Many entrepreneurs think of having an application of their own, especially free apps. The main purpose of free mobile apps is to have maximum users initially with free features and functionalities. They also manage to get the application up and running, but the question that bothers them the most is- how do free apps make money? So, this article will solve such queries of entrepreneurs.
The free apps market is dominating and is responsible for outnumbering the paid ones. The number of downloads and profit through revenue generation in free apps is more compared to paid apps.
It’s a proven fact – 1 in 2 smartphone users never pay for an app. There are approximately 6 billion Smartphone users and every user has at least 10 apps installed on his/her device (not pre-installed). Hence, your perception must be clear as to why companies provide free apps.
But, you are definitely wondering – how do apps make money?
Before we dive into answers to this question, let’s have a quick look at some interesting statistics which will help you get your head around the free & paid apps market:
Free-app and Paid-app Download Statistics
Overall worldwide app downloads hit 36.1 billion in Q4 2021.
The following graph will highlight the gap in free vs. paid app downloads in Google Playstore as of December 2021.
This shows that you can make money through free apps and possibly generate more revenue than what paid apps generate.
3,077,888 apps are free to download in Google Play. Conversely, 104,880 are paid apps. Obviously, it is important to note that many free apps may require in-app purchases for different features.
App monetization statistics
As per Statista, these are the most popular app monetization methods for app publishers.
After this statistical analysis let’s understand free vs paid apps in brief.
Also Read: App Development Process We Follow
Free vs Paid App
If you are wondering how do free apps generate revenue? Look at these top 10 revenue (monetization) models for understanding: How can free apps make money or generate revenue?
Top 10 Revenue Models for How do Free Apps Make Money
1. In-app advertising
In-app advertising is probably the most common and simplest revenue model for free apps to make money.
Mobile advertising amount in 2020 hit 276.21 billion US dollars. Further, the increase in this amount was estimated to be 341.8 billion in 2021.
If you are thinking of monetizing your app you are heading in the right direction. You can monetize your app with ads by displaying them inside the mobile application. If not, ads display, you can certainly consider going for affiliate marketing and getting paid from the third-party ad networks.
Basically, the app owners are paid on the basis of user clicks, hits on the ads, or the number of installs via the advertisement. Additionally being a free version app you can also run ad campaigns for ad revenue generation for a specific period of time.
There are 5 types of ads displayed for app monetization. But as an app owner, you need to monitor the process and make sure whether the targeted user is able to find the ads appealing or adblocking them.
Types Of In-app Ads To Generate Revenue For Free Apps:
#1 Banner ads
Mostly, Banner ads are displayed in different sizes and to the top or bottom parts of the application screen. This ad, unlike other ads, doesn’t obstruct the user while he/she is using the app.
#2 In-app video ads
In-app video ads are displayed automatically and also use themselves as a reward video in exchange for some in-app rewards. For instance: by watching the ad video, the app users are able to get game coins which help them in unlocking different features or levels. This revenue model is currently popular in free gaming apps.
#3 Native Ads
Native ads are integrated to make them appear as natural elements in the app. Native ads are not only useful to promote a product or mobile application but also helpful in free user engagement through affiliate marketing.
This method is gaining more popularity these days because it creates less intrusion and disturbance while a user uses the app.
But there is a drawback of Native Ads, the revenue generation through Native ads is low when compared to other methods.
#4 Rewarded videos
The rewarded videos are a suitable model for in-app ad integration for the top-grossing and gaming apps market. Online users watch these videos to exchange them for points, lives, or virtual goods.
Through such an ad model, it’s easy to make money and also effectively convey your brand messages. Further, using this ad campaign gives an advantage to the user also, in-form of reward and awards for watching the ads.
#5 Interstitial ads
An interstitial ad is a full-screen popup that is on display on the screen at specific time frames. Here, the user is able to close the ad with the help of the close button at the upper corner (left or right).
The best example to understand this is Spotify. The application puts on an ad once the song is finished which will show relevant advertisements such as purchasing premium plans.
Now, as we have seen the types of in-app ads displayed, let’s have a look at the advantages and disadvantages of In-app advertising.
In-app Advertising: Pros & Cons
- It adds up to your app’s primary income via CTR
- In-app ads have a higher probability of reaching the target audience of the application
- Ads help in the analysis of user interaction
- Video ads bring higher traffic compared to social media networking, web browsing, or audio ads
- This model is only effective with apps that have a large pull of users
- Irrelevant ads – when your ads are completely different from the context of your app category users are most likely to get frustrated and stop using app
- Non-appealing ads are easily ignored by the users
- It might create an interruption in the app while a user is navigating the application
The subscription strategy is one of the finest strategies when it comes to app monetization. Application publishers choose to offer free content in their apps for a small period of time. Once the free subscription expires, it starts charging a subscription fee with users’ consent to allow the access of complete content or features without any restrictions.
