As an entrepreneur, the first question that comes to mind is how a free app can generate more revenue than a paid app. It is a very common question that many entrepreneurs have at the beginning of their career around the paid vs free app because, in the long run, some prefer paid apps over free apps as a safe and easy way to cover their business expense costs. Those who choose a free app, on the other hand, are more likely to remain for an extended period of time on the market.
According to recent Techcrunch reports, free apps are more likely to garner attention, profit, and downloads than paid apps. Because paid apps have a price, another factor that influences paid apps is the expectation that comes with the price range, which burdens the entrepreneur in the future if they fail to maintain the quality for which they are charged, and users are unlikely to continue paying for the apps.
So, what’s the big difference between free and paid apps, and why is there such a big debate about which is better?
Consider yourself in the user’s shoes: if a free version of a paid app is available, why would the user pay for the app? Probably the service and luxury; however, if everything else, from features to overall delivery of the services, is the same, users are likely to abandon paid apps.
As we know, free apps win with clear results over paid apps in the race, but the main question here is how free apps make money, as downloads and popularity alone will not help, so how do free apps make more money than paid apps?
If you are an entrepreneur looking to make a smart investment in order to stay in the market for the long term, here are a few tips on how to make more money by investing in a free app rather than a paid app.
The distinction between paid and free apps
|Free Apps||Paid Apps|
|Attract more users and can assist in reaching a larger audience.||Due to the app’s limited monetization options, some users may choose not to use it because they chose not to spend any money.|
|The process of downloading free apps is much faster and simpler.||Expectations are high because paid apps have a track record of being of relatively higher quality in terms of design and features than free apps, and companies occasionally fall short.|
|With no paywall or need to enter payment information, more consumers will be enticed to download a free app.||Along with the quality and design of the app, the code and so on involved in its development may be complex and resource-intensive.|
|Ad revenue enables a profit to be made while providing consumers with a free app.||Creating a paid app for an unfamiliar commercial entity is inadequate for marketing and typically results in low download numbers.|
|Users who post reviews in popular app markets are more likely to be kinder to an app they didn’t have to pay for.||Paid apps are most effective only when the company or individual has a strong following.|
- Advertisement is the Answer
We’ve all heard the term “advertisement,” but did you know that it’s the most important and effective way to earn and keep people’s attention? Advertisement is the one that solely catches many eyes and has become a favorite of companies to build a quick user base in a limited amount of time.
It attracts more attention as it is presented visually, and it encourages users to try the new app that is constantly displayed on the app.
The advertisement can be shown in five different ways. The procedures are detailed below.
- Interstitial advertisements:
This advertisement is in the pop-up format, which means that it appears for a second or two and then disappears, followed by an option with a closing symbol; when you click on it, the ad display closes.
The interstitial ad is popular among apps such as Spotify, Saavn, PicsArt, Hotstar, and many others; the rate is fixed based on the app’s reachability; the higher the reachability, the more charges.
- Banner advertisements:
Banner advertisements are typically smaller in size and remain visible in the window or app. This one stays up, so it doesn’t irritate the user’s eyes, and it knows how to do small-scale promotion.
Because the proportion of this ad is smaller in size and does not disturb the user who is using an app, banner ads usually stay longer than all other ads.
- In-app video advertisements:
In the case of a game app, the in-app video ad basically takes the lead; this ad appears in a swap for coins or to cross another level or simply to unlock some features. This ad is primarily used in games and free streaming apps. To gain access to or upgrade to a higher level in a game, or simply in streaming apps that require you to watch ads in between while displaying free content for a limited time.
- Native advertisements:
Native advertising is the newest form of advertising in the industry. As its popularity grows and it reaches a larger audience, this ad irritated fewer users by not getting in their way. However, this ad method is still regarded as leaving a negative response from users.
Native ads take up less space and deliver advertisements to the audience, but they have less spreadability and coverage compared to other types of advertisements.
- Rewarded Videos:
Rewarded videos are highly and primarily can sit on the video games of a gaming app, where basically when the player wants to reach a certain level or want a reward in exchange they have to watch the video from beginning to end, as a result, this ad method is considered the most popular and accepted among the users and the business.
Because the player is precisely watching the video, the chances of conveying the message to the audience are increased in the case of this advertisement.
This type of advertisement promotes the business and reaches more than its targeted audiences; as a result, it is widely accepted in the gaming app industry.
- There are numerous marketing methods; however, this method produces immediate results.
- This advertisement yields quicker results at a lower cost.
- Companies can concentrate on the selective ads that consumers accept and easily target their target audience by displaying similar types of apps or extracting data.
- As well as the numerous benefits of having this advertisement, there are a few drawbacks. Starting with its repetition of the same ad in a timely manner, it has a higher chance of annoying the user base, and by overthrowing these ads at them, the users may abandon the current app.
- Ads are only as good as the user is okay with them. In the case of these ads, the repetition can jeopardize the business by exposing some of the business as a forgery while presenting the form of these advertisements.
- In-App Purchase
An in-app purchase is any fee that an app may charge. Many in-app purchases are optional or provide users with additional features; others function others operate as subscriptions, requiring users to sign up and pay a fee in order to use the app. often following a free trial period. Creating a Google Play or App Store account necessitates the use of a credit or debit card to cover any costs associated with the download of paid apps. Because apps are downloaded via those platforms, they have the ability to charge the card associated with the account directly.
The in-app purchase is a subtle way of extracting money from the crowd without bothering them or getting in their way.
The in-app basically functions as an app that provides its features for free, and if users want to use the premium quality features, they must pay a nominal fee. This way, the app appears to be genuine, and after using it for a while, the user makes their purchase to the in-app.
