2024 has seen many premium subscription service apps expanding their business models to incorporate an ad-tier into their offerings.
At first glance, this shift makes sense - traditionally only 3-4% of users are likely to subscribe to a premium subscription-based app. Ads offer premium apps and streaming services a way to monetize the remaining 96% of users who would otherwise not generate revenue. While converting users to subscribers still offers the highest ROI for these apps, they would leave significant revenue on the table without ads.
Still, some apps are hesitant to incorporate ads into their monetization strategy. Beyond more general concerns about ads causing churn due to a negative experience, there is also a concern that an ad-based tier would cannibalize subscription conversions. The reasoning is that if a user can access an app’s services through an ad-tier, they won’t be incentivized to purchase a subscription.
But with the savvy implementation of an ad-based tier, subscription cannibalization can be avoided, as well as exposing an even greater cohort of users to the benefits of your app’s premium content or services, perhaps leading to more subscription conversions down the line. Below, we go over what you need to know about implementing ads without cannibalizing subscription conversions, broken down by ad format.
How to implement ads, by format:
1. Display ads
Display ads are one of the most widely used types of ad formats, including formats like banner, MREC, native, and splash ads (splash ads are pop-up ads that trigger when users open their app). Their popularity is often attributed to their ease of use and unobtrusiveness - display ads require minimal development work from publishers and do not overtly disrupt app usage. Users experience display ads as digital ‘posters’ and are still able to use the app normally when display ads are on screen.
As minimally disruptive as display ads are, they’re system-initiated, so users can’t opt out. As a result, there is still some risk of users bouncing. To prevent this, users should be primed to expect ads with messaging related to the tiers - the ad tier where they’ll receive some premium features for free with ads, and the premium tier where they can access all the features of the app without ads.
Priming users that ads are present can help to avoid churn since users are less likely to see the ads as intrusive as they’ll be expecting them. Notifying users that they’re on an ad-tier can also work to incentivize subscription conversions - ad-tier users get a taste of premium content, which may make them want to subscribe to unlock the full experience and receive all premium features. Another option for an ad-tier is to give users full premium features but with ads with an option to access an ad-free experience by subscribing.
Preferably, users should be primed with a notification from the start of their app experience. A good place is in the sign-up flow since this is when they’ll have the option between using a subscription or ad-based tier for the first time. Moreover, a sticky notification in their account settings is another great place for the notification. There should be a CTA alongside the notification to become a subscriber, which can work to convert users who initially chose the ad-tier of your app.
2. Interstitials
Interstitials offer even better revenue generation potential than display ads but can be more intrusive. Like display ads, interstitials are system-initiated, but unlike display ads, users can’t keep using the app until they have either completed or dismissed the ad. So, implementing them correctly is even more important.
Like with display ads, priming users is essential. And since interstitials can interrupt the user experience of the app, it’s doubly vital to prime them that ads are present.
3. Rewarded videos
Rewarded videos (RVs) are one of the best ways to monetize users, since, like some interstitial ads, they are a more engaging 15-30 second video, but unlike interstitial ads, RVs are user-initiated. In other words, users opt-in to watch the ad until completion in return for access to in-app currency or content. This makes rewarded videos premium placements with high revenue generation potential - RVs incentivize higher engagement and so advertisers are willing to bid more for them.
Thanks to this, RVs can actually positively impact your conversion and retention rates. They enable you to give users a taste of premium content in exchange for watching ads. Some users will want more of the premium content and subscribe, while others, who may have otherwise churned, will stay for the premium content they received from the rewarded video.
The primary difficulty with RVs is that they come with some development needs. To implement them, you need a way to categorize content so that it can be exchanged for ads watched. With the right resources and expertise this is entirely possible (Unity has an in-house dedicated consulting team to help publishers accomplish this), but it does take some work.
4. Offerwall
Offerwalls take the value exchange-driven engagement of RVs one step further, offering users in-app currency or unlockable features for not just watching ads, but also completing tasks in other apps. Users can be tasked using a range of offers, like downloading another app, making an in-app purchase there, or progressing far enough in terms of levels or engagement in that advertised app. Like RVs, offerwalls are also an opt-in, user-initiated monetization strategy, meaning that they are less likely to cause users to churn because users are actively choosing to engage with them.
However, just like RVs, there is some development work required. To implement an offerwall you would also need to categorize your features and content. But, on top of that, offerwall implementation also requires you to have some form of in-app currency that users can receive in exchange for completing tasks. Users also then need a storefront in your app where they can spend the in-app currency they earn.
Though the requirements of offerwalls can be steep, if you can implement one properly, it can offer a key way to diversify your monetization strategy, giving you a way to monetize highly engaged users who are committed enough to engage with outside offers to access premium content in your app, but still might be on the fence when it comes to purchasing a subscription.
Ultimately, all ad formats have a lot to offer in terms of revenue generation and diversifying your monetization strategies. The right one, or the combination of ads, will depend on your app and audience. But, regardless of which ad format is right for your app, all ad format implementations share one commonality - the importance of using segmentation to prevent cannibalization.
Segment users to prevent cannibalization
For a subscription app diversifying into ads, it’s critical to use a monetization platform that allows you to segment users, ideally by region, device model, OS, and more. These segmentation options enable you to tailor your ad implementation to ensure that high-potential users get an app experience that drives them to convert, whereas users who are less likely to convert to a subscription package are routed to an ad-based tier.
For example, users from a tier-1 region, like the US, are more likely to convert than those from tier-2 regions like LATAM, so segmenting tier-1 users out of the ad-based tier will help to prevent losing high-quality users who might have otherwise become subscribers.
With a monetization platform that enables you to segment users in this way, you stand the best chance of reaping the rewards of implementing an ad monetization strategy without the cost of cannibalization - especially when used in conjunction with priming.