The free app publishers offer a free trial of their app and then charge for the subscription for accessing the content. This strategy is common in fields such as cloud services, audio & video streaming, or online news services.
To simplify the integration in this revenue model, Apple is paying extra attention and making significant changes in how app subscription models work. Apple maintains its 70/30 revenue for first-year subscriptions but after a year it increases revenue up to 85%.
Before we move on to the next model let’s look at the pros & cons of a subscription model.
Subscription Model: Pros & Cons
- It is an appropriate model for cloud services that provide audio & video content such as Spotify
- Provides a more engaging and serious audience for the functionality of the application
- More reliable as an income source
- Apple store rewards the app to keep the customers in for a longer period of time
- You need continuous innovation in the features and content to beat the competition and retain subscribers
- Transitioning from a one-time fee to a monthly charge can also backfire and create a serious backlash from existing users
- The free trial period is a must-have feature and may require tweaking in future
- A small business probably doesn’t have enough value to justify their demands for monthly payments
3. Selling merchandise
It’s a popular trend to sell merchandise in your free mobile apps. Many e-commerce businesses develop free versions to sell physical goods such as toys, shirts, shoes, etc. Further, these physical products are sold directly to the app or through email marketing.
For the purpose of encouragement of this strategy amongst app publishers, Amazon started a service known as Merch by Amazon. This service allows publishers to form their artwork, upload it to the platform and promote their products. It’s a win-win situation for both owners and app users.
Additionally, Amazon also takes care of the payments and delivery of the products.
Selling Merchandise: Pros & Cons
- Online sales allow you to reach people across the world at anytime
- Browsing through inventory feature for user to decide the order
- Shoppers never leave empty-handed
- Software integration issues i.e. eCommerce solutions take more time resulting in data errors
- Inventor visibility is poor
- Disjoint shopping experience
- Poor m-commerce experience
4. In-app Purchases
The in-app purchases model is directly made from within the free mobile apps and is a simple process. In-app purchase is basically useful in accessing the feature and special content of the app i.e. additional features, restrictive levels, or powerups.
In short, the in-app purchases model provides the ability to sell a variety of virtual items straight away from the app. The best free games such as COD, FIFA, etc. have enhanced their user experience by providing users with in-app purchases.
Generally, this model comes in handy for game publishers, and that too is mostly because of digital money.
This is an interesting model for the conversion of non-paying app users into paying users without being fussy.
According to a survey by a tech company Fyber ,“among ad agencies and brands, there are a number of brands, approximately 77%, which we have asked their agencies to invest in the in-app purchases inventory”.
Both UK agencies and advertisers are spending a majority of their advertising budgets on mobile. The main reason for investing in In-app ads is because of the format, it’s more reliable than browser ads. Further improvement in engagement is another core reason for going with in-app purchases.
In-app Purchases: Pros & Cons
- It is a decent chance to gain high profits from a low monetization method
- In-app purchase model is best for gaming apps as games provide more than one currency such as gems, coins, and gold
- Key for providing more advanced services through an application
- Credit details are secured safely for in-app purchases
- Poor implementation of In-app purchases will surely lead to bad reviews & a sign of frustration from users
- Once a user buys in-app purchases, expectations of services exceeds
- App development cost is high in designing advanced level features and functionalities
Having a sponsor is a nice way of making money with apps. It remains one of the less commonly used monetization methods, but it’s still a fascinating monetization strategy.
In short, if your app responds to the needs of a niche group of users, there is a possibility that you will find people or partners who will be happy to sponsor it. This helps sponsors to deliver their message to the audience.
So before creating your app, list out the organization and brands that will benefit from a partnership.
A simple example for such sponsorship is fitness apps; they partner with smartwatches or smart health devices. Once the play is in motion both the parties benefit from it i.e. sponsors get to showcase their product and fitness apps keep generating revenue.
Sponsorship: Pros & Cons
- It includes advertising space for brands within your app with exclusive content or discount
- Brands can also outstand their presence in the app and expose users to different offers and discounts
- Negligible disturbance while the user uses the application
- The app must have a strong brand for sponsorship
- Need tools for measuring success i.e. performance tracking
- Partnership with the wrong people will certainly affect your app’s ROI
6. Referral marketing
In this monetization model, you generate income through user interaction count i.e. product usage, referrals, or services. Generally, referral marketing involves the promotion of a third-party product or service.
The number of clicks or installs gives a fair idea to app publishers for promoting or selling affiliate products or services.
Types of Referral Marketing
#1 CPA- Cost per Action
The revenue comes through the promotion of products, displaying ads, or offering in-app purchases of third-party offerings.
#2 CPC-Cost per click
Here the publisher receives a payment every time a user clicks on the ad displayed.
#3 CPV- cost per view
Get paid when users play referral videos
#4 CPI- cost per install
You make money every time a user installs a referral app through your app. For example, User is playing a soccer game and he get a referral for a similar game as an advertisement. If the user installs that game, you earn money.
