Recently, a reader asked me how to figure out the best way to make money from their iPhone application. Below is my response:
Without knowing more about your app, I can’t give you a definite answer. What I can tell you is how to weigh your options to make better decisions.
At MIT Sloan, we would determine the best approach by creating an excel model. This model would include assumptions and best/worst case scenarios that give insight into the possible scenarios for you app/business. You can then do a sensitivity analysis on your model’s variables to see which factors are most important.
Some of the main assumptions you will need are:
User growth rate
User drop-off rate
Ad views per session
Cost to serve ads
CPM/CPC
Once these are plugged into a model, project out month by month and see where you end up. If you have an app you think people will use often, ads will probably be better. iPhone apps are extremely price elastic. One app we studied when from 10,000 downloads to 100 when moved from free to 99 cents. On the other hand, if your app is a fun impulse buy that will only get used a couple times, you are better off charging upfront because it will take a lot of ads served to reach 99 cents.
Finally, the nice thing about the app store is that you can change models midstream. If you find something is not working, then update the model with the new data and try somethings else.
Here are a couple recent articles on the subject
http://venturebeat.com/2009/05/06/iphone-ads-not-your-path-to-wealth/
http://www.businessinsider.com/some-iphone-apps-making-money-from-ads-2009-5
Regards,
-Stephen
