App Monetization Strategy: How Free Apps Make Money
It’s no secret that mobile apps can serve as a solid source of revenue. By the numbers:
- In 2021, Android app and iOS app revenues reached $133 billion globally.
- That same year, iOS app developers in the United States saw 118% growth in earnings.
- By 2026, forecasters project spending on mobile apps to reach $233 billion globally across Apple’s App Store and Google Play.
How do you build a sustainable business that captures this competitive but lucrative source of revenue?
As a mobile app owner, your objective is to grow your app traffic, downloads, and installations and turn that into profits and conversions. To succeed, you need to know the leading app monetization strategies available and determine the best way to make money off your mobile app.
The Market for Free Apps
- Free apps are the vast majority of available apps on both the App Store and Google Play.
- Paid apps represent less than 7% on the Apple App Store and 4% on Google Play Store.
- According to some estimates, only 1 in 2 people have ever paid for a mobile app.
These numbers speak volumes about the market for free apps compared to paid apps. But with so many free apps available through the app stores, many clients wonder, “How can I make money from free apps?”
People love free apps. The good news is that app developers can leverage several app monetization models for mobile applications to tap into this market.
However, you’ll need to carefully consider several factors and choose the monetization method or combination of methods before you begin app development.
Factors in Selecting an App Monetization Strategy
- What’s unique about your mobile app idea?
- What is happening in the industry niche you’re targeting?
- Who would pay for the ability to use your free mobile app?
When it comes to app revenue and price, it’s vital to understand the market, your target audience, and how your mobile app fits in compared to the competition.
For example, in the wake of pandemic recovery, the market has normalized with new consumer habits—like a willingness to spend on non-game apps.
Furthermore, different audiences have different needs, and it’s essential that you cater to them by aligning with what they value. Business users may pay for time savings; gamers may be more willing to pay for features that help them level up.
To tailor your mobile application for a particular app monetization strategy during the app development phase, you should come prepared with the best strategy that considers these factors.
- What is your app development, launch, marketing, and maintenance timetable?
- When do you need to show a profit?
Striking the right balance between the time it takes you to grow revenue and your user base will help ensure your app—and your budget—succeed.
Some app monetization models earn more money initially, while profits come later in others. If you can initially forego revenue, you may be able to gather more users and gain more revenue overall.
Building a successful revenue-generating app takes considerable time and, of course, investment. If you’re new to app development, our free eBook InspiringApps: A Business Perspective on Building Mobile Apps describes key mobile app development considerations in detail—and we encourage you to start here first.
App Store Considerations
- How will you collect payment?
- What is the share fee?
- What are the store’s guidelines for your type of app and monetization model?
App developers have been working with Apple and Google to reduce the percentage of revenue they take for in-app purchases and to provide other ways for users to pay for subscriptions. The percentage has adjusted from 30% to 15% for subscribers in their second year and for small developers applied to the first $1 million in earnings.
There are other ways to reduce or eliminate the share fee. Collecting payments outside of apps may be an approach you’d want to consider if you don’t use your app to direct users to external payment processes.
But there are other restrictions placed by the stores. For example, App Store Review Guideline 3.11 requires apps offering paid online group services to do so via in-app purchases.
Free App Monetization Models
In-app ads are the most popular monetization model as of July 2022. App advertising enables you to make money by selling advertising space within otherwise free apps.
In-app mobile ads come in all shapes and sizes, typically commanding different values. Various placements and formats range from an interstitial ad, video ad, native ad, and banner ad.
App developers monetize ads in a mobile app in multiple ways:
- Cost per thousand (CPM), based on the number of impressions through the ads
- Cost per click (CPC), based on the number of clicks the ads deliver
- Cost per view (CPV), based on the number of views by the app users
- Cost per action (CPA), based on the users’ actions, such as installing the advertised app or purchasing through the link, which lead to the developer’s commission
The benefit to users is that not only the app but also all its features are free. Multiple services connect app publishers to advertisers. It’s a quick way to grow your user base.
However, ads may impact mobile app retention. People can be annoyed enough by the ads to stop using free apps that employ app advertising.
(Interestingly, this has led to another revenue stream—paying for an “ad-free” experience!)
There are so many examples that it’s challenging to carve one out. A few notables include the following:
Businesses can list their ads on Google Maps, even creating profiles that allow their businesses to be found more easily. Google Maps also allows businesses to use their company logos instead of generic icons—for a fee.