Referral Marketing: Pros & Cons
- An appropriate way to promote the most loved or sold product in the app
- The most trusted and influential monetization model for apps
- Referred customers are both loyal and profitable
- Tools are needed for tracking a referral campaign
- Multiple referral programs not allowed
7. Collecting and Selling Data
As you are aware, apps collect a lot of user data; this is for the purpose of analyzing user behavior or other usage patterns. This data is useful for many researchers in various fields and in demand.
This also means that the free publisher’s app can sell user behavior data to researchers based on the demand. The data normally contains details such as email addresses, social media accounts, and users’ personal preferences.
This model will benefit you in two ways. You can either sell the data to outside companies and researchers or use the raw data for your own benefit.
From a marketing perspective, companies are focusing on displaying ads to the most relevant audience. So, if you are able to collect relevant data, you can make a healthy profit out of it.
Collecting and Selling Data: Pros & Cons
- This monetization model will allow you to avail consumer segmentation and make the buying process easy
- The collection of relevant data is helpful to identify and analyze consumers’ feedback and make them available to appropriate companies
- Can transform into genuine monetization app model
- Exposure of consumers’ data
- Difficult to maintain accountability with customers
- It is hard to manage consumer data security
8. Freemium Upsell
Freemium app is available free of cost for downloading but they also have paid or premium features. These paid and premium features are accessible through in-app purchases.
This type of freemium model app allows users to download the app without paying any charge. So, if they like the content, they are able to access full functionality by committing a purchase. This tactic helps lure new customers as premium features are optional. Example: LinkedIn
The freemium upsell model lets customers download apps for free but with the condition to buy additional or premium features. In-app purchases integration is useful to access such features and other android app development services.
This strategy is extremely common for education, health, and sports.
Freemium Upsell: Pros & Cons
- No intrusive ads
- Model is feasible with any other approach
- Low maintenance app monetization strategy
- Free usage leads to a wide reach of users
- Frequent revenue fluctuations
- Maintenance cost is on you due to apps free of cost nature
- Users may easily abandon your application
9. Transaction fees
The best method for monetizing your app is through transaction fees. It is possible with the apps that provide a platform because the digital transaction will occur on regular basis.
For instance, your mobile app has an option for third parties to sell their products and if those purchases are possible to carry out online, you can charge the transaction fees. A small fee is charged for every single transaction. This charge will help your app make more money.
Transaction Fees: Pros & Cons
- Considered as income generation in disguise
- The model promotes cashless transactions
- User credibility remains intact
- Fix income
- Not compatible with any other monetization model
Another monetization model for making money from free apps is crowdfunding. This method is new in the industry. Here in this method, companies or startups share their idea on platforms such as Kickstarter, Patreon, Crowd Supply, Fundable, Indiegogo, or chuffed. They share it in search of donations to fund the development and promotion of the application.
Crowdfunding: Pros & Cons
- Access to cheap money
- Pre-funding of your next project
- Easier investor relations
- Too much transparency
- Fundraising is expensive
- Running a crowdfunding campaign takes a lot of time than anticipated
- Chances of failing are high
Check Out: How To Create A Social Media App?
Tips for selecting the Best App monetization Methods
1. Keep the type of app in the center
Before selecting any of the monetization models, you need to understand the type of your app. Once you have a clear idea regarding the purpose, you will be all set for selecting your appropriate monetization method.
2. Competitor analysis
This analysis is not just for the features, functionalities, or design. With a proper analysis of your competitors, you can easily point out the monetization methods suitable for your app.
3. Target audience
For successfully earning online revenue through app monetization strategies, you will require to know and study your target audience. Who will benefit? What does your user need? How much is the audience willing to pay? These are some questions that will help you know your target audience and their needs.
You have all the bases covered but, if you don’t estimate the cost of your product then it’s going to leave you hanging in the middle.
How to Calculate App Development Costs?
Are you planning to develop an app but not sure if it will fit in your budget or not? Not sure how much it will cost? No problem here is the app development budget calculation formula.
For example, to develop an on-demand food delivery mobile app like Swiggy or Zomato,
Development Hours of Driver App: 300
Development of User App: 350
Total Hours: 650
Hourly Rate of The Developer: $25
Total App Development Cost: $ 16,250
The cost varies for various app categories and technology to be used. So, if you have an idea ready to launch, we have the best team of mobile app developers.
Final Take- Can you make money off a free app?
The increase in downloads indicates the hype for free app development is going to keep evolving in the near future. The app monetization models have their own benefits & drawbacks; still, they will be part of this evolution and contribute to technology advancement. This means that you can make money off a free app with proper integration of choice of application and monetization strategy.
So, if you are thinking to monetize your free app, you can choose our company for getting the best monetization strategy. If you are yet to create an app, you wish you had on the internet no worries, contact our expert and discuss the brilliant app development idea that you have.