From Free to Paid: Monetizing a Non-Advertising-Based App

Abstract

Non-advertising-based mobile apps face several critical challenges when trying to monetize their free services; among them: the choice of pricing strategies ( hard landing vs. soft landing, i.e., a “pay or churn” paywall or continue offering limited free services to existing users after monetization) and aspects of product design (whether to provide exclusive secondary offerings to paying users). We implemented a large-scale randomized field experiment with an app firm to test the causal effects of such pricing and product design strategies. Results show that both soft landing and exclusive secondary offerings decrease existing app users’ willingness to subscribe; but there is a positive interaction between these two strategies on subscriptions. We propose a theoretical framework, discuss potential mechanisms that might be at play, and conduct robustness checks to rule out several alternative explanations. A customer survey by the firm and an experiment on Prolific provide further support for the theoretical mechanism. To assess generalizability, we conducted a second field experiment and obtained consistent results. We also report the results from the actual implementation of the best performing strategy by the firm. Our research provides guidance on possible theoretical underpinnings of users’ responses and important managerial implications for app monetization.