How do free apps make money?

Tue 1 Dec 2020

App development is not a cheap process – you need programmers, graphic designers, product managers, QA testers, database administrators, and other vital team members just to create a basic product. With all the associated operational costs, development can run into hundreds of thousands of pounds. Giving away the finished product as a free download may seem counterintuitive, but many of the top grossing apps do just that – in fact as of the fourth quarter of 2017, 94% of all Android apps in the Google Play store were available for free. Here’s how they monetise:

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In-App Purchases

The ‘freemium’ model is one of the most popular options for app developers. The app is free to download, and users can access all the basic features. However, if they want additional perks (which may include unlocking additional features or removing advertisements from the app), they need to pay a fee. Developers keep 70% of this fee and the other 30% of the revenue goes to the store. In-app purchases are frequently used in gaming apps that have consumable items, for example extra lives in Candy Crush Saga that enable players to extend their playing time or upgraded characters and weapons in Multiplayer Online Battle Games (MOBA). Other apps offer non-renewable or auto-renewable subscription services, which provide content over a set period. Newspapers and magazines frequently allow readers to view a certain number of free articles per month, with the option of unlimited content if they pay a monthly subscription fee. The vast majority of app users will never pay for content, so developers rely on a small number of customers (fewer than 2%) to make a profit. For a freemium model to work, developers need to ensure that:

  • Users are highly engaged with the product.
  • User experience is the top priority.
  • In-app purchases add genuine value to users.
  • The economy has the capability to take large amounts of money from a small number of users.

In-App Advertising

Mobile advertising is the most profitable app revenue model, used by nearly 65% of the largest apps in the app stores. Many apps use it in combination with the freemium model to maximise revenue. In-app advertising comes in a variety of sizes and placements and developers are paid according to their ad network agreement - when an ad is displayed (per impression), when an ad is clicked on (per click), or when an advertised app is installed (per install). Ad placement includes:

  • Banner ads – These stretch across the top or bottom part of the screen. With low engagement rates, they offer limited revenue, but are less obtrusive for users than other ad types.
  • Interstitial ads -  These are full-screen pop-ups that need to be closed manually, either by opening the promoted page or clicking the close button in the corner. If integrated into a natural transition within the app they can be successful, but developers run the risk of losing users if they interrupt the performance of a game or product.
  • Native ads – These appear seamlessly within the app platform (for example as sponsored content). They are generally considered less irritating to app users and have higher conversion rates.
  • In-app video ads – These are either displayed automatically or opened on demand in exchange for an in-app reward. For example, gaming companies may offer their players the opportunity to watch a video ad in exchange for in-app currency or other in-game perks. Users are generally receptive to this reward video format.

As a developer, user experience is the most important factor to consider when deciding how to incorporate ads into your app. Hindering user navigation or interrupting actions will likely have a negative impact on user growth and retention.

Interested in a career in app development? An MA in Creative App Development from Falmouth University’s Flexible Learning can help you develop the skills and connections you need to take advantage of the opportunities available in this growing field. Visit our course page for more information.

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