted search keywords in app store searches, and how much approximate volume of downloads those searches will generate. Everything mentioned in this paragraph is an educated guess during the planning phases of your app. Complete accuracy is not possible, but if you are realistic about the distribution potential for your app, you will come close to a reasonable estimate of the daily or monthly download potential for your app.

Once you have an estimate for your app’s download potential, the focus should shift to the monetization potential for your app. While it is difficult to cover monetization for every possible different app in this single paragraph, by and large, mobile app monetization tends to be poor because users don’t like paying for apps or items within apps, and if you promote other things (ads or products) too aggressively within your apps, you will begin to have bad reviews which will work to undermine future downloads and monetization.

Now let’s tie all of this together into a succinct view on mobile app business models. Since generally, monetization is poor, you often need a substantial number of downloads for your apps to break even or pay yourself and all the people working on your app a reasonable monthly salary. And since you can estimate your app’s approximate download potential, consider whether downloads from search, social sharing, and publicity can amount to tens of thousands of monthly downloads, which is typically the minimum number of downloads you need for a free app to make sufficient money to begin covering your salary and the salaries of anyone else working on the app with you.

As you can see, things do not seem favorable largely because of poor app monetization even if you can generate tens of thousands of monthly downloads. Your app will begin to turn into a business only after you get hundreds of thousands of monthly downloads, or you figure out a very strong monetization strategy.

So what are the takeaways? To me they are clear. If you have a unique strategy to consistently generate tremendous monthly downloads, or a very strong monetization strategy that will monetize at a far better rate than an average app, the app idea seems worth pursuing. If you don’t have such a strategy, it may be a sign that the business model for your app is not as strong as is necessitated by the current mobile app ecosystem.

Mobile App Marketing Book And Course

This tutorial is just one section of my mobile app marketing book. Check it out on Amazon. It is available on the Kindle which means that you can read it on the Kindle app of any smart phone. Or take my mobile app business course on Udemy.

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