“From Free to Paid: Testing Monetization Strategies for a Free Non-advertising-based Service” by Mr. Jingcun CAO
From Free to Paid: Testing Monetization Strategies for a Free Non-advertising-based Service
Mr. Jingcun CAO
Ph.D. Candidate in Marketing
Kelley School of Business
The mobile app market has expanded rapidly in the last decade. However, mobile app firms of non-advertising-based services face a significant challenge when trying to monetize their free services, due to low purchase conversion rates and high churn rates. In practice, these developers usually adopt one of two monetization strategies: (1) a soft-landing strategy, with limited free service provided to current users when it starts to charge, or (2) a hard-landing strategy in which all free services are terminated and only paid users retain access to the service. Which of these strategies may provide the best economic outcome for the developers is not clear. Developers are also uncertain about whether to add exclusive secondary offerings (unrelated to the core benefits) to the app for paid users. Existing theoretical and empirical literatures, however, do not offer guidance on the above choices. In this study, we employ a series of large-scale randomized field experiments to test the causal effects of providing limited free services to users and offering exclusive secondary offerings to those who pay when they convert to paid subscriptions. We also examine the interaction effects of these offers. Results suggest app users are more willing to pay in the hard-landing condition than in the soft-landing case regardless of whether free content or free time is offered. Additionally, exclusive secondary offerings hurt the conversion rate. Further, a positive interaction effect exists between providing limited free services and offering exclusive secondary offerings. Our research provides important theoretical implications to marketing researchers, and actionable managerial implications to mobile-app managers on monetization strategies and customer relationship management for non-advertising-based apps.