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a happy/satis ed customer based upon the custom- er’s renewal of the service. As shown above, such an assumption cannot be made for paid-app cus- tomers. erefore, a subscription gives marketers
a well-rounded idea about the customer’s purchase trends.
Which apps are suitable for a subscription model?
While Apple and Google are enabling app developers across all categories to shi to a sub- scription model, there are important questions that must be answered: what types of apps are eligible to migrate to this model, and within those apps, how does a developer know which customers to target with this model?
We believe that content-driven apps, rather than utility apps, are best suited to a subscription model, due to its nature of perpetuity. Con- tent-driven apps deliver recurring information in the form of text, image, audio, video, game play and similar features. Utility apps are those that perform functional tasks, such as a currency converter. We exclude business-related productivity tools (e.g. Microso O ce Suite Apps) and services from this de nition since there will be a certain return on investment (ROI) related to usage of such services. Figure 2 on the le illustrates the revenue models which should be used based on the type of app.
A good number of content-driven apps in entertainment, such as Spotify and HBO, are already using the subscription model. In addition to these, apps in the gaming category, which accounts for 75% of worldwide revenue generated, could
take advantage of the subscription model fruitfully (Verge, 2016). On another note, Spotify is urging customers to subscribe directly through their web- site versus subscribing through the Apple App Store (Verge, 2015). However, the majority of small com- panies do not have the subscription base, leverage, or trust that Spotify possess. erefore, their strat- egy is not expected to hold across all companies.
ere are apps developed by companies purely as an extension of their company’s marketing, branding or customer service e ort. ere can also be a standalone app for a speci c event like the
Olympics. In addition, there are very functional apps like ashlights, calculators, or converters. We are not taking these types of apps into con- sideration. We are also controlling for IT-related components of an app like user interface, design, and load time. It is also mandatory that for a content-driven app to be successful, the content has to be continuously updated, informative and compelling.
is there a better way to leverage subscriptions?
While the monthly subscription strategy will help app developers, the end customers, and Apple and Google in the long run, the focus will shi from customer acquisition to customer retention (tenure), customer engagement, increased usage of features and customer win-back, if necessary.
A rich stream of customer level data will help in better pro ling and segmenting customers. As mentioned earlier, a major advantage of the sub- scription model is transforming non-contractual customers into contractual ones. is ties the customer on to the service and o ers more touch- points which can be used to deliver a superior customer experience, service quality and custom- ized marketing o ers, which ultimately leads to higher pro ts.
We propose to use the customer engagement framework developed by Kumar et al. (2010)
to maximize pro ts and retention. Customer engagement (CE) is de ned as “the mechanics
of a customer’s value addition to the rm, either through direct (purchases) and/or indirect (refer- rals, in uence, feedback) contribution” (Pansari
& Kumar, Forthcoming). ere are four metrics
to measure the value of customer engagement: customer lifetime value (CLV), customer referral value (CRV), customer in uence value (CIV) and customer knowledge value (CKV). We will go into details as to how to adapt these metrics for the app industry business model. Figure 3 on the following page illustrates the customer engagement frame- work in an app industry setting.
DisrUPtioN & iNNoVatioN
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