Comparing three app revenue models: IAP vs IPP vs Hybrid

Introduction: Why knowing your ideal app revenue model matters?

Today’s mobile app landscape is more complex than ever, as businesses and app publishers’ success is affected by various factors. 

• Rising costs for user acquisition
• Increasing market saturation 
• Evolving privacy regulations

To navigate these changes, app publishers need a suitable app revenue model that will both maximize yield and ensure brand safety and satisfaction. 

In this article, we compare the three prominent models for app monetization: In-app purchase (IAP), in-app advertising (IAA), and hybrid. This analysis helps app publishers evaluate which model best supports their revenue objectives, audience behavior, and long-term growth strategy.

Understanding app revenue and in-app monetization

For a comprehensive breakdown of in-app monetization, check out our overarching guide here: Link

What is app revenue? 

App revenue refers to the income generated directly from user interactions within a mobile application. For app publishers, app revenue represents how effectively an app converts usage and engagement into financial returns.

Unlike many other digital products, app revenue is not usually driven by a single monetization stream. Instead, it tends to leverage multiple sources of revenue to achieve long-term growth. 

Key metrics associated with app revenue

There are several core metrics that are tied to measuring app revenue, as they reflect both user engagement and monetization efficiency.

• Average Revenue Per User (ARPU): ARPU measures the average app revenue generated per active user over a specific period. It helps publishers understand overall monetization efficiency across both in-app purchase and in-app advertising.
• Lifetime Value (LTV): LTV represents the total app revenue a user is expected to generate over their entire lifetime in the app. It reflects long-term monetization potential driven by retention and engagement.
• Retention Rate: Retention rate shows the percentage of users who return to the app after a defined time period. Higher retention directly increases opportunities for repeat in-app purchases and ongoing ad monetization.
• Effective Cost Per Mille (eCPM): eCPM indicates the revenue earned per 1,000 ad impressions. It is used to evaluate the performance and value of in-app advertising inventory.
• Fill Rate: Fill rate measures how many ad requests are successfully filled with ads. A higher fill rate indicates stronger demand and fewer missed app revenue opportunities.
• Ad Impressions: Ad impressions refer to the total number of times ads are shown to users within the app. This metric reflects the scale of in-app advertising and directly impacts ad-driven app revenue.

Comparing IAA vs IAP vs Hybrid

In-app advertising

What is in-app advertising (IAA)?

In-app advertising (IAA) generates app revenue by displaying ads within the app experience. Common IAA formats include rewarded video ads, interstitial ads, and native or banner ads – each offering different levels of visibility and user interaction.

IAA monetizes user attention through ad impressions, so in this case, app revenue is closely tied to user scale, traffic volume, and session frequency. With IAA, higher user activity increases ad inventory and overall revenue potential.

What are the pros of IAA? 

• Broad user monetization potential: IAP captures revenue from nearly all users, hence has a much broader reach. It is especially ideal for apps that have massive downloads, such as hyper-casual and casual games, utility, social, news and lifestyle app.
• Predictable and scalable growth: Relies on CPM-based earnings from ad networks, with higher engagement (e.g., 0.58% CTR vs. 0.23% for web ads) and precise targeting by demographics or behavior.
• ​Low entry barrier: Enables quick revenue for free apps without complex payment systems, boosting retention via rewarded formats.

What are the limitations of IAA?

• Risks of poor user experience: Saturated ad display can cause ad fatigue and disrupt experiences, which may prompt uninstalls and lower retention rates. 
• Instability in growth due to external factors: IAA is vulnerable to fluctuations from ad network policies. It also depends quite heavily on user volume and engagement.

Which apps would best benefit from IAA? 

In-app advertising is well suited for casual and hyper-casual games, utility and tool-based apps, and other products that prioritize user volume over deep engagement.

In-app purchase (IAP)

What is in-app purchase (IAP)?

