From Free to Paid: Monetizing a Non-advertising-based App

Non-advertising-based mobile apps face several critical challenges when trying to monetize their free services: the choice of pricing strategies (whether to continue offering limited free services to current users) and aspects of product design (whether to provide exclusive secondary offerings to paying users). We implemented a large-scale randomized field experiment to test the causal effects of such pricing strategies and product design. Results show that providing either feature decreases existing app users’ willingness to subscribe to the service after monetization. Further, we find a positive interaction between providing limited free services and exclusive secondary offerings on subscriptions. We provide a discussion of potential mechanisms that might be at play, and conduct robustness checks to rule out several alternative explanations. To assess generalizability, we conducted a second field experiment with a different operationalization of limited free content and obtained consistent results. We also report the results from the actual implementation of our proposed monetization strategy by the firm. Our research provides guidance on possible theoretical underpinnings of users’ responses and important managerial implications for app monetization.