Monetizing Paid vs. Free Mobile Apps

When notable websites like TechCrunch and Gizmodo billing the App Store as the next Gold Rush, you can’t ignore how lucrative of a market mobile apps have become.

It’s hard not to get swept up into tales of phenomenal revenues – take Flappy Birds’ $50,000+ per day model, for example. But this isn’t the time to gamble away your monetization strategy.

poker (paid vs. free apps)

Image source: Flickr, user: ND Strupler

The key to successful monetization is understanding the marketplace and choosing the monetization model of paid vs. free that best fits your app.

Trends

The App Store landscape has changed drastically since its inception in 2008. At the beginning, it was mostly filled with apps operating on a paid model. Some developers chose to release two versions of their apps: a limited free version and the full premium one. Developers hoped that users would try the app for free and then buy the premium version for a small price if they enjoyed it.

To successfully monetize your app, it’s important to understand marketplace changes.

While this consumer-friendly pricing model ensures that users get what they pay for, this method is no longer as popular as it once was. The App Store today is dominated by freemium, or free-to-play (F2P), apps. These apps monetize through in-app purchases (IAPs), advertisements or a combination of both. A quick scroll through the Top Grossing Chart on the App Store reveals as much.

Flurry, a mobile analytics company, reports that as recently as 2013, 90% of apps in use were free. Apps that operated by the traditional paid model only made up 10% of the market. The perception of this changing landscape towards freemium games is not all positive, with critics calling developers out for “free to wait” and “pay to win” tactics. Flurry’s theory for this change is one of consumer choice. The company believes that users today would rather have free content than pay for it. This means dealing with advertisements, in-app purchases or having a lower-quality experience. Flurry concludes that free apps are in significantly higher demand than paid apps, where the upfront cost (even at the lowest price) only serves as a major deterrent. Flurry believes developers have become more business-oriented and now focus on maximizing loan-to-value ratio.

Premium apps

Premium pricing is the most traditional form of monetization for app developers. Despite the popularity of freemium apps, there are many successful apps operating on the premium pricing model. Mobile gaming apps such as Minecraft, The Game of LIFE and Geometry Dash are examples of premium apps that profit without IAPs or in-app ads. Apps in other verticals, like fitness app Couch-to-5K and video editor Videoshop, also enjoy success with the premium pricing model.

Here are some situations we’ve noticed where apps thrive on premium pricing.

  • The app is licensed by a prominent brand. People trust an app’s quality and have a higher willingness to pay when it’s paired with a notable brand. Two examples include Marvel’s $2.99 X-Men Days of Future Past side-scroller and Rockstar Games’ $6.99 Grand Theft Auto: San Andreas.
  • The average maintenance cost per user does not outweigh the app’s price. While development costs can be high, long-term maintenance costs after the app’s release are often overlooked. This can be anywhere between 15-20% of the development costs. Be sure to keep maintenance costs in mind if you’re like the majority of the developers out there working on a tight budget.
  • The app is in high demand with low supply. The app provides a high-quality experience or niche service. Examples include a $6.99 3D shooter with console-level graphics and a $0.99 alarm clock that analyzes sleep patterns to wake users during non-REM stages.

Freemium apps

Freemium pricing is currently the most popular method of monetization on the App Store. Many criticize this pricing strategy, as the quality of freemium app experience is largely tied to how many IAPs are bought. Developers of freemium apps are also thrown under fire for limiting essential features and user functionality as a way to force users to spend money. Despite these, users have shown that they are willing to suffer such restrictions for the sake of free content.

Here are some situations we’ve noticed where apps thrive on freemium pricing.

  • The app is community-oriented. There are apps designed around community and sharing. These apps must draw in as many people as possible and cannot risk deterring prospective users with a price tag. Notable examples include fitness apps such as Nexercise, which has a built-in news feed and user profile, and multiplayer games like Hothead’s Big Win series.
  • The app has many competitors. Unless your app is revolutionary or backed by a prominent publisher, you’re bound to face competitors every step of the way. Games in particular have a steep hill to climb when it comes to standing out with fast depreciation and short-lived fads. To stay level with the competition, both paid and free, developers need to keep the barrier to entry as low as possible.
  • There are users who spend a significant amount of money on IAPs. Developers of successful freemium apps report high revenues because of a small percentage of daily active users (DAU) who buy IAPs to boost their experience. While most people have a low willingness to pay for IAPs, there are some who are more than open to spending hundreds on them.

Apps with advertisements

Some developers choose to include advertisements in freemium apps, alongside IAPs. Due to the large variety of ad networks available today, developers can quickly monetize their apps with little risk. While mobile advertising first started with purely banner ads, it has grown to include video, interstitials, notifications and more, which we’ll cover in our next post. It’s vital to explore a wide variety of mobile ad networks to find the most rewarding format that fits your app.

Wrapping up

With so many ways to monetize your app, it’s up to you to find the right one. Keep up on trends – such as the current freemium fad – to implement monetization strategies that will drive downloads.

We wish you all the best in your monetization efforts. If you’d like to learn how Kiip can personally help you with your monetization efforts, feel free to contact us at success@kiip.me.

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This is part of Kiip’s ongoing Developer Success Guide.

Kiip is a leader in the field of app monetization. We enable developers to reward their users with advertising they enjoy. We want all developers to be successful in their ventures, so we’ve compiled a comprehensive guide with industry observations, best practices and expert advice.  

To learn more about monetizing your app, visit kiip.me/developers or email us at success@kiip.me.

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  • Steve Bulshonsvi

    Well.. I think this market is way too complicated , some companies will promise you things that will never happened … and the reality will be different . I know about one agency, Flamingo Mobile , that can actually build your strategy and represent you in front of all the many networks companies in the market. I think the website is http://www.flamingomobile.com

  • Leanid Navumau

    Great article. You may talk about monetization of free or paid apps at http://monetizegeeks.com