Have you ever wondered how free apps make money?
Most of the time, you download an app from the store and simply start using it. Naturally, developers who offer apps for free expect pay in some other form.
If you are thinking of developing an app but you are still not sure how a free app brings profit, the following article will clear the situation.
This article includes various examples of how famous free products make money from apps and offers advice on how to choose an app monetization strategy.
In brief, free applications make money from one of the following 8 most well-known monetization strategies:
- Advertising
- Referral marketing
- In-app purchase & freemium model
- Subscription model
- Sponsorship
- Crowdfunding
- Email marketing
- App merchandise & e-commerce
1. Advertising
Nowadays, mobile ads are the easiest and most widely-spread way to receive money from a free app. 7 out of 10 apps have embedded commercials that generate payments per its display (per impression), per click, or per install.
There are 5 different ad variants to utilize in a mobile app:
App advertisement is the most popular app revenue stream, but this has begun to annoy and irritate customers. Thus, this massive use of ads has become ineffective, because less than 20% of users click on them. Besides, this monetization strategy can be effective only with apps that have a large pull of users, not for a startup project.
2. Referral Marketing
Referral marketing is connected with the previous model of in-app advertisement to monetize your app. There is even a separate direction in marketing - affiliate marketing. Informational content about an affiliate company is placed in the app and, based on clicks and installs, you receive rewards. These rewards are based on a cost-per-action (CPA) model or revenue share.
You can find many affiliate network companies (AdMob, Flurry) which specialize in finding a suitable affiliate for your application. Different software programs and tools can help you to integrate this model.
3. In-App Purchase & Freemium Model
A very popular strategy used in the freemium app model is in-app purchasing. You can sell virtual or physical items, offer premium functionality or bonuses, block ads, or open new app content. Such transactions are controlled by the app store and the owner gets a commission from every trade.
There are three categories in in-app purchase strategy
- Consumable: these items are used once, mostly in mobile games. Example: digital currencies, health points
- Non-consumable: these are features used permanently. Example: ad blocking, extension in app functionality
- Subscription (described in more detail below)- this allows one to unlock additional content and features for a particular amount of time. Example: monthly or annual service subscription
This model is only possible and profitable for top apps which have many users. Such system has complex payment system development and integrations which are harder to implement. Besides, a disadvantage of this model is the high commision fee (30%) taken by app stores. A freemium app model has two app variants - light and full, and a user may only use the free version.
4. Subscription Model
This model sets up revenue streams from the weekly, monthly, or annual fees for a specific service provided by the free app. It is mostly used in cloud services, audio and video content providers (Spotify, Google Music), and digital news portals. According to the chosen subscription plan consumers receive access to the content.
It is vital to have resources and detailed content strategies to give fresh, up-to-date materials to keep up with competitors and guarantee a high level of subscriber services.
5. Sponsorship Model
It is a profitable model to make money from a free app by getting a sponsorship. This type of model is usually available for developed apps that already have regular users. Applications with a specific market niche get the most benefits. In such a way, you may contact sponsors in the same industry to match their brand with ads, information in the app, or adapt the app design to the brand.
Only if you have a specific niche and unique app idea this model works well. Although, even with the right app and niche, it is hard to find a proper sponsor.
6. Crowdfunding Model
It is quite a new way to monetize an app for free. Developers can raise funds for app development and marketing needs, using the following platforms: KickStarter, Indiegogo, CrowdFunder, and AppsFunder.
These are thousands of applicants and can become very difficult to be crowdfunded. It is essential to show the value of the product and that idea that is worth taking a risk and investing.
7. Email Marketing
Email marketing is considered to be a profitable strategy in any industry. This is an old technique of collecting user data, to send corresponding marketing materials to heat up the subscribers’ interest in a product or a service. It is very useful when your user retention indices drop or when it is used to notify about new features, rewards, app news, etc.
Today email marketing has become less effective, because of its wide usage. It is less powerful for a startup, but it is the biggest advantage for the top branded apps.
8. App Merchandise & E-commerce
The e-commerce industry is developing very well and more and more consumers are joining the online buying community. The majority of physical items are sold with the help of free mobile apps.
This model is only available for the top apps with a large audience.
You can develop a free app for your regular business and sell any other items with its help.
Have a look through this article which gives a profound understanding of how to earn money from apps.