Native Ad + Data Monetization
Instagram gathers vast amounts of data, enabling the app to serve highly targeted ads. Brands are willing to pay because they feel confident that the right people will see their ad. Visual ads work well on the platform; they appear seamless next to the visuals people are scrolling through as they use the free app.
Duolingo also uses advertising—in particular, you’ll see a video ad prompting you to download another app, with a reward for watching the ad to entice users.
Freemium & Free Trial Apps
The free app market is also split into freemium and free trial apps with the added options of in-app purchases and subscriptions.
Freemium and free trial apps can be a great way to get users hooked on your product. However, compared to apps that use advertising, freemium and free trial apps do not generate revenue until users start paying to access premium features, pay for in-app goods, or continue using the service through subscription.
The good news is that there are numerous avenues for revenue opportunities providing quite a bit of opportunity for app publishers to create the right model for their business.
Freemium apps allow users access to basic features for free, with or without additional in-app purchases.
Users download the app for free, but certain gated features require them to convert to a paid app or subscription model to use the premium feature. Customers find indefinite free access more appealing than time-delimited trials.
Free Trial Apps
A free trial app usually allows full access to the features but within a limited period.
Because there’s no risk to downloading a freemium app from the app store, users are more likely to try freemium over trial apps. However, conversion rates are usually higher with free trials compared to freemiums.
In App Purchases
Through in-app purchases, users can buy digital goods for a specific price.
Popular in mobile gaming, the in-app purchase experience can feel like a natural part of the app. In-app purchases in most gaming apps are consumable; players buy items or gear, such as a sword that offers special powers or virtual currency, to increase their success.
Subscriptions enable the app developer to target app features to specific user groups or businesses or for a specified time period.
Subscription revenues have increased rapidly over the past few years. That’s likely because subscription-based apps offer a steady source of reliable income, which makes planning and investing in upgrades much less risky.
Software-as-a-service models provide different pricing levels, for example, free, premium, and enterprise, as is common practice with productivity and business apps. Many subscription models also offer discounts for longer subscriptions, which is a win-win for both parties.
Freemium + Free Trial
The popular app Calm is built on a freemium model with a free trial option. Users can access either a 7-day free trial or the free version of the app without paying for premium content. After the free trial ends, users can choose from various subscription options, from a monthly membership to a lifetime one.
Software as a Service
Asana offers a basic version for free. Some features are only available through higher tier pricing, enticing users to consider paying for an app subscription for an enterprise experience.
In App Expendables
In the gaming app Plants vs. Zombies 2, users need to purchase upgraded, premium plants to advance to a higher level.
In App Unlockables
In-app purchases are not limited to gaming. For example, you can still buy individual songs from Apple iTunes. And cooking apps like The Photo Cookbook allow you to unlock individual sets of recipes via in-app purchases.
Certain app subscriptions may be considered free because they gate specific content—in other words, they offer content subscriptions.
With this type of app subscription, the focus is to allow brands to earn revenue on a recurring basis for providing content. Paywalls allow app users to view a predetermined amount of content for free and then ask users to opt into a paid subscription to get more.
While many freemium models have subscription options that offer flexible payment, the gated content model is increasingly limited to news, learning, and academic sites. Most streaming services utilize advertising or require upfront payment with a trial period (no free lunch).
Costs to operate this model can be high because it requires substantial investment in content. To encourage user signups, the app publisher limits articles read. App publishers often combine the model with advertising to keep the price point attractive to the app user.
Harvard Business Review, the LA Times, and the New York Times are all examples of a free subscription model. Users have access to a limited number of free articles they can read monthly without a fee.
App sponsorship involves partnering with brands that are a good fit for your niche; it’s more exclusive than advertising generally.
In this model, brands pay to be a part of free apps. This type of advertising strategy is likely to be better received by app users because it’s relevant and connected to your app’s purpose.
Sponsorship can earn revenue by dividing revenue from the mobile app with the sponsor, having an app sponsor for launch, or setting a monthly sponsorship fee. Brands use free apps to reach their target audiences and vice versa, creating a win-win for the sponsor and your business.
To succeed with sponsors, you need strong networking skills and a narrow focus. Sponsors can be notoriously difficult to find and pitch.
Sponsorship is usually incorporated with those applications that already have regular users and lots of data on those users—in other words, apps that are already mature in their market niche.
So if you have significantly grown your user base over time, have significant data on those users, and have created a well-established business, brands may be interested in establishing a sponsorship deal with you.
