The Math of Making Millions from a $0 app

Suss out the business model to making a lot of money from an app that costs next to nothing.

Free is the expectation of the Internet and recently, software on the mobile.

The recent report posted by Flurry Analytics on 18 July 2013 shows an increased volume of apps being offered for free, along with a diminished average app price a user will consider paying for a mobile app across the Android and iOS platforms.

This report is a reinforcement of the downward trend of app prices since the Apple App Store opened – pushing developers to obtain greater exposure and a higher number of downloads for their apps by giving them away for free. This caused the prices of apps to fall drastically, to the point of being “expensive” at $0.99 for an app (software or game), usable for a lifetime.

As the number of free apps increases, the question of monetizing apps becomes more relevant to any business that is attempting to enter into the mobile platform.

Which Monetisation Model to Use?

There are only two real strategies to monetize your software app or technology:

  1. getting paid by advertisers, or
  2. by users through purchase.

Even in a market where people increasingly prefer free, ad-supported apps for their tablets and smartphones, choosing one of the two available strategies still requires careful thought and execution.

First option – receipts through users

A great case study for users opting to pay for an app is Whatsapp – which operates on a sole source of revenue of a $0.99 annual user fee, imposed after a free year-long trial run. Users experience no advertising; only clean functionality (no ads or in-app purchases) and tangible value – 99cents for a year’s worth of text and multimedia messages. Similar chat apps like LINE and WeChat are downloadable for free – and have seen revenues of millions in a quarter, driven by stickers and in-app purchases.

Should your technology offer users tangible value as in the case of chat apps, choosing the first option of having your user pay for the app or via in-app purchases becomes a good fit. Should they have been supported by ads, their tangible value would have been snuffed out. A good checklist, amongst other things, for considering the first option could be:

  1. how much value would your app give for people to use it often,
  2. the willingness to pay for your app, and
  3. the monetization model of competitor apps.

The second option – receipts through advertisements

In April last year, The New York Times reported a new high of mobile advertising revenue at US$1.6 Billion, a 149 percent increase from US$641 million in 2010.

Advertisers are more open and ready to utilize mobile apps as part of digital medium efforts – due to the ability to “deliver timely, targeted, relevant and local advertisements in a manner that was not previously possible”, David Silverman, partner at PricewaterhouseCoopers, who remarked at the findings of the report.

Advertisers are also more willing to pay for your software than users, however, this will require your technology to provide 3rd party companies with your user’s information and details. The ability of your app to keep users engaged becomes a key performance indicator for advertisers as well. This could mean an adjustment on the back end of your technology to protect you or your user’s privacy or interest, as well as a change in your user experience – as you may be unable to decide which ads will appear on your app, and at what point.

There is a third option, widely known as the “freemium” model, which lets users decide if they’d prefer an ad-free app or an app free of ads. Although allowing the developer the best of both worlds through careful implementation, the model also places restrictions on the value of the app to the user.

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