In-app purchase (IAP) is a monetization method that generates app revenue by allowing users to pay directly for digital goods, features, or ongoing access within an app. Common IAP formats include consumable purchases, such as virtual currency, non-consumable purchases, such as permanent feature unlocks, and subscriptions, which provide recurring access to premium content or services.

What are the pros of IAP?

• Easier user acquisition: With IAP, publishers can create apps with lower entry barriers to attract downloads, before building loyalty through optional enhancements like premium features in games.
• Higher revenue potential: IAP can target specifically “whales” (high-spending users) for strong ARPU while enabling ongoing monetization via subscriptions or consumables.
• Seamless payments: This model integrates easily with app stores for frictionless transactions.

What are the limitations of IAP?

• Development complexity: IAP requires extra backend coding for storefronts, entitlements, and purchase tracking. For a small team, this means increased workload which may strain their resources. 
• App store fees: Platforms like Apple Store and Google Play take 15-30% commissions on every transaction. While this ensures seamless and easy payment, it can potentially cut down on  profit margin. 
• Low conversion and backlash risk: Up to 95% of app users decide against making in-app purchases. This means app publishers must have a large user base in order to make sufficient profit.

What app categories will most likely benefit from IAP?

In-app purchase performs best in mid-core and hard-core mobile games, content and creator platforms, and apps with strong long-term engagement loops that justify premium spending.

Hybrid in-app monetization

What is hybrid in-app monetization?

Hybrid monetization integrates in-app advertising (IAA) with non-ad revenue like in-app purchases (IAPs) or subscriptions, often in freemium apps. Publishers use mediation SDKs to optimize ad placements while gating premium features behind payments, which helps them balance user experience with profitability. It caters to non-paying users via ads and payers via direct transactions. 

What are some prominent examples of hybrid in-app monetization?

• Mobile games like Candy Crush offer rewarded video ads for free boosts. In addition, they also offer purchases of in-app currencies that can convert to other privileges, such as ad removal. 
• Streaming apps such as YouTube provide ad-supported free viewing with optional Premium subscriptions for ad-free access and extras.
• Productivity tools like Duolingo combine free lessons with ads. They also adopt IAP via “streak repair”

What are the pros of hybrid monetization?

• Diversified revenue sources: The hybrid model allows for various income streams, so it can help mitigate risks from market shifts or in case one model fails. 
• Broader reach: It captures value from all users from non-payers (via ads) to paying customers (via purchases).
• Enhanced retention: By providing multiple engagement paths (for example: rewarded videos coupled with premium upgrades), this method can keep users engaged and loyal. 

What are the cons of hybrid monetization?

• Complexity: Streamlined and effective hybrid monetization can be challenging to achieve as it requires various tactics to balance revenue with UX – including segmentation, A/B testing, and analytics. 
• Dependency on external factors: Due to its hybrid nature, this method can be influenced by both ad networks and app store policies. Therefore, it can be much tricker to navigate. 
• Risk of over-monetization: If poorly designed, combining ads and purchases may overwhelm users and negatively impact retention. 

What app categories will most likely benefit from the hybrid model?

Hybrid monetization benefits apps and games with large free user bases, gamified elements, and diverse engagement patterns. These apps allow for monetization of both casual viewers and high-value spenders. 

• Gaming apps: The hybrid model will best suit casual and hyper casual games, such as puzzle and simulation. 
• Non-gaming apps: It is ideal for fintech, shopping/e-commerce, and health & fitness apps with gamification – such as progress trackers or rewards. In addition, lifestyle and food delivery apps can leverage this model to target diverse users via hybrid streams like affiliate ads and one-time purchases

Conclusion

All three models offer distinct advantages and trade-offs depending on user behavior, engagement depth, and business goals. Understanding these differences is essential for app publishers who want to build sustainable app revenue in a competitive and evolving market.

If you’re ready to elevate your monetization game, drop a message for Geniee via the form below!