Over the past two decades, mobile apps have become integral to our lives. Mobile apps offer a wide array of applications, allowing users to seamlessly share ideas, make purchases, monitor health, and access entertainment. The growth of the mobile app ecosystem benefits mobile app users but makes it harder for mobile app developers, particularly indie developers, to scale and succeed in a crowded market.
Most developers lack access to the marketing, monetization, and data analytics tools required to stand out among the more than 4.8 million mobile apps available on the Apple App Store and Google Play Store or attract sufficient numbers of mobile app users to create and sustain a successful long-term business.
SensorTower estimates that 80% of all mobile app downloads were generated by 1% of the developers across the Apple App Store and Google Play Store, Underscoring how difficult it is to create a successful mobile app.
Today’s app developer journey has three key steps – make, market, and monetize. The ‘make’ step has never been more straightforward, but developers still face key challenges in marketing and monetizing their apps. The marketing and monetization challenges mobile app developers face are particularly acute for developers of mobile games, which is one of the largest and fastest-growing segments within the mobile app ecosystem.
AppLovin is on a mission and has built a business model to grow the mobile app ecosystem by enabling the success of mobile app developers. In this strategy story, we decided to analyze the business model of AppLovin and understand how does it work and make money. What does AppLovin do?
What is AppLovin? How does AppLovin work?
Founded in 2012, AppLovin is a mobile technology company headquartered in Palo Alto, California. AppLovin enables developers of all sizes to market, monetize, analyze and publish their apps through its mobile advertising, marketing, and analytics platforms MAX, AppDiscovery, and SparkLabs.
AppLovin plays a role in the success of mobile app developers, particularly mobile game developers, solving key marketing and monetization challenges. Through the technologies and scaled distribution, developers can manage, optimize, and analyze their marketing investments, and improve the monetization of their apps.
The key elements of AppLovin’s solutions are delivered through the AppLovin Core Technologies and AppLovin Software Platform:
AppLovin Core Technologies: AppLovin’s foundational technology infrastructure powers its Software Platform and, in turn, Apps. AppLovin’s Core Technologies consist of its AXON machine-learning recommendation engine, App Graph, and an elastic cloud infrastructure.
AppLovin Software Platform:
A comprehensive suite of tools for developers to get their mobile apps discovered and downloaded by the right users, optimize return on marketing spend, and maximize engagement monetization. AppLovin’s Software Platform comprises three solutions:
- AppDiscovery, AppLovin’s marketing software solution, is the cornerstone of its Software Platform, augmented by the MAX monetization solution. AppDiscovery is powered by AXON and provides the technology to match advertiser demand with publisher supply through auctions at vast scale and microsecond-level speeds.
- Adjust is AppLovin’s SaaS mobile marketing platform, allowing marketers to make smarter decisions through measurement, attribution, and fraud prevention.
- MAX utilizes an advanced in-app bidding technology that optimizes the value of a developer’s advertising inventory by running a real-time competitive auction, driving more competition and higher returns for publishers.
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AppLovin Apps
In 2018, given an opportunity to scale AppLovin’s own apps using AppLovin’s Software Platform, insights, and expertise in the mobile app ecosystem, AppLovin launched its first-party content strategy, AppLovin Apps.
Today, AppLovin’s Apps consist of a globally diversified portfolio of over 350 free-to-play mobile games across five genres, run by nineteen studios, including studios that AppLovin owns and Partner Studios. AppLovin’s Apps provide data and insights users play games, thus improving AppLovin’s App Graph and AXON recommendation engine.
AppLovin’s Strategic Flywheel
The mutually reinforcing combination of AppLovin’s Software Platform’s scaled distribution, AppLovin’s App’s first-party content, and AppLovin’s Core Technologies’recommendation engine create a powerful flywheel effect that enhances each component and importantly improves AppLovin’s overall strategic position and capabilities.
As AppLovin’s Software Platform improves and can deliver more effective ads to more relevant users, more developers use and integrate their apps with AppLovin’s Software Platform, growing AppLovin’s scaled distribution. This grows the number of users and level of engagement with AppLovin’s Apps and third-party apps.
