Monetizing A Free App
A number of our portfolio companies that have free web/mobile apps that are monetized by advertising have offered a low-priced subscription offering that removes the ads and, often, offers offline sync on the mobile apps.
Here are some examples:
I am sure there are other examples in our portfolio but those are the ones I am most familiar with.
I like this model a lot. As Duolingo said in their Duolingo Plus launch communications, it allows a free service to remain free for those who can’t pay for it.
It also allows those who don’t want the ads to remove them. And other value added features, like offline sync, make the subscription offering compelling for power users.
Pandora’s Plus offering is a good example of this approach and, because it is a public company, we can take a look at the numbers.
In Q4 2016, Pandora had roughly 4.4mm paying subscribers out of roughly 80mm total users, only about 5% of its user base.
But if all of those 4.4mm subscribers are to the low priced ($5) plan, then they would generate $265mm on an annualized basis. I assume that the subs revenue number is a bit larger because there is also a $10/month plan. So let’s say subs revenue is $300mm.
Pandora’s total revenue is about $1.4bn a year so subs represents over 20% of the revenue even though only 5% of the users take the subs offering.
So if you have a free ad supported service with a lot of regular power users, you should really consider adding a low priced subscription offering.
It will diversify your revenue mix and gives your users the ability to opt out of the ads if they want to.