Monetizing Your WordPress Web App: A Strategic Overview

This is the final article in our series about WordPress as an Application Framework.

Build in your Monetization Strategy

Like security, your web app monetization strategy should be an integral part of your software design.  Why?  Monetization almost always involves connecting to some other service.  These connections will involve design choices that could significantly impact other development activities including system design and coding.  Additionally, your monetization strategy will be an integral part of the total user experience.

In the past it has been important to distinguish between a “Web App” and a “Web Site”.   However, in modern web sites, the line is often blurred between web apps and content.  As this article series is about web application development for WordPress, a web application is defined as providing some combination of valuable information, useful data processing, and connectivity between users and/or entertainment.  A “Web Site” is considered primarily “just” content with very little data processing on the back end.

Generally speaking there are two types of monetization strategies: sponsored and user paid.

Sponsored Monetization

Even when users don’t directly pay to use your app, there is still a way to get paid.  This usually involves sponsors.  Entertainment apps (games, quizzes etc.) are the most common types of apps that use sponsors.

Sponsorship is a way to get paid while offering a “free” service to your users. Your app will need to contain some sort of advertisement.  You will get paid by the sponsor based on some combination of your traffic, the sponsors’ perceived value of your audience, and user interaction on your app.

Ad  based monetization is very competitive and very market driven. Be sure to do your research while designing your app.  How much you make will be based on the sponsors’ perceived value of your users and traffic. You can either join an ad network, or sell the ads yourself.  If you choose to sell ads yourself, you will need to include code to sell and “serve up” ads.  If you join an ad network, you will need to create code to embed that network’s ad serving technology.

Ad options usually fall into the following categories. Pay Per “Time” , Pay Per Impression, Pay Per Click , and Pay Per Action (Lead/Sale).

(Something to keep in mind about ad networks is that although this article is about Web Apps, most ad networks focus on “Web Sites”.  Most of the same criteria will apply,  but if you choose a “sponsored app” strategy, you may need to design your app to conform to a “content world”.)

Pay Per “Time”

Usually this is “Pay Per Month”, but can be “Pay Per Week” or even “Pay Per Day”.  The amount you can receive per month will usually be based on your average number of users per month (most often independently verified)  and the location and size of the ad.   With apps, the other major factor is your user demographic.  If sponsors perceive that your app’s users meet their target demographic, they are more likely to pay more.

The biggest problem you’ll have with “Pay Per Time” on a new app is that you will have no history upon which to base your traffic estimates.

Pay Per Impression

This is very similar to Pay Per “Time”, but instead of being based on estimated impressions, it’s based on “measured” impressions.  Usually this is in “CPM” which stands for “Cost per Thousand”.  For example, you may be paid $0.40 per 1000 impressions.

The biggest problem you’ll likely have with pay per impression ads is compliance. Ad networks take a very dim view of artificially inflating impressions. While designing and coding your app, be very cautions about UI that accidentally creates more impressions than the ad networks intend.

Pay Per Click

With Pay Per Click ads, you get paid when someone clicks an ad in your app, leaving your app to visit the ad web site.  If you choose to use this model, it’s vitally important to design your UI so that it is very clear to the user what is an advertisement, and what is part of your app.  If you or the advertiser “tricks” your user into clicking on an ad when they think they are interacting with your app, you not only violate the users trust (thereby decreasing the value of your app), you may face sanctions from the ad network or even legal action.  The most egregious examples you see of this are advertising banners that look like download buttons.

Pay Per Action (Lead or Sale)

With this type of ad, you get paid when the user either buys something or fills out a form and agrees to receive some kind of contact from the sponsor.    Depending on your app, this may be quite appropriate (for example an app targeted at scuba divers might do well with affiliate links to scuba shops).

With game apps especially, you must be careful about what are called “incentive leads.”  If you give the user an in-game reward for filling out a form, you need to be certain that it is allowed by the particular sponsor.

Direct Monetization

If your web application is providing something of value, people should be willing to pay for it.   Features and pricing are generally built on some kind of subscription model, with certain features “bundled” at more expensive subscription levels.  Additionally, many web apps often have “add on features”.  Other options include “one time” prices with paid upgrades, or “paid support” plans.

There are two major strategic decision areas in web app direct monetization design: 1) the interrelationship between features, pricing and payment technology; 2) the technology involved in how you receive money.   These two are related because the way you choose to receive money will impact how you can set up your features and pricing.  For example, with PayPal Web Payments Standard, you can only charge recurring billing to people who have PayPal accounts.

Within “how you receive money” you have historically had two broad options: 1) a third party payment service or 2) a direct merchant relationship with your customers.  These general options are beginning to evolve into hybrid services, providing the online entrepreneur with the best of both worlds.

