Developing a mobile app? The first decision you have to make is between free or paid. Now you must be wondering that if you launch an app which is “free-to-download” how will you make money? Or you might get a question in your mind “How do free apps make money”?

As per Statista, the apps that generated the most revenue in November 2019 were free to download. Have a look: 

How Do Free Apps Make Money

Isn’t that shocking? Almost all these apps and games are “free to download” but still they are earning a good amount of money. How is that possible? Can you too launch a “free to download” app to make money from it? The questions are many and the answer is YES.

The reality is the majority of app downloads and revenue of app stores come from the free app segment. All you need is a powerful monetization strategy to earn from your free app. Once your app provides value to the users, there are a number of ways using which you can monetize it. 

In this blog, we will discuss every one of them. So, let’s get started.

5 Mobile App Monetization Models for Free Apps

If you compare free apps with paid ones, the numbers will blow your mind. As per Statistics, 90% of apps on the iOS App Store and 95% of apps on the Google Play Store are free to download. Similarly, if we talk about the number of downloads free apps get – it is much greater than the number of downloads paid apps get. 

Now that we know the popularity and potentials of free apps,  let’s explore the strategies that make it workable for these free applications to make money without directly earning from its customers.

1. In-App Purchases

In-app purchasing is an extremely popular technique utilized by free applications to earn money. This strategy enables app users to purchase something directly in the application and all transactions related to it are managed by the application store. The owner of the store gets a commission from each transaction. 

There are three major types of in-app purchases:

Consumable: These are the products that app users can utilize once: for instance, health points or virtual money. Such in-application purchases are normally used to monetize mobile games. 

Non-Consumable: Non-consumables are features that the app users purchase for permanent use: for instance, advanced features or ad-blocking (this is the manner by which free applications make money without advertisements). 

Subscriptions: Your application may provide subscriptions that unlock some features or content for a specific timeframe. Subscriptions can be automatically renewing or non-renewing. 

Generally, this model for monetization is used by gaming applications to earn money and also to increase app engagement. All-in-all, it is an intriguing model for converting non-paying application users into paying ones without being excessively meddlesome. But, to take maximum benefits of this strategy, you’ve to keep users hooked to your application so that they continue paying. 

Example: One of the best examples of free apps making money using in-app purchases is Candy Crush Saga. Its in-app offerings include boosters, more spins, and extra lives.

Candy Crush is not only making an enormous amount of money utilizing this model, but it is also one of the top 10 highest-grossing applications overall categories in both – the Google Play Store and the Apple App Store. 

Top Grossing app - Candy Crush Saga

source

The game has the addictive quality which keeps users engaged but actually, the game is intended to empower perpetual spending on application extras, and it succeeds. 

The King – organization behind the application is making an average of $3.9M consistently from its three Candy Crush applications (the original one, Candy Crush Jelly Saga and Candy Crush Soda Saga).  

As an alternative to paying, app users have the alternative to watch video ads to get boosters which is another source of revenue for the application. 

What Do You Learn From It?

Candy Crush gain position in the list of one of the top-grossing apps in app stores by building up a simple product that keeps its audience coming back.  Their product is addictive and the company is taking benefits of this. While there will always be people who are happy to use a free application with limited features, there will always be others who are eager to pay for additional features to improve their overall experience – this is something you should learn from Candy Crush Saga. 

Catering to numerous user preferences is a decent way to monetize your application without losing customers. And once you’ve discovered something your app users love, you should stick to it.

2. In-App Advertisements

This is also a very interesting and fruitful monetization strategy for mobile app publishers, in which application developers get paid to display ads inside their mobile applications. Not exclusively do applications drive mobile usage — they also drive worldwide media consumption. 

This is something that makes applications a fundamental advertising channel for brands and businesses. With modern data tracking and user targeting, the in-application environment additionally enables advertisers to target the right audience with pinpoint accuracy. 

There are several ways to display ads in your app: 

Interstitial Ads

This sort of advertisement is full-screen pop-ups that are shown at explicit time frames in-app. Users can close this type of ads by a close button which generally comes at the upper left or right corner in the app. For instance, an advertisement can be shown when a user finishes  editing a photograph and is about to save it in the gallery. 

Banner Ads

These types of ads are normally shown in various sizes and at the top or bottom parts of the application screen. They are always small and less obstructive which encourages users to freely utilize the application. 

In-App Videos

These advertisements are shown automatically and for the most part, utilized as a reward video in return for some in-application reward. For instance, by viewing the advertisement video, the user can get the currency of application which can be valuable for either unlocking levels in the game or getting extra and advanced features. 

Native Ads

Native types of ads are integrated to show up as a natural component in the application. Most of the time, it is shown to advertise a product in a mobile application. 

This strategy is getting very popular nowadays because the users are less irritated with such promotions. But, one point that you have to know about native ads is that their revenue can be truly low as compared to other strategies. 

Example: Instagram is one such application that uses in-app advertising much effectively. The app is driving its revenues by giving businesses not just a good alternative to build brand awareness but to also lift offline sales and site visits for businesses.

Advertisements on Instagram come as –

The application was launched as a “free-to-use” photo-sharing application and was later acquired by Facebook in 2014. The Advertisement was introduced to Instagram with sponsored posts after that. Presently it’s collaborating with brands and retailers to make money by advertising their products and services.

In the year 2017, 98% of the entire Facebook revenue came from advertising brands. And most of this revenue came directly from Instagram. This isn’t astonishing. Because, if we see the data of research it says that advertising growth on Instagram is really surpassing that of its parent company – Facebook. Also, Instagram is the favorite brand of marketers these days.

What Do You Learn From It?  

