In-app purchases (IAPs) are the primary monetization strategy for many free-to-play gaming apps. IAPs offer significant revenue generation at a low cost, both in terms of resources and player experience. But relying solely, or even mostly, on IAPs has trade-offs that could affect the long-term success of your game.That’s why Unity’s Game Design & Revenue Consultancy team recommends adopting a hybrid approach to monetization - using a mixed model of IAPs, system-initiated ads, and user-initiated ads. In their recent live webinar, the team shared the reasoning behind this recommendation, as well as actionable ways to plan and implement hybrid monetization in your game without disrupting the player experience.Watch the webinar here or keep reading for the highlights.Current challenges of IAP monetizationFor many mobile free-to-play games, IAP reliant strategies can have significant drawbacks, including:Limited player spend: The vast majority of players will never make a purchase in a mobile game, leaving conversion rates low — only 1-3% of daily active users engage in IAPs [Source: 2024 Mobile Growth and Monetization Report. Unity, 2024].Dependence on high spenders: A small percentage of players contribute the majority of revenue, creating financial risk if high spenders disengage. Overemphasis on monetization can alienate non-paying players and lead to retention problems.Market saturation: Game genres are becoming increasingly crowded, and players expect premium quality without paywalls. High user acquisition costs further exacerbate this issue.The case for hybrid monetizationIncluding ads in a game's monetization strategy opens up new opportunities and offers unique benefits, both for developers and the player community. Hybrid models often center on non-intrusive, player-friendly ad formats such as rewarded ads and offerwalls. Many also include system-initated ads like interstitials after careful implementation and testing. The Unity Game Design & Revenue Consultany recommends first implementing rewarded ads before looking to include system-initatied ads. The benefits to players of rewarded ads:Rewarded ads are opt-in ad placements, offering players to exchange a short amount of time spent watching an ad (30 seconds to 1 minute) for in-game rewards, like power-ups, extra lives, or bonus levels. Similarly, offerwalls are also opt-in but instead of exchanging time for rewards, players take actions (like beating a specific level in a game) to unlock rewards.These formats allow non-spenders to access content they otherwise wouldn’t experience, including paid content, and allow players to progress further in-game than they would have. The fact that they’re opt-in enables these placements to be impactful for monetization, while at the same time keeping the player experience undisturbed.The benefits to developers of rewarded ads:These ad formats also offer major benefits to developers, opening potential new revenue opportunities and enabling game developers to generate revenue potential while minimizing dependence on IAP. Moreover, they often incentivize players to engage more and deeper with a game - increasing return sessions, daily logins, and exploration of in-game IAP stores.Designing a player-friendly ad strategy that includes system-initiated adsA successful hybrid monetization plan relies on carefully integrated ads that protect the player experience. Developers should focus on maintaining game balance by managing reward structures in rewarded ads to avoid pay-to-win scenarios and prevent player churn. For system-initated ads, ads should also complement, not interrupt, the existing core gameplay loop. Disruptive ad placements and overexposure can lead to negative player experiences, and therefore churn. Unity networks use features like viewing caps for ads and mid-session placements to help ensure ads don’t interfere with immersion. Unity also offers in-depth analytics to help developers refine ad strategies to align with specific player preferences and behaviors. Use them in conjunction with continuous testing to optimize your ad placements and implementation.Roadmap to implementationThere are 3 key phases to successfully transitioning from an IAP model to hybrid monetization.Phase 1: Player segmentation The initial step involves identifying different player segments, such as whales (high spenders), minnows (occasional spenders), and non-spenders, to create tailored ad experiences for each group. For non-spenders, a best practice is to first introduce them to rewarded ads, which highlight the game's value and serve as an incentive for potential future purchases, before implementing interstitial or banner ads.Phase 2: Pilot testingAfter defining player segments, small-scale controlled tests are conducted to assess the impact of ad placements. For example, this may involve limiting the testing scope to specific regions or targeting around 5-10% of the player base. Various ad formats, including rewarded ads, interstitials, banners, and offerwalls, are tested to understand their effectiveness. Metrics such as ARPDAU and retention rates are compared between test groups and control groups to evaluate how different ad implementations affect player engagement and revenue.Phase 3: Iteration and optimizationOnce initial testing is complete, ad placements, pacing, and reward structures are refined using insights derived from analytics. Adjustments are made to balance ad frequency and player retention, ensuring that player satisfaction does not decline. To avoid cannibalizing IAP revenue, reward values are carefully calibrated. A/B testing is used consistently to track player engagement, ad performance, and eCPM, ensuring a steady optimization of both gameplay experience and revenue generation.Get the hybrid monetization advantageHybrid monetization represents a more sustainable, and often profitable, game monetization strategy. By complementing IAPs with player-friendly ad strategies, developers can both diversify their revenue streams and enhance player experiences. The key lies in striking a careful balance, integrating ads seamlessly into gameplay, and refining ad placement and frequency through testing and data analysis.Hybrid monetization not only addresses the challenges of IAP reliance but also creates a win-win scenario for developers and players alike.Get more from Unity Game Design & Revenue ConsultancyFollow Unity Grow on LinkedIn for more expertise and case studies from our leading game design consultants. Interested in working with the team? Reach out to your Unity account manager to find out how our experts can help you.