Jan 9, 2025
What’s the best hybrid monetization strategy for your app business?
What’s the best strategy for creating a consistent revenue stream and driving your app’s growth? While it depends very much on the kind of app you have, hybrid monetization is a great option for games and gamified apps. This monetization model combines in-app purchases and in-app ads to maximize profits.
Hybrid monetization can take many forms since there are multiple ad formats to choose from and a wide variety of in-app purchases to consider. IAPs aren’t limited to virtual goods; they can also include premium content, subscriptions, downloadable content (DLC), and consumables like extra lives or tokens.
This model has been picking up steam over the past few years and continues to grow in popularity. As The Drum recently reported, “In 2024, 43% of games used a hybrid model, up from 36% in 2023. This shift is largely driven by mid-core games incorporating in-app advertising (IAA) to offset the decline in in-app purchases (IAP). At the same time, hypercasual games, once reliant on IAA, are increasingly adopting IAP due to the impact of App Tracking Transparency (ATT).”
Read on for tips to help you build and drive your own hybrid monetization strategy.
Getting started: Understand your audience through data
An effective monetization strategy starts with understanding how your users behave in your app and what resonates with them. Only with a solid understanding of your audience can you design data-based monetization mechanics to help you deliver the right experience at the right time.
There are many possible approaches to consider. Once you’re confident in your knowledge of your audience’s behaviors, the next step is to engage in extensive A/B testing to dial in your best strategies for ad placements, type, frequency, and more.
For mobile games in particular, consider that different game categories demand a different balance of ads and IAPs. What’s critical is that there’s one primary monetization model and one secondary, rather than two battling it out for dominance. Do your research, perhaps starting with the charts below, and monitor your test results.
Limit the scope of your A/B test to a small but statistically significant set of users, rather than testing against all users. (See more on this below!) This will ensure that your results are reliable and free from bias.
Segment your users, find what works
Segment your target audience into specific groups based on shared characteristics. For example, some users may play your game for two hours a day, which might indicate high engagement and a higher tolerance for ads, whereas others may play for less than 30 minutes per day.
Good hybrid monetization takes different segments into account and makes sure the monetization mechanics speak to each user type. Since a one-size-fits-all strategy is unlikely to be successful, segmenting ensures that the in-app experience will be tailored to different types of users and their unique behaviors. Here are some other examples of segments you can build:
- Long-term users vs. new users: These two segments might enjoy different types of rewards
- Purchases: Base segments on whether or not users have made a purchase in the last month
- LiveOps engagement: Users who engaged in a recent Liveops event vs. those who didn’t
- Ad engagement: Users who engage with ads but haven’t made a purchase
Use LiveOps to learn about users and improve engagement
Gaming studios use LiveOps to generate engagement by providing new content, events, and monetization opportunities. LiveOps can also be useful for collecting feedback and helping you understand how any of the following resonate with users:
- New features
- Exclusive content
- Events
- Bundles that combine in-app purchases
(Note that “bundles” are usually a combination of live events, exclusive content, or new features that are offered to users for a limited time. They can also be tied to seasonal events, holidays, and in-app promotions to keep users engaged.)
Review metrics, check churn, and test often
Testing is integral to an optimized hybrid monetization strategy. Some developers start testing once they notice a plateau in their IAP revenue, while others consistently run multiple A/B tests to make incremental improvements and boost overall revenue.
Best practices for testing
We mentioned it earlier, but it’s worth repeating: Don’t use your entire user base to run your A/B tests. There’s a not-so-simple formula for determining your ideal sample size; you may want to use this handy calculator to save yourself some trouble. Here are some additional best practices:
- Assess your ARPDAU (average revenue per daily active user) and compare it to your benchmarks;
- Check to see if the ad frequency is the same as your calculated estimate, especially if your results aren’t as high as you expected;
- Review and optimize the variables of your ad implementation, including responsiveness, creatives, frequency of ads shown, and engagement;
- Watch user churn rates based on the types of ads they are being served. If you notice big dips, you may need to revisit your testing strategy and make adjustments.
(Need more help? Here’s a helpful refresher on A/B testing.)
Which mobile ad formats work best in a hybrid monetization model?
Rewarded video ads incentivize users to view an ad in exchange for something like an extra life or a trial of premium app features. Because rewarded video ads are user-driven — that is, the user can actively choose to view the ad to receive the reward — they have proven to be highly popular and effective, well-received by users, and a powerful monetization tool for app publishers.
Rewarded video ads are particularly effective in mobile games, according to a recent monetization report: “Rewarded video ads are particularly synergistic with in-app purchases. For instance, players may accelerate their progression through strategic ad viewing, which provides temporary game advantages. Once these ad opportunities are exhausted, players might turn to direct purchases to maintain their advancement pace.”
Interstitial ads, while less popular than rewarded video ads, can still be an effective complement to rewarded video ads; however, because they are not user-driven like rewarded videos they should be carefully balanced with placement and frequency. Generally speaking, if you’re using interstitials, remember that they’re best used during natural transitions, for example, between loading screens. At other points in a user’s flow, they can be perceived as an interruption. Also, keep in mind that interstitials can potentially have relatively longer loading times.
Hybrid monetization is here to stay, in both mobile gaming and gamified apps – and that’s good news for the entire ecosystem. As AppLovin’s Daniel Tchernahovsky told the PocketGamer.biz podcast, “[Hybrid monetization] is probably one of the key drivers of growth for the industry as a whole. For many games that don’t have ads today, by creating ad opportunities within their apps, they can allow other games to grow as well, and that grows the entire pie.”
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