Whether you’re the new pizza shop around or making the world’s biggest photo-sharing application, it doesn’t make a difference what sort of revenue you have today to such an extent as what sort of loyal user base you’re building. 

Without a loyal base, you’re dead in the market. And if you have that, there are various sources using which you can monetize your application. 

Instagram could have easily charged up to $5 per download for its iPhone application and made a strong amount of revenue doing as such. But, was that to the greatest advantage of the organization’s future? No, and Instagram was very much aware of this, because of which the company has chosen to keep the application free. 

Today, using the same free application, it is estimated that Instagram generated $2 billion in ad revenue in the second quarter of 2018 only and this could increase to as much as $7 billion by the third quarter of 2020.

3. Freemium

To get benefits from the freemium monetization model, you need a second, paid rendition of your application. If users feel in love with the free version of your app, they’re probably going to choose a paid one that has some additional features. With a freemium business model, users are commonly offered to update an application to a paid variant, and if they want it, they’re directed to the application store to download the paid version. 

Example: A great example is MX Player, a popular video player that is available on Google Play. This mobile application is free to download, however, it contains ads. 

Freemium App Monetization Model

But, for users who don’t like ads while their videos are playing, the paid version of the same app is available which is ad-free, called MX Player Pro. It is exactly the same when it comes to functionality, but without advertising.

This monetization option is very proficient, however, you shouldn’t give an excessive number of features in your free application; otherwise, a few users will never upgrade to a paid version. 

What Do You Learn From It?

When a user sees that he has an option to download the app for free, as a rule, he will download it without giving it a second thought. However, if your app is paid, a user will think twice before spending his money on purchasing it. So, the solution is to provide your app with limited features for free – as a trial to users and then provide the advanced features in the pro version of your app.

There are a number of apps that are using this method of monetization. Another example is Slack – the communication tool. Organizations can use the Slack app for free, but companies that require more flexibility can pay a small fee for advanced services. However, slack is not having any separate PRO version like MX Player, users can upgrade their app by purchasing the access to advanced features in-app. Here is how its plans work:

Last year, as per a report by Slack, it has a total of 8 million customers out of which 3 million are paying. 

Slack’s target audience is businesses – of every shape and size. Large-sized businesses are willing to pay them for advanced features and individuals or small-sized businesses use the app for free as they are more cautious about their spending. 

Slack has concluded that layered pricing will serve the organization and its users best  in the long term. The application runs on revenue from its biggest customers, reinvests quite a bit of that into key associations, and can serve the remainder of its users for a little fee, or even free-of-cost.

So, while deciding the right pricing strategy for your own business, think about what your users are willing to pay for and how that may vary from user to user.

4. Collecting and Selling User Data

A number of apps these days collect a lot of user’s data related to the user’s behavior and their preferences. And the user’s data is wanted by numerous researchers and advertisers in various fields. This implies that application publishers can sell this data to these advertisers and analysts to make money from it. This type of data usually contains the user’s email addresses, social media accounts, and their preferences. 

There are two different ways to make a profit through this model. You can either track what your users do and sell this information to outside organizations and analysts, or you can utilize the information for your very own purposes. 

If you are showing ads in your app, businesses will pay you for showing advertisements to the most relevant audience. So, if you can select enough significant data, then you can have an approach to make a profit out of it. 

Example: One of the best examples of apps running using this monetization model is WhatsApp – the most popular messaging app in the world. 

It offers a service that no other application can compete with. And, it is all free. The application’s insane user growth – which continues today at a pace of 1 million new app users per day –  is the reason why Facebook acquired the application for $19 billion.

Messaging App Monetization Model

Presently, the application still attracts customers and businesses by charging zero expenses and showing no ads.

What Do You Learn From It?

To earn money from your app, it is not necessary that you take money from users for downloading it. Think about the data that is accumulating from the billions of messages being sent around the world every single day on WhatsApp. Because of the same social media giant – Facebook purchased it for billions.

The question here is how your app will create value for the users – that value will later change into the money for you. But, you should also keep in mind that such success doesn’t happen overnight. You should only invest in this monetization strategy if you can afford to do so.

Also Read: How to Develop a Messaging App Like WhatsApp?

5. Subscriptions

Subscription can also be a very helpful monetization strategy. Application developers can choose to offer free content in their applications for a constrained amount of time and afterward charge users for a subscription fee that will enable them to access full content with no confinements. 

The well known and basic method utilized by most of the free application developers is to offer a free trial period for testing and afterward charge a membership fee to individuals who wish to keep on getting the application content. 

This type of monetization strategy is often utilized by audio and video streaming apps, cloud service  and online news services.

Example: A great example of a subscription-based model is Netflix. It’s major source of revenue is subscriptions, which cost between $7.99 and $13.99 per month. Presently, Netflix is worth $141 billion, works on a subscription-based business model and boasts 125M plus subscribers in more than 190 countries.

What Do You Learn From It?

A Subscription-based business model is good to make money from your “free to download” app. Free apps can earn well using this business model if their content updates on a regular basis. Users pay a fee to get the latest music videos, news, films or articles. A typical practice of how free applications make money is to give some free and some paid content, to keep the app users engaged.

Wrapping Up 

So, with all these monetization models, we have seen that there are a number of methods to make money from an app that is free to download. But, it is also important to note down that every monetization model has its very own advantages and disadvantages. Trying out these strategies and examining what competitors are doing in your industry is the best way to find how should you monetize your app.

I hope now you have the answer to your questions like How do free apps make money and how you too can. If you still have any confusion or query in regards to making an application or monetizing it, you can contact expert app developers at Appcentric.

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