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App publishers are turning to a combination of in-app purchases (IAP) and ads to derive the most revenue from their users, according to a new study by AdColony.

App monetization is one of the biggest friction points app makers face, and while the global app market is expected to balloon to $102 billion in revenue by 2020, roughly 60% of developers make less than $500 each month. Finding an effective method of monetization is key to grabbing a slice of the app pie.

Combining IAP and in-app ads is likely the best bet for most app makers. Here’s why:

• Ads account for 55% of total mobile publisher revenue. Advertising revenue is comprised of three segments: video ads, display ads, and native ads.
• Video ads are the greatest contributor to the ad category, accounting for 31% of total mobile publisher revenue. Display ads make up 20% of total revenue, and native ads generate just 5% of all app revenue. Video ads are an inherently engaging ad format and have a higher conversion rate than banner or interstitial ads.
• Meanwhile, in-app purchases, which allow users to download an app for free and then later pay for additional features, are by far the single greatest individual revenue contributor, driving 39% of total publisher revenue. 

Of course, publishers and developers need to be careful that they don’t inundate their apps with ads, or they risk alienating their users. There is limited real estate on smartphone and tablet screens, which means developers need to ensure ads don’t inhibit the user experience. A bad experience could be compounded by irrelevant ads, or a high volume of Interstitials. Reward-based ads can help developers get around this by making their ads relevant and useful, while also providing an effective monetization model. Eighty-seven percent of publishers surveyed by AdColony believe rewarded video ad placements offer a positive experience for users.