Ever wondered how free apps make money? I sure did. At least up to the time when I realized that however free an application may seem, the people who created it expect to get paid one way or another. So, yes, free apps make money. But exactly which strategies do app developers and entrepreneurs choose to make a profit?
App development is a complicated and risky process, asking for a meticulous initial planning phase. We at Shakuro digital agency decided to make this article to give some help to people who are thinking about developing an app but in doubts and wondering what monetization model to choose.
Are apps going to go on booming tomorrow as they do today? Yes, they are:
Discover how to monetize your free app in 2020, what the most popular app monetization models and trends are and how to avoid common mistakes.
Paid vs Free apps statistics
First, let’s clarify what are paid and free mobile applications. A paid app is one that requires you to purchase it upfront before you can use it. Whereas a free app is what it says it is. You get it for free.
But how many free apps are there? What’s the relation between the free and the paid apps?
At some point, I started noticing that the number of paid applications in the App Store has dropped. As per Statista, at the time of December 2019, 90.8% of iOS apps were free, and for Android ones, this number is even higher.
The revenue coming from paid apps is gradually declining over recent years. Here’s the game apps revenue statistics from SensorTower:
Take a look at your own mobile phone or tablet. Have you paid for any of your apps? If you have, you’re badly outnumbered. In most cases, people aren’t accustomed to paying for applications they want to get. It’s psychologically easier to get something for free here and now and deal with payment later or not to dwell on this thought at all.
The present-day TANSTAAFL
This catchy phrase, that is supposed to originate from a television advertisement of the 1970s, is similar to the well-known TANSTAAFL adage – “There ain’t no such thing as a free lunch.”
That is to say, you can’t get something for nothing. It doesn’t work this way. The truth is if someone gives you something for free, they are getting something in return. It doesn’t have to be money as such, just an opportunity to count you as a subscriber, for instance. App development is not cheap, and in the real world, there’s no chance for it to be free.
The possibility to make money off an app is provided in both cases, whether it’s a free app or a paid one. With paid apps it’s apparent – a consumer makes a one-time purchase and starts using the application. With free ones, things are much more complicated with a collection of monetization methods coming in various shapes and disguises.
Base your strategy on competitors
First, you should look at your competitors:
- What’s the price of their app?
- How do they make a profit?
- How many downloads per day do they get?
- What features does a competitive application offer?
- Any reviews from real users?
- How’s the design (usability, design quality, software)?
- What platforms do they appear on (iOS or Android)?
Based on this data, you can build on competitors by offering your target group more useful options. Addressing the questions above will help you pick the right way.
Keeping track of rivals is a must. A little spying will let you get the perspective and get ahead.
The best mobile app monetization strategies
Here are the top 12 free apps in the App Store:
When picking the best category to add your new app in, nothing limits your creativity. The key is that an app has to benefit people or solve their problems.
“So, how do you sustain a business model in which users don’t pay for your service?”
The most straightforward and profitable method to make your app earn money is to sell ads space.
When you play a free game, for example, you can often see a small banner appear at the bottom of a screen with a suggestion to download something new (or old), or a large banner periodically popping up on the whole screen. The owner of an app gets some money for each user clicking on these banners. This sort of advertising is called in-app.
But advertising on apps is not at all limited to the banner ads.
The most common categories of ads in today’s applications are:
- video ads
- banner ads
- native ads (i.e., the ones that blend in with an app’s content, like in Facebook feed).
Nobody really likes ads, they may be rather annoying and they are rarely seamlessly integrated into an app. They tend to show up in the least appropriate moments. And there are always seem to be too many of them, even if there’s one.
But in fact, in-app advertising is going mainstream. In the last couple of years, it drove out the in-app purchases from the leading position among the most popular app monetization methods.
The latest news on Street Fight Mag says that the massive 89% of mobile app publishers use video ads as one of their marketing strategies. In-app purchases went down to the second place with 68%, and display ads occupy the third one with 35%.
Another news is that Instagram is developing a feature on its IGTV video service that will let app creators earn money from incorporating ads into their content.
So no matter what your attitude to the in-app ads is, you can’t deny they’re prospering and bringing huge revenues.
Still feeling against using ads fearing that they could harm the user experience and decrease conversion rate? So how do free apps make money without ads, anyway?
In-app purchases & Freemium model
Applications with internal purchases include all apps that are distributed at no cost but offer to make additional purchases when using the product.
An app owner offers paid additional services inside the application. The best practice is to create a free application that works free but provides additional goodies through a system of micropayments.
In the case of games, this can be the purchase of game currency or extra tries, in dating apps – the opportunity to send an unlimited number of messages per day, etc. By correctly defining the target audience and its motivations, you are able to make income from such apps to be tens of times higher compared to the paid ones. The key point is to sell goods or any additional functions for real money.
