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It seems like everyone has been talking about Lensa AI this week, but a less obvious point of this AI-enabled chart topper caught my attention: its hybrid pricing. Could it be an example of a new path that more developers will follow? Let’s explore. — Anna
Black Friday(s)
App pricing has long been a point of contention between Apple and developers. “Staunch Apple critics, like Spotify for example, have argued for years that the lack of pricing flexibility hinders their business,” TechCrunch’s Sarah Perez reported.
Apple seems to have taken complaints into account: This week, the Cupertino firm announced that its App Store pricing system will progressively enable more price points and will allow developers to “set prices for apps, in-app purchases or subscriptions as low as $0.29 or as high as $10,000, and in rounded endings (like $1.00) instead of just $0.99.”
The demand for more pricing flexibility is a consequence of another trend: A shift from paid app downloads to subscription-based models that may require more granularity to optimize revenue. But some developers haven’t waited for Apple’s decision to come up with hybrid pricing models — those combining subscription economics and other types of monetization — that could soon become the norm.
Prisma Labs’ Lensa AI, known for making “magic avatars,” is one of these apps that adopted a hybrid pricing model. Per a screenshot shared on Twitter by mobile growth consultant Thomas Petit, the viral app offers a discount on in-app purchases to its subscribers.
It goes like this: After a seven-day free trial, during which in-app purchases are already being offered, a subscription is mandatory to keep on using Lensa AI. The exact amount varies per country; in my case, I would have to shell out €36.99 a year. But if I do, I will supposedly get “50% off on magic avatars,” which are sold in packs.
Lensa AI isn’t the first or only app to combine subscriptions and discounted in-app purchases. For instance, mobile subscriptions expert Nick Maidanov told me that he practiced this type of hybrid monetization with his fitness app Welps.
Maidanov, who’s now also working for mobile subscription management platform Adapty, explained how Welps’ approach works:
There are regular (quarterly) fitness events called marathons, which are limited in time. The standard payment for participation is around $70, but there is a discount for the subscribers. From my own experience, one-time purchases like that can really boost revenue. I would compare the effect to promotions like Black Friday.
Unlike Black Friday, though, these promotions can happen several times a year, and that’s also Maidanov’s recommendation: Offer the possibility to opt into these one-time payments multiple times. “Either make it expire (like a fitness event) or tie it to some package, like avatars in Lensa.”
The startup category to which Adapty belongs — mobile subscription management platforms — has a key role to play here. Its competitor RevenueCat rolled out a feature called “Experiments” that will allow developers to A/B test different price points for their app subscriptions — and was announced right on the heels of Apple’s announcement.
It makes sense that there are startups helping app developers test and iterate all of the options that will maximize revenue: Subscriptions have taken over, but they have limitations. If app owners don’t want to leave money on the table, they may want to seriously consider hybrid pricing.
High floors, low ceilings and whales
When he shared Lensa AI’s pricing screenshot, Petit had expressed his enthusiasm for hybrid pricing models, so I asked him to expand. Here’s what he said:
The reason I’m so bullish on “hybrid models” is because of the “high floor, low ceiling” of subscriptions models.
“High floor” means that more than in most cases, 90+% of users won’t become paid subscribers. Not monetizing 95% to 99% of users is an issue; and to give people an incentive to become paying users, the free experience is often degraded.
“Low ceiling” means that everyone pretty much pays the same price, when there’s actually a fraction of users who could be upsold at a higher price point, or be sold adjacent products/services.
Games have been successful because they breached this, offering ads to non-payers, low-price in-app purchases to casual payers, and in-app purchases to “whales,” monetizing each bracket to their maximum.
If game developers are good at optimizing monetization, it’s in part because games are often fads that come and go. Hype is also a big factor in Lensa AI’s rise, which may explain its parent company’s attempt to upsell its users further in an environment where subscriptions are the norm.
“The rise of Lensa shows us primarily that SaaS has become the standard, and that a license-based model for a quality software product would almost seem odd by now,” Wingback CEO Torben Friehe told TechCrunch.
Lensa’s makers have to deal with several factors: the seemingly inescapable rise of subscriptions, as well as computation costs and uncertainty about whether it will survive the hype.
Some might say that Lensa AI being another fad wouldn’t necessarily be a bad thing, considering the red flags it raises for artists or mounting doubts about its ability to prevent users from generating nonconsensual soft porn. But its hybrid pricing isn’t just about maximizing revenue in the short-term: There are also lessons to be learned for developers whose apps are less viral.
“I think in the future, we’ll see more and more apps enhancing monetization like this because it’s an excellent way to upsell something to your loyal customers and increase lifetime value,” Maidanov said.
It is also worth keeping in mind that hybrid models are, well, hybrid — and in-app purchases are only one of several options. “Combining subscriptions with ads (ex: Duolingo), in-app purchases (ex: Lensa), e-commerce (ex: Fishbrain), affiliate links and more enables developers to break both [the high floor and low ceiling] limitations,” Petit said.
There won’t be any one-size-fits-all answer, but this brings us back to a point we made recently: Now is a particularly good time for companies to think hard about the pricing model that will work for them. As for us, we will keep an eye out to see what new models developers come up with — and what Apple will be willing to allow.