An Alternative: Affiliate Marketing
Affiliate links are another variation of sponsorship, but instead of granting sponsorship rights exclusively to one organization, you’ll negotiate with a few interested partners and agree to place their reference links in your free app.
App affiliate marketing can be a great way to increase income from apps if you lack a market sponsor who is ready to cover your costs. App affiliates act as marketers and are rewarded for doing so.
Mobile event apps like EventMobi enable event planners to offer exclusive sponsorship on the app or offer several tiers of visibility for sponsor listings.
Apple’s affiliate program allows app publishers to promote products that people purchase through the App Store through their free apps.
Concluding Thoughts on App Monetization
Free apps and paid apps have costs associated with using them—whether behind the scenes, in the available features or content, upfront, or somewhere in between.
That being said, money shouldn’t be on your user’s minds but rather how much value and joy your app brings them. While there’s no silver bullet, the most successful monetization strategy for your app will be the one that integrates well enough that it feels like a normal part of the app experience.
We’re always happy to talk with our clients about which model—or combination of models—could be most effective for you. If you need help to decide, please reach out for a free consultation.
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If you’re looking to build a custom application, there are many different questions to ask an iOS app development company. Still, one of the most common questions we receive about the development process is whether we recommend building both iOS and Android versions of an app simultaneously or just one at a time. And if app development for each platform occurs at different times, should iOS development or Android development come first? We touch on this question in Chapter 3 of our book InspiringApps: A Business Perspective on Building Mobile Apps, but we will provide more insight on this debated topic here. Should we develop iOS & Android at the same time? When feasible in mobile app development, we recommend picking a single platform to start with rather than developing for both simultaneously. You may not have that luxury if you’re developing an app to release to consumers who all need to have the mobile app at the same time—perhaps in conjunction with a film or other product release. If it’s possible, though, we think one at a time in the development process is better because it will enable you to learn from your customers on the first platform. Unless a mobile app is extremely simple, it will go through several iterations before it offers the desired experience. Trying to manage learnings across both iOS devices and Android devices is cumbersome. Instead, the feedback and refinements from the first platform can be leveraged to speed mobile app development on the second platform, saving both time and money in producing across mobile devices. What factors should we consider in picking an OS? When advising customers whether to focus on Android development or iOS app development first, we consider these factors to help guide the decision. Industry & Demographics You may find an industry bias for operating systems (OS) that affects your project. For instance, we found iOS devices more prevalent in medical applications, while Android app development seems more prevalent in construction. If you don’t have industry insight, try checking your website’s analytics to determine user platforms. Trends might help decide what type of platform may be best suited. You can also use sites similar to Mixpanel to discover applications and software that would be more suited to that platform. If one platform is used far more than the other, you know a preference exists and should develop accordingly. Likewise, depending on the market you are serving, you may also find that age-related differences affect whether you should focus on iOS app development or Android app development first. Market Share For app developers who intend to produce mobile applications for the general public and do not know the OS preference of their target audience, these market considerations may provide some guidance: In the United States, the market share of both iOS and Android has stayed just about constant over the past year, hovering at or around 60% and 40%, respectively. In Europe, the UK, Asia, and many other countries, Android has had a higher market share than iOS. Android maintained its lead in global market share capturing around 70% in August of 2022. Android devices have captured most of the global market share for many years. Google provides free, open-source software that manufacturers can install on their smartphone devices. Because of the large number of Android users and the lower cost of Android devices to consumers, Android developers are at an advantage in many markets. Unquestionably, Android is the world’s most popular smartphone OS. However, Apple has a powerful brand, particularly in the US, where Apple's ecosystem, stable OS, and device durability enable iOS to keep large numbers of active and premium smartphone users. OS Adoption Rates & Upgrade Complexity Apple has a remarkable track record of getting iOS users to upgrade to current versions of its OS, whereas Android adoption is much slower: As of May this year, 89% of users are on the current iOS. As much as 60% of users keep older versions of Android on their phones. Apple handles the distribution of its iOS updates exclusively. Developing for and supporting a smaller number of OS versions on Apple devices leads to quicker builds, faster testing, and more straightforward support in the long run for iOS developers. Google only gives direct updates to its products, like the Pixel series. Other manufacturers like Samsung must first get the update from Google and