What is an in-app purchase (IAP)?

In-app purchases (IAPs) are one of the primary models app publishers use to monetize their apps. An in-app purchase is any fee in addition to the cost to download the app on a smartphone or tablet. IAPs allow users to buy additional features, content, or services within an app.

Before installing an app, users often see the “In-app purchases” message next to the “Get” button for free apps or near the app price button for paid apps. This label indicates that the app offers additional paid features.

When a user decides to make an in-app purchase, they are presented with a detailed description of what the purchase includes. At this point, users can either proceed with the purchase or return to the app without purchasing. All payments are made to the app store.

There are four types of in-app purchases (IAPs), each catering to different user needs and business goals. App publishers often integrate more than one type of IAP to maximize monetization and generate revenue.

Auto-renewable subscriptions

This involves users being charged on a recurring basis for continuous access to content, services, or additional app features. The charge recurs every pay period until the user cancels the subscription.

Example: ​​An automated monthly subscription to a music streaming platform, offering uninterrupted, ad-free access to a vast library of songs.

Non-renewing subscriptions

Unlike auto-renewable subscriptions, non-renewing subscriptions do not renew automatically. This in-app purchase model provides services or content for a fixed or limited period. Users must actively repurchase to continue access after the initial period expires.

Example: A six month subscription to an online magazine, requiring renewal at the end of the term for continued access.

Understanding the various methods to facilitate in-app purchases is crucial for app developers aiming to optimize user experience (UX) and boost revenue. Here are the most common ways app users can make in-app purchases.

Direct purchases within the app

The most simple and common method for in-app purchases is through direct transactions. This process usually involves two primary approaches:

App store integrations: Many apps integrate payment systems of platforms like Google Play or the Apple App Store. These systems use pre-stored payment methods for quick and secure transactions, such as credit or debit cards and digital wallets.

Direct/credit card entry: Some apps offer the option to input credit card information directly for purchases. This method is directly managed within the app, providing a straightforward way for users to complete transactions without leaving the app.

Examples: Paying for a ride in Uber, ordering food on DoorDash, or shopping on an e-commerce app like Amazon.

Third-party payment processors

Third-party processors offer an alternative for users who prefer not to store payment details directly in apps or app stores. This method redirects users to external sites such as PayPal to complete their purchases. This often helps avoid app store commissions and improves security.

In-app purchases are versatile monetization models/tools used across various app categories. Below are some industry examples illustrating how in-app purchases enhance UX and contribute to app revenue.

Gaming

Pokémon GO is one of the most successful mobile games of all time, and is free to download and play. Within the game, players can explore their real-life location to find and catch creatures (Pokémon). To enhance this experience, players can purchase in-app currency to acquire items, or pay directly to participate in in-game and real-world events, enhancing their gaming experience.

Social network

Beyond its free download, TikTok users can buy virtual coins within the app. These coins can be used to gift creators during live streams, often through animations like roses that appear on screen. The creators receive about half of the earnings from these transactions, with the app retaining the remaining amount.

Dating

Dating app Tinder is free to download and famously functions by allowing users to swipe left and right to match with potential dates. However, it limits the number of swipes users can make in a given period. To bypass this limit and increase their chances of finding a match, users can purchase unlimited swipes through an in-app purchase.

Entertainment

YouTube operates on a freemium model. While the basic service is free, users can pay a monthly subscription to remove ads or access additional content.

In-app purchases are an essential monetization model for many app verticals. Let’s take a look at the benefits and challenges.

Key advantages include:

• Stable revenue stream: IAPs provide a steady income, allowing developers to focus on innovation and expanding their app’s features.
• Accessibility and flexibility: By keeping core features free, IAPs attract a broader user base and encourage a higher download volume. Users can enhance their experience through purchases without obligation, allowing them to customize their app usage. Developers can monetize these users through IAPs instead of upfront costs.
• Increased user engagement and brand loyalty: Optional purchases help retain user interest and loyalty by enabling users to tailor their app experience. This personalization boosts user satisfaction, making users less likely to abandon the app and more likely to become repeat customers.
• Enhanced app promotion and optimization: IAPs generate valuable data on user preferences, helping developers focus on popular features and increase user satisfaction.

However, IAPs also come with challenges:

• Security concerns: Managing user data and payment information securely is vital. Breaches can result in significant trust issues and potential financial losses.
• Dependence on large user bases: For IAPs to be profitable, apps generally need a sizable and active user base, which can be difficult and expensive to build and maintain.
• Balancing monetization with user experience: Striking the right balance between free and premium offerings is crucial. Too many restrictions or perceived high costs can lead to user dissatisfaction and app abandonment.
• Complexity in user retention: Retaining users can be challenging for app developers and marketers, as it requires constant innovation and regular updates. Apps must consistently introduce new features and improve existing ones to justify continued investment from users.

Here are some effective strategies mobile app developers and marketers can use to increase in-app purchases and ultimately boost revenue:

1. Leverage user data: Utilize advanced analytics tools to gain better insights into user behavior and preferences. Segment your audience(s) to tailor user journeys and value propositions, improving targeting and the effectiveness of marketing efforts.
2. Personalization: Customize the app experience by integrating user data to offer tailored content and recommendations. Send personalized push notifications and in-app messages to alert users about relevant offers.
3. Focus on initial conversions: Target users who are highly engaged yet have not made a purchase. Use smart triggers for timely promotions to encourage their first in-app purchase.
4. Prioritize high-value users: Identify and target your top spending users with personalized campaigns. Focus marketing efforts on retaining and engaging users who drive the most revenue.
5. Optimize timing: Align your marketing messages to match peak user activity times, such as commutes or evenings, to increase the likelihood of purchase.
6. Rewards and promotions: Foster loyalty by rewarding user engagement with incentives like discounts or exclusive content. Use time-limited offers and promotions to create a sense of urgency and ensure these offers are communicated through the right channels for maximum impact.
7. Simplify the purchase process: Optimize the checkout process to reduce friction. Implement autofill, streamline forms, and eliminate distractions to ensure a smooth transaction.

As a leading mobile marketing platform, in-app purchases and their accurate measurability for app marketers is one key area of focus for Adjust. Our comprehensive Measure solution enables fast, 360 degree visibility into campaign performance, while Analyze enables you to instantly dive into campaign performance and unify your purchase and revenue reporting in Datascape.

Curious how Adjust’s advanced measurement and analytics can power your app marketing analytics and monetization measurement? Talk to an expert today by requesting a demo.