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How Do Free Apps Make Money?

  • 31.01.2017
  • Apps,Tips

Do you know that most of the apps which come labelled as ‘free’ actually earn millions for their developers? The trick behind this is the pricing strategy they employ! This lands us in a conundrum wherein we have difficulty in discerning the meaning of ‘free apps’.

Let’s move on to comprehend the meaning of free apps and how do they make money.

Are Free Apps Really Free?

Reaping profits is the crucial motive behind many app development projects. Paid apps (charging upfront for the apps) do not usually receive an exciting response from potential users. This is mainly because users are reluctant to part with even a meagre amount of money. In order to side-step this stigma towards paid apps, app entrepreneurs resort to labeling their app as ‘free apps’.

Most of the top grossing apps in both Google Play and Apple App Store are free apps. Clash of Clans, Tinder, Ball Pool, Angry Birds, Temple Run, Pandora, etc. are some of the top grossing apps that are free to download.

We need to understand that the term ‘free’ here in the realm of mobile apps does not suggest the traditional meaning. It does not simply mean “services/products (here, apps) are given away with no expectation of payment”. ‘Free apps’ are not essentially free, as conceived on the first look. It just implies a type of pricing strategy followed in the mobile application market. If an app is ‘free’, it just denotes that some features are free, while some specific elements embedded in the app could be charged to help reaping returns for the developer.

How Do Free Apps Earn Big Bucks?

It is true that free apps do not cost anything to download. But the ‘free’ pricing strategy ensures that appreneurs can recoup their expenses and earn profits by adopting some tested monetisation strategies. Let’s have a quick look at some of these pricing strategies to have clear insights on how yo can model a good pricing strategy for your free apps to earn money.

Please note that the Web Network blog, 10 Top Tips to Monetise Your App Effectively will guide you through a range of popular monetisation strategies to turn your app into a revenue churning tool.

1. Freemium Apps with In-app Purchases

Freemium, a combination of ‘free’ and ‘premium’, is a cleverly formulated pricing scheme. Here you have to pay for the premium features; though downloading the basic app itself is free. Apps with freemium business model require users to pay a certain amount to access additional functionalities. There are free apps that make use of freemium pricing strategy in a large scale. They have higher gross earnings in both Apple app store and Google Play Store. Freemium aspect is incorporated in apps mainly by way of in-app purchases.

In-app purchase is a type of freemium strategy that provides non-compulsory paid features within the app. It may include in-app purchases of premium upgrades, or/and in-app purchases of consumable goods, or/and in-app subscription.

a. Apps with in-app premium upgrades

Users can pay money within the app to access premium features in productivity applications (example:  additional filters in a photo app). These in-app purchases of upgrades are non-recurring in nature. They let the users continue to use what they purchase. These are non-consumable features that do not deplete or expire.

Popular freemium apps with in-app premium upgrades include Dropbox, Spotify, Slack, Calcbot, 1Password, Evernote, Apple Music, LinkedIn, Buffer, and a host of other useful apps.

b. Apps with in-app consumable goods

Developers may charge for extra lives, levels, gear, and items to move forward in the game. These in-game boosts are in-app purchases of consumables. They can be used only once, and can be purchased again.

Clash of Clans, Candy Crush Saga etc. are gross earning gaming apps that make use of this type of freemium pricing strategy effectively.

c. Apps with In-app subscription

Subscriptions (or Pay Walls) are a type of freemium pricing model, which require users to pay a recurring amount in order to access premium features or exclusive content during a certain time. The payment is within the app, and will be on a monthly or yearly basis. This pricing or monetisation strategy is appropriate in content-driven apps.

Newspaper/magazine apps and other content-rich apps require users to pay before proceeding to use the product, or read content. Users will be allowed to have access to a certain amount or type of content. It’s like a free trial period, and after which subscription is required. Music and entertainment apps can also make use of this auto-renewable subscription strategy.

Pandora, an Internet radio app, allows users to get ad-free and unlimited hours of music by paying subscription. YouTube, the renowned free video streaming service, offers a premium layer, called YouTube Red, through subscription. It provides ad-free experience plus exclusive content.

Word of Caution

But making money is not a cakewalk in freemium strategy. The ‘lite’ or free version of the app needs to be impressive enough to induce users to pay for the premium features. The app should be super-engaging so that users would feel the buying process as a natural phenomenon. Most of the blockbuster game apps are addictive, and hence, users are willing to spend as they are assured about enhanced game experience.

2. In-App Advertising

In-app advertising is another popular revenue generating scheme of app entrepreneurs. In this model, the app will be free to download, but ads will be incorporated in an aesthetic manner. Here, revenue is generated from user click-throughs and impressions.There are different mobile ad networks that are proficient in placing the right ads in the app at the right place. There are a range of ad variety models and formats that can be used in in-app advertising. Metrics such as daily active users, average user session etc. can be tracked to analyse the performance of each ads.

9 Best Tips to Choose the Right Mobile Ad Network will give more interesting insights on choosing the right one.

In-app ads are criticised for acting as intruding or distraction factors in an engaging app experience. Many users dislike commercial offerings generated within the app. There are many apps that mix freemium and advertising models effectively. Pandora’s personalized radio service is an example for this.

Before finalizing on a revenue strategy, you need to ensure the objective of your app. If the main purpose of the mobile app is brand boosting, it is better to avoid in-app purchases and ads.

Summing Up

These pricing strategies are successfully implemented in many popular ‘free’ apps. They help in relinquishing the initial price tag that works as a great turn off for majority of target users.

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