Third Party Services

With a third party payment service (like ClickBank, PayPal or Amazon Payments), another merchant accepts and processes a customer’s credit card, and then deposits a portion of that payment into your account or sends you a check.  Some of these services offer a full range of features from a “simple” pass-through payment to a full marketplace.  The amount of money from a  sale you might actually receive depends on the service/features you choose. For the most part, the more features a service offers, the higher the fees, as is appropriate.

It is important to understand that the third party service is the merchant of record, and the buyer is their customer, not yours.  All these services have one thing in common – they, not you (the business owner) have the direct payment relationship with the end customer.  They have the direct relationship with the credit card processor.  In addition some of the third party services have their own affiliates, others allow you to pay your affiliates through them.

These third party services have made major financial investments in software that allows them to accept payments on your behalf, manage various accounts, maintain PCI Compliance and perform their other services.  One major advantage of these third party services for developers is that they usually make it fairly easy to integrate their services into your apps.

With all the “little things” that add up with the direct merchant approach, the time and financial investment by third party payment services gives them a distinct advantage in making things easier.  In some cases, it is worth the extra fees.

Direct Merchant Relationship

What you give up when using these third party services is generally profit margin and control. This is why many developers prefer a direct merchant relationship with a credit card processor.  This can mean that the developer has to take time and effort to write the code that connects to the credit card processor, accept the  responsibility for PCI Compliance, and build in customer account management.

If your traffic and monetization strategy includes an affiliate program or other commission-based sales,  you might need to write that as well – including some kind of access to out bound payment processing. There are, of course, third-party affiliate apps available for this. However, they need to be compatible with and connected to your in bound payment processing functions.

While third party solutions can hit your profit margin all at once (some marketplaces take as much 50% off the top), direct relationships can erode your margin piecemeal if you aren’t careful. There are merchant account fees, gateway usage fees, network interchange fees, possible SaaS fees, PCI Compliance scans, server fees, possible backup fees and more; all of which can add up quickly.  However, a direct merchant relationship is still often less expensive, as third party services usually pay those costs and pass them on to you in their fee structure.

WordPress and AreteX: an Evolutionary Approach

AreteX is not a revolutionary idea … it’s an evolutionary idea. It provides you with the the freedom that comes with a direct relationship with your card processor, ACH processor, bank, customers and affiliates, as well as providing low cost access to enterprise-level software.  By using WordPress as your application framework, you can use the AreteX WordPress plugin to take advantage of this approach without a major hassle. This is similar to the advantage you get with the third party services.

Because AreteX is “Software as a Service” you get additional third party advantages. Your catalog, sales records, customer records, payment records etc. are hosted and backed up daily.  The payment server undergoes regular PCI Compliance scans.  And confidential information is stored with layered, industry standard encryption.

AreteX has a flexible set of pricing models for your application’s use, allowing you to create the feature and pricing strategy that is most appropriate to your business.

AreteX has a built in commissioned sales system that acts not only as an affiliate system, but also allows tracking and commission payments of online sales from off-line direct marketing efforts. Like many third party marketplaces, this system automatically pays the appropriate commissions at the appropriate time with direct deposit.  It is, of course, tied seamlessly to the payment receiving system.

Marketplaces have the advantage of gathering the work of several contributors who have created related products under one “umbrella”.  According to Forbes, Online Marketplaces are Booming.  AreteX provides you with tools to help you create your own marketplace.  You can invite other app builders to add features to your app or even create new apps for your marketplace, paying them automatically after a sale is made.

With AreteX, you still get the cost advantage of having a direct relationship with your merchant account providers.  (Other “developer friendly”  payment processors actually act as middle-men between you and the actual merchant processor, without you having the direct relationship. They charge every merchant the same amount, even if they would normally qualify for a lower rate.)  With AreteX you work directly with our payment processing  partners, (Vantiv and Forte) with your own merchant account at the price that is appropriate for your business.  Additionally, the Payment Gateway fee is included in the AreteX price.

Wrap Up

Application frameworks are tools and libraries that provide a structure to help developers decrease development time and increase quality of their applications.  In this series, we’ve seen that the WordPress publishing platform can be an excellent framework for developing web based applications.

We’ve seen that the WordPress core design is inherently secure. It also provides a variety of mechanisms to assist you in best-practices to keep your app secure.  Its architecture is well suited to modern design patterns, such as “model-view-controller”  with built in support for REST, AJAX and jQuery.  Finally, we’ve see that the WordPress platform lends itself well to a wide variety of monetization options.  We’ve seen how the “pluggable” nature of WordPress makes it possible for small developers to have many of the same advantages as larger development houses, when using AreteX eCommerce Services to monetize their WordPress app.

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