It's Never Too Early to Start Monetization

Finding Opportunities in the Mobile App Market

The mobile app market has seen explosive growth over the last few years. The early mobile app market grew through the development of gaming apps and performance marketing. It expanded even further as primarily web-based e-commerce shifted to apps, and recently, with the boom in mobile content businesses including OTT services.

As of 2023, the mobile app market size sits at an annual $533 billion (approx. 703.56 trillion KRW) and is still growing, but with so many outstanding app services out there, it has become an incredibly fiercely competitive space.

Are there still opportunities left in a market like this? If so, what strategy does a new app service need to succeed?

"Doesn't a good product guarantee success?"

When evaluating the potential of an app service in the mobile app market, revenue wasn't a strict requirement even just a few years ago. Excluding games or commerce categories where the sole purpose is profit, potential was often evaluated based on metrics like DAU, stickiness, and retention—basically, how many users you had and how frequently they used the app, even if it made no money.

Since there were plenty of cases where apps with excellent product quality secured massive funding or got acquired based purely on high potential, app developers focused on acquiring more new users rather than chasing profitability. In extreme cases, they often used aggressive user acquisition strategies even if it meant operating at a loss.

Focus on Product Growth? Or Monetization First?

The Shifting Market Tides

But the tides have shifted. As the market matures, 'revenue' is now a mandatory element when discussing successful app services. Looking at the last few years, examples of developers securing investment without a monetization model have become quite rare, barring a few exceptions. Especially from Series B onwards, the financial performance achieved through a clear monetization model is heavily evaluated.

Of course, this doesn't only apply to developers seeking investment. If you're an app developer not aiming for funding, monetization is even more crucial for survival. And even for solo developers, applying monetization is necessary just to get a proper report card on how your app is really doing.

"Isn't DAU = Potential Revenue?"

Globally, Instagram, Snapchat, and TikTok, and in Korea, KakaoTalk, Toss, and Karrot, are prime examples of initially focusing on user experience and community building to secure a massive user base before introducing various monetization strategies.

This approach is highly effective for rapidly bringing in massive numbers of users, as it allows you to focus on product quality while minimizing user resistance to monetization.

But the key catch here is that for this strategy to work,

1. you must be unique enough to capture market share,

2. have few competitors,

3. and be a service with enough mass appeal that a large portion of the mobile app population will use it.

You have to hit all of these incredibly difficult conditions at once.

Even if you meet all these conditions, success is never guaranteed. No matter how great a product is, if you don't think about your monetization model alongside growth, you might struggle to integrate the right monetization model in the future. Also, growing an app without monetization puts a heavy burden on the initial capital needed to cover your running costs during that period.

Clubhouse, which grew rapidly but still struggles with monetization, is a good example of this.

Start with Small Wins, Not a Home Run

Especially looking at recent market trends, the approach I'd suggest to startup developers for more stable growth is to experience small wins and achieve step-by-step growth, rather than taking huge risks, burning cash, and swinging for the fences.

The core advantages of applying monetization from the early stages of your service are as follows:

(Beyond just earning a little revenue to help keep the lights on...)

1. You can get an objective evaluation of your product's value from consumers.

2. You can understand your product consumer's persona and take a sharply targeted approach.

3. You can grow in a product direction that balances product quality and your monetization model.

You can get an objective evaluation of your product's value from consumers.

Honestly, a product with zero monetization lacks objectivity because the difficulty of making users feel its value is relatively low. From the user's perspective, there's no annoyance from ads, and it's a free service that doesn't require payment or a subscription—so they have absolutely nothing to lose. Even if it falls a bit short compared to competitors, some users will still stick around simply because there's no resistance to monetization.

However, unless your product was built for non-profit purposes, monetization will eventually be necessary. That's why it's crucial to figure out whether not just a mere user, but a user willing to pay a fair price—a true "consumer"—actually has the intent to consume your product.

A consumer refers to those who pay a fair price for goods and services circulating in the market and enjoy them in return.

As a simple example, if you make bags and hand them out for free on the street, people will take them without a second thought. Since there's no cost involved, they don't need to judge whether it's a rational consumption choice. But the moment you slap even a 1,000 KRW price tag on it, a significant number of them will hesitate to buy it.

A product seller must have their product's value evaluated through consumer interest. In extreme terms, feedback from a "user" rather than a "consumer" might actually just be noise that ruins objectivity.

You can understand your product consumer's persona and take a sharply targeted approach.

Once you actually know what kind of consumers buy your product, what their spending power is, what needs drive them, and up to what price point they are willing to pay, you can adjust your pricing accordingly. Taking it a step further, you can promote your product in ways that will capture even more of these consumers' attention.

Going back to our example, when giving away free bags on the street, a wildly diverse group of people with no common traits will take them. It's only when you set a price and start selling that you finally realize your core consumer base is mostly women in their 30s, the reason they buy your bag is that it's lighter than others, and they are willing to pay up to 3,000 KRW. Using this, you can build a much sharper sales strategy.

As such, the voice of the actual consumer—not an unspecified mass—is incredibly important. The more this data piles up, the clearer your consumer persona and the direction your product needs to take will become.

You can grow in a product direction that balances product quality and your monetization model.

There are broadly two ways for a seller to increase revenue: 'sell more products' or 'leave a higher profit margin.' To 'leave a higher profit margin,' you typically raise the price, and since the product's value needs to back that up, you try to improve product quality. But even then, if you understand the consumer's persona, you can execute a far more efficient strategy.

Returning to the bag example once more, changing the bag's material to heavy leather as a premiumization strategy to raise the price would be a massive mistake. Your consumers bought your bag because it's lighter than the alternatives, and they are only willing to pay up to 3,000 KRW.

But what if product quality drops just a tiny bit, but you can cut production costs by over 50%? And by dropping the price to 800 KRW, you can sell it to a lot more people? Then it would absolutely be worth a shot.

Wrapping up...

Ultimately, what I want to say is that, excluding a tiny fraction of app services, the absolute best time to start monetization is right now. Even setting aside the current investment winter, you need to do it just so you can reflect the opinions of actual consumers—not just mere users—during your product's growth process.

So now that we've answered 'when' to start monetization, it would be great to talk about 'how.' We'll cover which model between the two most representative monetization strategies—ads and subscriptions—is best suited depending on your app's characteristics, and where you should place more weight, in a future post.

Read more on DelightRoom's ad monetization

1. It's Never Too Early to Start Monetization

2. The First Thing to Think About When Starting Ad Monetization

3. If You Want to Increase Ad Revenue, Start With 'This'

⏰ Curious about DelightRoom's secret to ad monetization?