Making a Living from Everyday App Services

Ad Monetization and Subscription Monetization

I know you work at a mobile app company, but what exactly do you do...?

It's been a full six years since I joined the mobile startup industry. Back when I first dipped my toes in, people would constantly ask if I could even make a living working at a startup. As time passed and apps like Karrot, Toss, and Kakao T became everyday necessities, those questions slowly vanished. When the delivery app Baedal Minjok became "German Nation" (following its acquisition by a German company) and Coupang went public on the NASDAQ, people actually started looking at me with genuine envy for having stepped into this land of opportunity. Whether it was vague worry or envy, it all came from a lack of understanding about how the mobile app ecosystem actually works. Whenever this happened, I tried my hardest to explain things as simply and thoroughly as possible to clear up these misconceptions. Now, I want to take those repetitive explanations, put them in writing, and share them with you.

I kinda know you guys make a living off ads!

Thanks to massive platforms like YouTube and Instagram, most people are aware that an app's primary source of income is "ads." Thankfully, they don't just know it; there is a growing trend of accepting it as a given. In reality, the ad monetization model has been around since the web era. But because screen space is so limited on mobile, ads tend to stand out more. This makes them a bit more annoying, which ironically boosts their "recognition rate" (?), and since mobile devices are so deeply woven into our daily lives, our "tolerance" (?) for these ads has naturally gone up as well. What people don't know, however, is exactly how much money these ads are pulling in.

On the flip side, the revenue news we hear about startups in the media is often pretty grim. For example, Coupang has famously run at a loss every year, with the deficit only growing larger. Last year, Toss reported a profit margin of -18% (-72.5 billion KRW), and Ohouse reported -13.3% (-10.1 billion KRW). Maybe that's why some folks still can't shake off their "anxiety" about the industry. With nothing but future "growth potential" as collateral, isn't it still a pipe dream to expect actual net profits from app services?

The power of everyday app services

Jeomsin — Ad monetization model

Have you ever heard of an app called "Jeomsin"? As Korea's #1 fortune-telling app, it boasts a massive user base, particularly with a high percentage of fiercely loyal users. You might dismiss it easily, thinking, "Oh, it's just a digital fortune cookie that gives daily horoscopes"—and honestly, that is the core of the service. But their revenue and profits are anything but trivial. Last year, they reported 2.3 billion KRW in revenue and 900 million KRW in operating profit, which translates to a whopping 40% profit margin. The main engine behind this? Good old "ad revenue." Given the nature of apps, global expansion is very doable, and I hear they're eyeing markets like Taiwan this year. They're also expanding beyond basic divination content (like horoscopes, Saju, and tarot) into premium ARS phone consultations. It might look like a small, lightweight app, and its ad impressions might seem like no big deal, but the monthly revenue it brings in has already surpassed 200 million KRW and is still climbing.

Sleep Cycle — Subscription monetization model

Truth be told, the ad monetization model is a fairly mature and deeply rooted strategy in the mobile industry. However, as the market shifts, the "subscription monetization model" has started taking hold in the mobile app ecosystem as a way to supplement—or even replace—ad revenue. A prime example of a subscription-only app is Sleep Cycle, a service that analyzes your sleep quality. With a team of fewer than 30 people, Sleep Cycle is the world's #1 sleep tech app, generating roughly 22 billion KRW in annual revenue and 9 billion KRW in operating profit last year. Similar to Jeomsin, it posted around a 40% profit margin, and in the first half of this year, it went public in Sweden with a valuation of 200 billion KRW. To think that an app you use so casually every day brings in nearly 2 billion KRW a month! How exactly do ad and subscription monetization generate such massive revenue?

Ad monetization and subscription monetization

The ways an app service can generate revenue (monetization) largely boil down to two categories: ads and in-app purchases. And right now, the absolute hottest trend under the in-app purchase umbrella is "subscription monetization." Let's take a quick look at the characteristics, pros, and cons of both "ad monetization" and "subscription monetization."

Ad monetization

With ad monetization, it's tough to maintain great usability because you're forcing "ads" that users don't want right into their experience. Plus, since some of the highest-paying ads often use provocative or clickbaity creatives, filtering them out one by one is a huge headache. The tradeoff, of course, is that it costs the user absolutely nothing. They get to enjoy the app they want for free, sacrificing just a bit of usability. As long as you keep sourcing ads with decent payouts and run the app without major bugs, the risk of users churning is relatively low since they aren't paying a dime out of pocket. That's exactly why ad monetization is the go-to strategy for the vast majority of apps.

"So if I build a great app, acquire users, and slap on some ads, I can make huge revenue like Jeomsin!"