optimize it for Android devices before they can send it to Android users. Some mobile carriers also go through updates before distribution, too. Android developers may have to deliver more app fixes as a result. Speed & Ease of Development & Publishing Speed and ease of development and publishing are not as cut and dry in terms of pros and cons. Android pros include: The Android platform enables a more flexible development environment. Because Windows, Mac OS, and Linux all support Java—which Android relies on—Android developers can build Android apps on various machines. Google Play allows developers to publish multiple versions of the same app (alpha and beta) to ensure developers can test the app live, fix bugs, and launch it to a broader audience. However, developing and maintaining apps is generally more time-consuming for Android than for iOS: Whereas iOS developers build for a limited type of device (iPhone, iPad, and Apple Watch), Android accessibility to a wide range of devices means more devices to test and support. Google has become less lenient and more time-consuming towards apps that developers want to post on Google Play, narrowing the line between ease of publishing on Google Play vs. the App Store. And through TestFlight, Apple does support previewing versions of an app with up to a thousand beta testers before releasing it for wide distribution in the Apple App Store. Development Cost & Profit Opportunities Cost and profit will vary depending on the type and complexity of the app you’re developing; still, Android apps are generally more expensive to create than iOS apps are for iPhones. Overall, Android users tend to favor free apps and spend less on in-app purchases than iOS users, which can lead to higher sources of profit on iOS, not accounting for market differences. Should we develop for iOS or Android first? If you’ve considered all the above factors, and neither platform is the clear winner, we’d recommend starting with iOS for a US-focused app. Our reasons are speed to market, lower development cost, and revenue generation potential. Please contact us if you’d like to discuss your particular situation or have other questions on this topic. We’d love to hear from you.
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Boulder, CO—InspiringApps, a premier web and mobile app development company, is proud to be Certified™ by Great Place to Work® for the second year in a row. The prestigious award is based entirely on what current employees say about their experience as part of InspiringApps’ team. This year, 92% of employees said it’s a great place to work—35% higher than employees at a typical US-based company. InspiringApps recently celebrated its 15th birthday. Over the years, its leaders have rolled out various initiatives to boost employee engagement and retention. Listening to employee feedback is a big part of that. For example, team feedback as a result of last year’s Great Place to Work survey created IA Commits, pairing inspiring not-for-profit clients with developers who can use a hand-up early in their software career. “InspiringApps wouldn’t be what it is today without our amazing people,” said Brad Weber, CEO and President of InspiringApps. “InspiringApps is better because of the people who work here. We are all passionate about our craft and united in our goal to make a real difference in the world.” According to Great Place to Work research, job seekers are 4.5 times more likely to find a great boss at a Certified great workplace. Additionally, employees at Certified workplaces are 93% more likely to look forward to coming to work and are twice as likely to be paid fairly, earn a fair share of the company’s profits, and have a fair chance at promotion. “Great Place to Work Certification™ isn’t something that comes easily—it takes ongoing dedication to the employee experience,” said Sarah Lewis-Kulin, Vice President of Global Recognition at Great Place to Work. “It’s the only official recognition determined by employees’ real-time reports of their company culture. Earning this designation means that InspiringApps is one of the best companies to work for in the country.” About InspiringApps App development that makes an impact. InspiringApps builds digital products that help companies impact their employees, customers, and communities. Yes, we build web, mobile, and custom apps, but what we offer is something above and beyond that. What we offer is inspiration. Our award-winning work has included 200+ apps since the dawn of the iPhone. Our core values: integrity, respect, commitment, inclusivity, and empathy. Our guarantee: finish line, every time, for every project. About Great Place to Work® Certification™ Great Place to Work® Certification™ is the most definitive “employer-of-choice” recognition that companies aspire to achieve. It is the only recognition based entirely on what employees report about their workplace experience—specifically, how consistently they experience a high-trust workplace. Great Place to Work Certification is recognized worldwide by employees and employers alike and is the global benchmark for identifying and recognizing outstanding employee experience. Every year, more than 10,000 companies across 60 countries apply to get Great Place to Work-Certified. About Great Place to Work® Great Place to Work® is the global authority on workplace culture. Since 1992, they have surveyed more than 100 million employees worldwide and used those deep insights to define what makes a great workplace: trust. Their employee survey platform empowers leaders with the feedback, real-time reporting, and insights they need to make data-driven people decisions. Everything they do is driven by the mission to build a better world by helping every organization become a great place to work For All™. Learn more at greatplacetowork.com and on LinkedIn, Twitter, Facebook, and Instagram.
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