Developers and Publishers are opening up new streams of revenue by monetizing their downloads.
The download process is an under-utilized source of income for software developers and publishers. This chapter in the Academy will explain the importance of monetizing downloads, and how software delivery platforms optimize delivery for developers, publishers, and users.
What Does it Mean to ‘Monetize a Download’?
Monetizing a download means to create revenue during a software installation. Revenue is generated when advertisers show their offers on installations. The key to this process is that the advertisers only pay when a user decides to add the advertised software to their current download. The user has another piece of software, and the advertiser has ‘acquired’ a new user. The publisher and the installation platform share the revenue from the advertiser in a pay per installation (PPI) model.
Why Should Publishers Monetize Downloads?
Software developers and publishers are under pressure to walk the line between user experience and self-interested monetization. In-experience monetization typically includes banner ads, pop-ups, or freemium features such as purchases or upgrades to ‘premium’ member status.
In most cases, internal monetization works in direct opposition to user satisfaction. But if developers and publishers can’t make money from their software effectively, they don’t have the means to build them in the first place.
This is a fundamental conflict that runs throughout all discussions of digital advertising, but in general, legitimate software companies are interested in maintaining a positive, long-term relationship with their users. As a result, developers are always looking for that perfect intersection between profitability and usability.
Finding the Sweet Spot
Users tend to respond negatively to in-software advertisements (if they respond at all). By monetizing downloads, developers and publishers are under less pressure to advertise within their software, thereby improving the user experience.
Monetizing downloads provides an ideal middle ground for both creators and consumers. Users are accustomed to waiting during installations–ads inside the installation are generally not considered intrusions when compared to traditional ad types like interstitials. The download process falls outside of what is typically considered ‘the user experience’. Serving advertisements during this brief period helps maintain the delicate balance of paying developers and publishers, while not muddying UX.
The Advertiser Side
Gathering an Audience
What is the value of a single free user?
This question sounds a bit paradoxical, doesn’t it? But don’t overlook it; the information contained in this inquiry forms the basis of the pay per installation revenue model, and most of the online software industry as a whole.
The trend in the software industry is moving steadily towards favoring freemium software. As the availability of high quality software increases, users are less willing to make an initial payment.
So the obvious question arises, how do software companies make money? Of course, if you’re reading this article, you know that for software publishers we recommend monetizing the download, but for an advertiser the story is slightly more complicated.
Once a user has installed free software, there are two primary ways in which they can monetize the user. One is by serving ads during the software user experience, putting the software in the category of adware. Although the term carries a less-than-perfect connotation, it still implies using banner displays (the world’s most ubiquitous form of advertising) and it allows the developers to put food on the table. In this case it is in the developers’ best interest to have the user spend a lot of time on the software, as they are paid each time they can show an ad. More usage, more time for ads.
The second way is through upgrades or in-software purchases. The free software in this category is often referred to as ‘freemium’ because although some of the basic features are free, to get the full value of the software you need to pay a fee.
It is also common to see a combination of both methods–in some cases a perk of upgrading might be that the software stops showing you ads.
There is no shortage of creative methods for monetizing, but a sound strategy and reliable measurement in this stage is critical to turning a profit. Even minute changes in appearance and UX can have a drastic impact on the fate of your software.
So now that we have some strategies for monetizing users after they have the software installed on their device, let’s determine the price we are willing to pay for each download.
How to Calculate the Value of a Single Free User
For the sake of simplicity, let’s say the example software only monetizes through a paid upgrade. To calculate PPI, we first need to determine the value of a single free user. To do this, we take the number of paid users, divide this number by the total number of installations, and then multiply that figure by the profit generated from one user.
For example, let’s say your product gets installed 1,000 times, 15 users upgraded, and the profit from each upgrade was $20. So,
15 (upgrades) / 1,000 (installations) = .015 (average upgrades per installation)
.015 (average upgrades per installation) x 20 ($ profit for each upgrade) = .3 (value of a single free user)
Now that we know the average amount of value for each free user ($.30 in our example), we can figure out our PPI, or in other words, how much we as advertisers are willing to pay for a free user through a software download.
At the end of the day, to make free software profitable, companies must surpass the point where they are making more revenue from their free users than it costs to acquire them.
This concept runs through all advertising mediums, and it is particularly pronounced in the online market where analytics are so precise.
So if we know our value for a single free user is $.30, then logically we would be willing to pay anything up to $.30 for each installation. The further below $.30 that we can pay for each user, the more profit we’ll earn.
As you can imagine, advertisers want to pay less for each installation, while publishers want to be paid more. Part of the job of an installation platform is to mediate between these two forces to come up with a sustainable, profitable system.