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Mobile in-app purchases are expected to hit $4.8bn by 2016, and increasingly they're key to the monetization models mobile app developers and app store operators are employing to keep themselves well fed.
But the dollar signs are somewhat deceptive. Profiting from in-app purchases is a lot more difficult than just enabling in-app purchases, and not all developers will implement the model successfully.
So what's the secret to success?
According to Localytics, app developers hoping to cash in on in-app purchases will need to focus on building relationships with their users. In looking at 30m in-app purchases, the analytics provider found that a typical buyer has interacted with an app at least ten times before making a purchase, and usually takes 12 days from app install to do so.
The challenge: more than a quarter of apps (26%) are never used more than once, and getting a user to engage with an app more than ten times can, for obvious reasons, be difficult.
What's more, Localytics notes that "the users who wait and interact with an app multiple times before making their first in-app purchase are more valuable in the long run, making 25% more in-app purchases over their lifetime as a customer. First session purchasers will make an average of 2.8 purchases in a given app during their user lifetime, compared with 3.5 purchases for all other purchasers." Interestingly, even in the rare cases where a user makes a purchase during her first session, it's unlikely that user will become loyal. In fact, only 16% of users who click 'buy' during their first app session will go on to use that app more than 10 times, necessarily limiting the revenue that will be earned from them.
The key implication of Localytics' data is clear: to maximize revenue, focusing on immediate conversions isn't the best strategy. Instead, a focus on relationships and customer lifetime value is necessary.
Here, developers of mobile games have some obvious advantages, as these apps lend themselves to the type of repeat engagement that can serve as the foundation for a long-term relationship. But user retention is something that many, including digital publishers and retailers, have recognized as being crucial on the web, and the retention lessons of the web will often be applicable on mobile too.