It’s essential that users are ready and prepared to give out money for using an app. At the same time, there should be a large active user base. This allows maintaining good virality of the application and promote other apps to the user base.
As stated in the statistical data mentioned earlier, almost 18% of mobile revenue comes from in-app purchases.
Paid subscription is another popular app monetization option.
A user buys a subscription and pays a monthly fee to have access to an app. In their turn, the application creators constantly work on customer retention and update their digital product.
While not being equally popular, this method may prove to be just the right choice for you. According to statistics, subscription applications have a 50% higher return compared to apps that offer in-app purchases.
Affiliate marketing model is about the app’s creator being compensated by a third party every time when an app is downloaded or used in some particular way.
For example, you have a game app and provide some additional game crystals for installing a sponsor’s application. Affiliate partners get additional advertising opportunities and increased sales, app owners receive affiliate rewards from sponsors. In today’s abundance of surrounding information, it is very important to maintain constant contact with a target audience.
This method implies using the application as a mobile version of a store or website selling physical products and services.
Moreover, a mobile application may be associated with a product itself. For example, instead of using the TV remote control, you can use an app with that function. Such applications do not generate revenue, but act as product bonuses, supporting the overall appeal of the brand.
Combination of several methods
The stats above prove app owners use a combination of monetization methods. Usually, it’s a video advertisement paired with in-app purchases. Or choose a very simple option of showing ads and offering to turn them off for money.
To squeeze the maximum amount of profit out of an app, you’ll need to combine several monetization methods. What matters is to understand how it all fits together. Test various methods and always monitor all the analytical data indicating how healthy your business is.
Common app monetization mistakes
First and foremost, this includes overly aggressive advertising, that in large amounts repels a user instead of attracting attention. But there are other, not so obvious mistakes to consider.
- The choice of strategy comes last when the development of an app is almost completed. It limits the number of options because the developer is forced to choose among only those methods of generating income that are adjustable to a product that already exists. Think about monetization methods in advance. It’s much easier to just slightly adapt the application and make it a more convenient tool for generating income.
- Subscription mispricing. Try putting yourself in the user’s shoes and ask yourself whether you are ready to pay for this app. Evaluate the advantages of your solution, analyze competitor apps, it’ll give you a clear perspective of what price to set.
- Ineffective advertising. Demonstration of ads without taking into account the user data, too much advertising, untimely display, etc. To avoid these and other similar errors, try looking at the advertising through the user’s eyes and understand when and in what quantity it will be favorably received, and in when it will only be annoying.
App monetization trends
The acute problem of app owners is to understand why their monetization strategy stopped working. The strategy might be alright, just dated. There are ways other people do it and some of them become trends.
The main ways of making money with free apps mentioned above will remain for the near future, with video ads continuing to conquering new grounds. Let’s look at something newer and promising to ensure your app monetizes and grows successfully.
A major asset is creativity. Try playables – game ads in video format with a motivational message in the end. Gradually more app owners use them as the main way of enticing new consumers. Such ads are funny and engaging, they are increasingly gaining popularity.
Just be considerate, don’t put them in inappropriate moments, remember about the common mistakes.
So I was reading tarweeh yesterday and the guy next to me was reading Quran along with the imams recitation on a Quran app on his phone. Then one of those interactive game ads come up and he has to play candy crush in 3rd rakat 😭😭 pic.twitter.com/cHul7lQPsr
— ۛ (@LilNaanX) May 11, 2019
Artificial Intelligence and Machine Learning
AI is transforming the UX of today. In regard to app monetization, artificial intelligence can help developers and publishers determine the best app price, find the most and least engaged users and fine-tune the ad-showing process, and more importantly, AI can act as an impartial arbiter, run A/B tests, and generally make the UX simpler, clearer and more useful for the user.
Improving the user experience is especially important considering the fact that 25% of all downloaded apps get to be used only once. People would delete an app without hesitation if it doesn’t fulfill their needs, and move on to the next one.
GDPR encourages the use of CMP platforms
The adoption of the General Data Protection Regulation (GDPR) was the judgment day for many mobile application developers.
A solution to the problem can be ensured by the use of CMP (Consent Management Platforms), which accumulate user data and request their consent on their own.
CMP platforms are not today’s invention but attracted special attention only after toughening the rules for the use of personal data.
In conclusion: Learn to balance
For some people, the ideal scenario is when a group of poor, hungry, but very proud developers and designers create an app for free. This may seem nice in theory, but from the practical angle, the truth is somewhere between two extremes. That is, even if an app contains payments, it’s not necessary to make it impossible to use without them.
Most importantly, find the balance. Run tests, devote time to analysis and observation, add constant refinements to your app monetization strategy and get to make money from free apps without driving users away instead.