With more users engaged with AppLovin’s Software Platform and AppLovin’s Apps, AppLovin’s App Graph gains more insights and data. The enhanced App Graph feeds AppLovin’s Core Technologies, including AppLovin’s AXON machine-learning recommendation engine, improving its insights and matching capabilities.
As the insights generated by AXON improve, the effectiveness of AppLovin’s Software Platform is enhanced in real-time. Improvements to AppLovin’s Software Platform lead to more developer demand, restarting the virtuous cycle of AppLovin’s strategic flywheel.
How does AppLovin make money? What is the business model of AppLovin?
Value Proposition
Reach and attract users at scale: AppLovin’s Software enables developers to target and find the right users for their apps worldwide. Developers are able to set their user acquisition and revenue goals to target the most relevant, highest-value users.
Maximize monetization of engagement: Developers use AppLovin’s Software to generate incremental revenue by maximizing the monetization of their mobile app ad inventory.
Leverage proprietary data and insights: Developers benefit from accessing comprehensive real-time insights through AppLovin’s customized user dashboards, helping them optimize campaigns, improve user engagement, and manage their return on investment.
Automate time-consuming and manual processes: AppLovin’s Software automates marketing and monetization, allowing developers to focus on improving their apps rather than managing complex go-to-market processes manually.
How does AppLovin make money: revenue model
AppLovin made $3.2 billion in 2023. The business model of AppLovin makes money from business clients, comprised of Business—Software Platform and Business—Apps revenue (collectively, “Business Revenue”) and consumers. In 2021, Business Revenue represented 48% of total revenue, and Consumer Revenue represented 52% of total revenue.
Business Revenue
In Business—Software Platform, AppLovin makes money from fees paid by mobile app advertisers or business clients that use its Software Platform to grow and monetize their apps. AppLovin also collects Business—Apps revenue from clients who purchase the digital advertising inventory of AppLovin’s portfolio of Apps.
Business—Software Platform
Clients include a wide variety of advertisers and publishers, from indie developer studios to some of the largest global internet platforms, such as Facebook and Google.
AppLovin’s Software Platform includes AppDiscovery, Adjust, and MAX.
- Business clients use AppDiscovery to automate, optimize, and manage user acquisition investments. They set marketing and user growth goals, and AppDiscovery optimizes their ad spending to achieve their return on advertising spend targets and other marketing objectives.
- Business clients use Adjust’s SaaS mobile marketing platform to understand their users’ journey better while allowing marketers to make smarter decisions through measurement, attribution, and fraud prevention. Revenue from Adjust is primarily generated from an annual software subscription fee.
- Business clients use MAX to optimize purchases of app ad inventory. Revenue from MAX is generated based on a percentage of client spend.
Business- Apps
AppLovin’s Business—Apps revenue clients purchase advertising inventory from AppLovin’s Apps and can target highly relevant users from AppLovin’s diverse and global portfolio of mobile games. AppLovin’s clients leverage a broad set of high-performing mobile ad formats, including playable and rewarded video. They can match these ads with relevant users resulting in a better return on their advertising spend.
By increasing the number of users and their engagement, as well as better matching ads with the appropriate target audience, AppLovin is able to increase AppLovin’s revenue from business clients that purchase advertising inventory from AppLovin’s Apps.
Revenue from business clients related to AppLovin’s Apps is generated from ads purchased by advertisers, as well as from revenue-sharing agreements between some of AppLovin’s studios and a selection of third-party studios for which they publish and monetize games.
Consumer Revenue
In Consumer Revenue, AppLovin makes money when a user of one of AppLovin’s Apps makes an in-app purchase (IAP). AppLovin’s Apps are generally free-to-play mobile games and generate Consumer Revenue through IAPs.
IAPs consist of virtual goods used to enhance gameplay, accelerate access to certain features or levels, and augment other mobile game progression opportunities for the user. IAPs drive more engagement and better economics from AppLovin’s Apps.
As of 2021, AppLovin had an average of 3.0 million Monthly Active Payers (MAPs) across AppLovin’s portfolio of Apps. Over that period, AppLovin had an Average Revenue Per Monthly Active Payer (ARPMAP) of $43.