How do Free apps make Money?

Everyone wants to hear a story of success about how someone has earned million dollars. Because everybody else also wants.

Disputes over what apps make money faster are growing warm. What monetization strategy to choose? To create either a paid or a free app?

It sounds like nonsense, however almost 93% of top grossing apps are actually free to download. But that doesn’t mean they can’t prove beneficial. In a marketplace where mobile users are not ready to spend even 1$ for an amazing app, creating free is a smart idea.

So here comes a fair question: how can free apps generate profit and stay in business? or how to create an app for free and make money?

Below is a diagram showing worldwide developer revenue depended on monetization strategy.

Worldwide developer revenue depended on monetization strategy
Worldwide developer revenue depended on monetization strategy
Source:  Statista

If you are currently in a position where you have an idea to develop a free app, here are some suggestions that will make it easier for you to grasp a smart app monetary strategy.

FREEMIUM

One of the most accepted models that proved to be profitable. Software developers launch two versions. The free app displays basic features, whereas the paid version offers advanced functions. Numerous free apps are demo versions. The main idea is that the user gets a trial app, which shows what you can have. It’s a hook that will bring a beneficial result prompting to download full version of free app. Firstly, the client must be given a strong reason to buy the software.

Freemium benefit depends on high-quality product and clear profits. This model perfectly suits mobile games and marketing solutions. Basically, it is a powerful marketing approach, where the free app advertises the premium one. So the advantages are:

  • It is the best and most popular way to make money from your iPhone app.
  • A freemium model is more than capable of providing you with money.

However there are still some flaws in it from a developer perspective.

The main disadvantages are:

  • Only a small percentage of users will buy the premium version.
  • Freemium content can often affect the quality of the game itself

GMaps and GMaps Pro are two popular map applications based on Google Maps service. The first one is freemium and the second is premium one that offers advanced features.

IN-APP PURCHASES

A few years ago, this option was implemented by Apple and is rapidly gaining ground. Due to the fact that your app is still free in the App Store, so that you have extra downloads. Developers built two apps.  If the user is not satisfied with the basic version, the efficiency of apps performance can be improved by payments. The focus here is to develop a really enthralling app with a numerous in-app purchase options. For example, some mobile games can provide the user with extra additional functions and different profile upgrades. Gamers can play almost all of the games without paying anything, but usually there are restrictions, which are created to limit progress for free players. However, this approach can also be implemented by non-gaming developers. The success of that strategy depends on real value and addiction. App Store takes a percentage of the revenue from each in-app purchase.

In-App Purchases Pros are:

  1. One of the major benefits of in-app purchasing is just how easy it is to do.
  2. Second benefit is that it gives you an opportunity to increase your conversion rate by offering up enticing additional content for your price.

In-App Purchases Cons are:

  1. The drawback here is that the latter strategy requires much more development work, so will increase the cost of your app. Please keep that in mind.
  2. Some people will not install your app when they see that the app is not completely free.

Example

In 2015 Rovio generated over $ 170 million in profit.  The game Angry Birds provides a trial version with a limited number of levels and charges players who want to fascinate their birds or move to another level.

 

IN-APP ADVERTISING MODEL

In-app advertising is the most simple way to get profit from your app. It comes in different sizes, installations and positions in application. Profitable advertising is built upon effective cooperation with ad networks and smart ad placing. The profit you generate from in-app advertising is founded on long-established advertising rules. To employ an advertising team definitely won’t be the best solution. Vendors cooperate with iAd / InMobi / AdMob and place advertising in their apps. These networks help them to start generating profit almost immediately, getting revenue from both clicks and effects. In-app advertising can profit differently. It depends on numerous aspects, including ad format (static ads are not so good as videos, which tend to work better), impressions, total downloads, which countries the users are from.

Android applications have a smaller CPM rate (Cost per thousand impressions). Due to that these applications generate less profit.

In fact, there are only two approaches to gain benefit from in-app advertising. The first one is based on clicks and impressions. In 2014 Facebook successfully enhanced advertising income by 151% with a help of well-targeted promotion. But small companies usually get less traffic and downloads, and after all may receive only 2.00$ per day. Actually sometimes advertising can disaffect users, so some app owners submit the paid option, so that you can easily remove ads.

The advantages are:

  • You have your thrilled and targeted audience.
  • You aim to have bigger results.

