Short and long term effects – We need to go through a learning curve
The free – purely ad funded service is very attractive from as capex is minimal, and take-up rates can be much better than in the other cases. From an opex perspective, this is most costly, and if you are footing operating costs, you cannot tell beforehand if you are ever going to break even.
You can only tell if it is a financially sound business once there is a few months’ worth of data about growth and average ad revenue. In the long run, this is probably the model that we all will be forced to adopt when the mobile advertising industry matures, but that is still a few years away. Also, as capex is minimal, there might not be enough commitment from your partners to promote the service. If you start out with this, there will be very little room for you to manoeuvre.
Even though the Freemium service also sports good take-up rates, it is probably not a viable option as it requires the same infrastructure, but only offers the full service portfolio to a small proportion of the users. As a result, ongoing costs are still the same but revenue sources only look marginally better than with the completely free version.
Subscription-based service: the subscription fee has a negative impact on the takeup rates, but provided that the fees are flat-rate, you know the model works. It is already generating revenue for many mobile businesses. An ad-serving platform integrated with various delivery channels from SMS to Android apps can give you a tool to increase profit margins and competitiveness. A subscription fee will also help you promote the user-base as a premium-worthy target towards advertisers, as subscription fees filter out those who only use the service because it is free. This can help you push more towards the easy-paying CPM model.