It's really not that simple. Building a great service and acquiring users is incredibly difficult right from the start (even hitting 10,000 DAU—Daily Active Users—is notoriously hard). But even setting that aside, just figuring out the ads is a monumental task in itself. Unlike the subscription model, the ad model has a deep history. Because it's been around so long, both the "market" and the "technology" are highly mature. Amidst this nonstop evolution, the "policies" you need to comply with (across different countries, regions, platforms, etc.) are constantly shifting as well. You have to sift through a flood of information to find the optimal setup and stay hyper-sensitive and responsive to continuous changes.

From selecting the ad "placements" (spots that generate lots of clicks, high impressions, or offer large screen real estate), to choosing the "formats" (image, banner, native, video, etc.), deciding on a "mediation platform" and additional "ad sources" (MoPub, AdMob, Pangle, Fyber, etc.), implementing the "bidding strategy" to determine the winning bid (waterfall, header bidding, or a hybrid), setting up "filtering conditions" for the ads you receive, all the way down to securing the necessary "user permissions" just to show them... You need deep expertise across a dizzying array of variables just to squeeze out a meaningful volume of ad revenue. It might sound trivial, but with ad monetization, an app making 1 million KRW a month can literally jump to 100 million KRW just by optimizing these exact variables.

Subscription monetization

Subscription monetization, a specific type of in-app purchase, is exactly what it sounds like: users paying directly inside the app to generate revenue. When people think of in-app purchases, they usually picture buying a specific virtual item in a dating app, game, or webtoon platform—but those are one-off purchases, not subscriptions. A subscription is a model where a recurring payment is made at regular intervals, granting the user unlimited, unrestricted access to the app's goods and services during that period. The starkest contrast to ad monetization (where the app is free) is that this actually costs the user money. In exchange, the user unlocks premium features unavailable in the free tier and completely escapes the "ads" that drag down usability.

Right off the bat, this sounds a lot harder than ad monetization. Coaxing money out of a user's pocket feels like a massive hurdle in itself. Because apps have been universally perceived as "free services" for so long, you might think no one would ever pay for one. However, thanks to the massive success of global giants like YouTube, Netflix, and Spotify, users are slowly getting comfortable with recurring monthly payments. A brand new revenue structure is rising in the app ecosystem, breaking away from the reliance on ads. Of course, even the almighty YouTube Premium only has a subscription rate of around 10% among its total user base, so it's safe to say this model is still in its "infancy." Consequently, the mechanics of a subscription product—the "subscription duration," "free trial availability and length," and "price"—are entirely different for every app. There's no definitive playbook to reference; it's a wild west where everyone has to figure out how to survive on their own.

Unlike ad monetization—which requires sifting through an ocean of information and constantly reacting to external changes—subscription monetization forces you to look inward at your own product. How do we define and build the actual utility and value of our app? How do we pitch that to the user? And what is the exact price point for this equivalent exchange? You have no choice but to hyper-focus on the core essence of your app to find the answers. We obsess over user feedback and dig deep into in-app data to uncover their true needs and pain points. In a way, because you're providing a high-quality service in exchange for fair compensation, it's the monetization method that aligns most closely with the traditional concept of "barter." Asking for money upfront remains a formidable hurdle, but given the shifting spending habits of users and the explosive growth of existing subscription-based apps, it is actually an incredibly promising monetization strategy. We might even need to move aggressively to lock down our market before users jump ship to competing services.

The app I work on, "Alarmy", had already been generating a solid stream of monthly ad revenue backed by 2 million DAU. Over the past 8 years, Alarmy has done exceptionally well at ad monetization. We've enjoyed premium treatment as a Tier 1 publisher on top-tier global ad platforms like Google AdMob, Facebook, and MoPub. We were also one of the very few Korean apps to adopt header bidding quite early on. We've relentlessly optimized our setup through countless experiments on ad placements and allocation logic, and we never hesitated to test out rising ad networks like Snapchat (SAN), Amazon (APS), and TikTok (Pangle). We've also navigated notoriously strict industry policies (GDPR, COPPA, ATT, iOS 14, etc.) in incredibly smart and sophisticated ways. I plan to dive much deeper into the nitty-gritty of our ad monetization in a follow-up post.

Taking things a step further, Alarmy introduced subscription monetization in late 2019. You might be thinking, "Who in the world pays for an alarm app?" Well, surprisingly enough, nearly 100,000 people are currently subscribed to our app. The secret essentially boils down to delivering on our core promise: waking you up without fail. Beyond that, we've elevated the app's features to actually help users build successful morning habits. Crucially, this success is built on the massive pile of lessons we've learned through endless experiments—pinpointing the exact pain points of different user segments and figuring out exactly where they find the most value in the app. I'll also dedicate a separate follow-up post to dive deep into our app's subscription monetization strategy.

• TL;DR: Our app makes money through ads and subscriptions. And we do it really well.

mail : stephan@delightroom.com
instagram : @seosinghan