The disadvantages of this approach are:

  • In reality it won’t provide you with more profit, particularly with Android apps.
  • Engagement with banner ads is low in app advertising.
  • Engagement with video ads is shrinking.

COST PER INSTALL NETWORKS (CPI) MODEL

CPI is a totally new way of mobile app promotion. You can advertise with the third parties, paying every time your app is actually installed, thus this method is called “Cost per install”. The profit scheme is similar to advertising, but you don’t pay for impressions or clicks, just for downloads. You have an opportunity to work with top performing publishers. The average fee varies from 0.90$ to 3.00$. Although CPI strategy is recent, developers find it very affordable and promising. High CPI rates depend on perfect pop-ups and related apps. The trick is that at the finish of app session users are suggested to install another application for a special price via pop-ups. CPI method has become a core area of focus for major media communities. To date this is a very promising approach and we cannot deny its potential capacity.

The most promising CPI are Playhaven and Chartboost platforms. They are third parties that integrate their software development into your app.

The advantages are:

  • You can get to a higher ranking in the different app markets.
  • Lifetime value means profit for a longer period of time.
  • You can be both an advertiser and a publisher.

Disadvantages include:

  • The cost.
  • Limited control over traffic.
  • Limited user behavior tracking.

GETTING APP SPONSORSHIP

Sponsorship is also one of the strategies to generate profit from your app. Sponsors have been the driving force in sales process since the marketing industry came into existence. The very core of the approach is that App Developers having sufficient rates promote big-name companies in their apps to receive money clicks-through. The more famous their name is, the more elevation and promotion your brand get. If your specific app is designed for a particular group of people, your business partner might sponsor it in the perspective to obtain new users across to your audience. To make a bargain you need contacts, however sponsorship provides much more benefit than is run-of-site advertising. For an exceptional share of voice, a respectable sponsor should be eager to spend more than just the advertising rate on individual advert breaks. Be ready to provide a particular sponsored content for your app.

For example

an application for runners and sportsmen could get sponsorship from Adidas or Nike.

The pros are:

  • Brand enhancement
  • Access to niche markets
  • Cost effective

The cons are:

  • Lack of control
  • Negative image association

RESEARCH YOUR APP MARKET

Do your own research. Analyze your market opponents and examine apps to find what monetization opportunities are skipped. Try to figure out what you can improve in competitors apps to strengthen your monetization strategy. Giving special attention to consideration of what your users want is as essential as an opponent research in app development. Especially this is effective when it comes to arranging a mobile monetization approach. It is very crucial to understand what captivates and motivates your audience. You should realize that only a few users will buy something extra from your application. Explore the recent trends of your audience and present proper advertising for what they want. Pay attention to details, be actionable. Always remember your app determination, with what purpose it was developed.

App success on the market depends on multiple factors. Now let’s have a look at distribution channels.

Google Play vs App Store

App Store is expected to succeed because it is well-established and reliable. 95% of all apps on the market are downloaded monthly. Its permanent approval process produces its tremendous success. Though Google Play is bigger, it generates less profit.

IOS applications get more revenue, than apps created for Android. Compared to Q1 2016, the downloads gap remained the same, but IOS extended its lead over Google Play in revenue by 10 percentage points. (Read more)

Worldwide developer revenue depended on monetization strategy
Worldwide developer revenue depended on monetization strategy

There is an extensive gap between these two platforms. But they are not alone on the mainstream market.

So what are the advantages of Microsoft?

Windows Phone Store has a $99 registration fee. But Microsoft has enhanced the number of free apps that companies or individuals are able to submit without paying another $19.99 per app. It does not charge for submitting paid apps and they are all thoroughly tested. When the app is profitably sold on the prevailing markets, you can benefit from covering the third party venues.

CONCLUSION

A lot of App owners implement several monetization approaches simultaneously. There is no uniform rule for free apps profit. Still developers cast caution to the wind and accomplish successfully. Earning money from free apps is real but of course it requires some effort. Free apps won’t generate profit without marketing and creative advertising. There are a lot of approaches you can target your app to increase your chances of financial success. These above monetizing strategies can provide a good profit and at the same time keep your users engaged and dedicated. It is all about finding the right strategy for you, based on comprehension of your target audience.

Leave a Reply

Your email address will not be published. Required fields are marked *