How to Save the Subscription Economy with Ad-Based Revenue

It is a truth universally acknowledged that digital businesses must be in want of a robust monetization strategy. To be able to pivot toward other revenue sources in times of uncertainty and financial pressure. 

Subscription apps fared well over lockdowns, observing revenue growth of around 34 percent in 2020 and 41 percent in 2021. But if it’s now crunch time for consumers, where will they cut down on their spending?

And how will the subscription economy be able to ensure revenue continues to grow amid these anxieties?

Are There Cracks in the Subscription Economy’s Armor?

Hit with heavy inflation and a steep rise in living costs, consumers around the world will be anxious to make cuts to their outgoings. In the app economy, this could translate into those paying for subscription apps downgrading their subscription tier or cutting their in-app spending completely.

If these app users do spend their money, it will have to be for the right price. This could leave several subscription apps – or apps heavily reliant on IAP-based revenue – vulnerable to revenue losses and at the mercy of growing user expectations.

If a publisher allows the quality of its in-app content to drop – the content a subscriber pays for – a vicious cycle of further revenue and subscriber loss will ensue.

Some big players in the subscription app market – Spotify, Disney+, Tinder, and YouTube – were plagued last year by concerning MoM revenue numbers or subscriber numbers. But data demonstrates there is still demand for quality app content, even if revenue fluctuates.

According to data.ai’s latest State of Mobile report, overall time spent in apps has either stayed the same or grown. App downloads grew in 2022 by 11 percent YoY.

This begs the question: How can publishers leverage this demand and simultaneously better shield themselves from entering or becoming trapped in the precarious cycle above?

Recession Means Reassessing Your Revenue Streams

Needless to say, there are engaged mobile users out there. And where there are engaged eyes, there’s always opportunity to monetize.

To bring in hesitant nonpaying users and cash in on low-tier subscribers, forward-thinking publishers will introduce a cheaper ad-supported model – or even a completely ad-subsidized model – for their app. Meaning, instead of spending hard cash on this app, users can choose to spend their time on it.

Savvy publishers will even offer various pricing tiers based on the region in which their users are located to cater to their changing needs. The outcome? More effective monetization based on diverse user segments. Especially, in regions where users have been hit harder with rising living costs and are more likely to decrease or completely cut their in-app spending.

Another food for thought: Other publishers will leverage rewarded ads to diversify their revenue streams further and enhance user experience. App users in certain regions, such as Germany, have already reacted positively to earning rewards instead of having to spend their hard-earned cash. Especially, in mobile gaming. 

On Adopting the Ad-Supported Model

By maximizing revenue in the subscription economy with an ad-supported model, publishers can afford to keep rolling out the quality in-app content users want, drawing in not only ad consumers but also subscribers who are willing to pay the higher costs for the content they want to see.

And the promise of profit is there. Disney+ and Netflix announced their plans to introduce ad-supported models to their services in late 2022 to counteract falling revenue and subscriber numbers. Forecasts are now estimating that ad-based revenues will surpass 1.2 billion US dollars by 2025 for both platforms. 

Netflix has since nearly sold out of its initial ad inventory with premium rates. So, with optimized targeting, it could just be a matter of time until the subscription platform procures even greater revenue from advertisers wanting to buy traffic and special ad placements from it. 

If other subscription or IAP-heavy apps are able to attract a broader user base by becoming financially accessible and highly valuable for nonpaying users, their ad inventory, too, could become highly lucrative.

Subscription Apps: No Need to Panic

How do publishers reassure stakeholders in uncertain times like these? By shielding their product as well as they can from the storm of revenue uncertainty and churning consumers. 

The mindset of “grow subscribers at all costs” has passed. Key metrics in the subscription economy should now be less about “how many subscribers?” and more about “how much revenue can you generate from each monetization channel?” This means that well-protected publishers will have scale and a diverse monetization stack – for example, thanks to effective ad monetization.

Recessions are as much a crisis of finding a way to remain relevant as they are a financial crisis. But by reacting to user needs – by monetizing users based on these needs – publishers will be armed with weapons to fight revenue pressures and doubts. They’ll be able to keep delivering quality in-app content to payers and nonpayers alike while maximizing their incremental revenue.