According to a recent calculation by BusinessOfApps,
- Disney+ has generated $285 million in in-app purchase revenue since launch, surpassing Netflix and Amazon Prime Video (Apptopia),
- In October 2018, Sapio research reported that 77%t of brands plan to invest in in-app advertising, with a 41% increase in campaign ROI.
- As Apple App Store’s 1.96 million applications and Google Play Store’s 2.87 million, In-app advertising outperforms display advertising on the mobile web in terms of consumer experience.
- Using in-app purchases can help market a freemium title as the marketing can be tailored to attract the right user at the right time.
- Due to the pandemic, advertisers spent less on in-app advertising as users became less tolerant of the ads.
- The main disadvantage of using the in-app purchase business model is that it necessitates a large number of users in order to generate significant profits.
- Extensive user acquisition efforts are required, which can be costly for startups.
- Referral Marketing
Referral marketing revolves around the old traditional way of marketing, which entails marketing another product on their own app; examples of this marketing include Amazon, Flipkart, and Alibaba, where the brands promote another app sequentially and promote apps. Referral marketing is the practice of promoting a third-party product or service in order to maximize profitability
This marketing can be divided into three types of practices, which are as follows..
Cost per acquisition or cost per action (CPA):
CPA for online advertising is based solely on qualifying actions such as sales or registrations. CPA is an important metric for every business because it provides a business perspective through which they can evaluate the success of their campaign.
CPA is primarily concerned with profit by promoting other apps or products through pop-ups in their own apps.
- The median cost per acquisition (CPA) for (PPC) search is $59.18, while the average CPA for display is slightly higher at $60.76.
Cost per click (CPC):
Cost per click (CPC) is a payment model in which an advertiser pays the publisher for each instance when their ad is clicked – this would be within the publisher’s inventory, which could be a mobile app or a website. The total cost of your clicks is divided by the total number of clicks to calculate CPC.
- At the moment, the average CPC for one of the most popular mobile advertising platforms, Google AdWords, is around $2.32 per click.
Cost per view (CPV):
The cost per view (CPV) is the fee that an advertiser pays for each time their video ad is played. This compensation model relies on ad plays to evaluate constructive audience interest, offering advertisers higher returns on their investment.
There are two ways to include ads on YouTube using the Google TrueView system.
In-stream: Viewers are forced to watch the first 5 seconds of the advertisement before being given the option to skip if they so desire.
In-display: show up in YouTube or other Google search results as clickable options along with other clips.
Cost per Install (CPI):
CPI is a financial strategy used in mobile user acquisition campaigns that requires app advertisers to pay nearly every time a user downloads their app after seeing the advertisement.
It’s a popular pricing model that is only applicable to mobile apps.
Such campaigns encourage publishers to promote their mobile apps digitally across a diverse set of apps and brands.
The price may differ depending on the type of mobile device, operating system (iOS or Android), region or country, or application.
- In contrast to television, radio, or print advertisements, the audience is engaged with the app and therefore informed of the brand. This captive audience can aid in conversions.
- According to AppSavvy, this advertising method outperforms banner ads by 11.4 times on average, which is a significant increase.
- The person who saw your ad decided to download the app. They’re interested in what the app has to offer. When you advertise in relevant apps, you have a targeted audience, which makes your campaign a success.
- Despite the captive audience, the number of clicks is unusually low.
- Instead of 15 seconds, the average consumer’s attention span is now 8 seconds. As a result, some advertisers’ attention and impact are fading faster.
The specific goal of subscription is to attract not only customers but also loyal subscribers who are likely to keep their subscription for an extended period of time. To be a successful subscription marketer, the first thing you need to do is determine the value of your product and what your brand can offer that others cannot. This increases retention and justifies its price. Between 2012 and 2019, the subscription-based economy grew 350 percent, and subscription companies grew their sales approximately five times faster than the S&P(Standard and Poor’s 500)500 company’s sales.
Netflix, for example, grew into the subscription powerhouse we all know and admire because streaming films digital and possessing them presented to our door was far more convenient than going to the local movie theatre.
- This marketing strategy emphasises convenience as a key selling point.
- Subscriptions can also be used to sell services that are frequently used.
- This subscription marketing technique enables you to communicate directly with potential customers about your offers and cultivate their interest over time.
- Falsified credit or debit card denials can occur for a variety of reasons and have become a significant problem for online retailers.
- Revenue can be extremely volatile.
- Many customers are unsure whether they will find value in the product, so they avoid compromising or are concerned about a difficult-to-break contract.
- As a subscription-based business, the company must constantly provide special value to its customers, which can be both frustrating and time-consuming.
- eCommerce & merchandise
Many people like the idea of being able to purchase an item for next-day delivery from the comfort of their own home. E-commerce merchandising has grown in importance as a method of capturing the attention of customers.
In 2019, 14.1 % of global retail sales were conducted online; this figure is expected to rise in the future; according to eMarketer, it will account for 22 % of global retail sales by 2023. Another evolution of e-commerce merchandising is the personalization of the shopping experience.
Today, you can see who is visiting your website and get a better idea of your demographics and who to target with eCommerce marketing in the future with just a few clicks.
- The beauty of eCommerce merchandising is that it is highly visual.
- You can reap the benefits by advertising your products with the highest conversion rate as well as current trending products.
- There are numerous CTAs that encourage customers to make a purchase.
- Delivery delays are caused by long lead times and poor inventory management.
- Product images on the Internet can sometimes be deceiving. Real-life texture and appearance may differ from that of visuals.
- Customers’ credit card and banking information has been compromised, raising concerns about privacy and making online payments unsafe.
- The Sponsorship
A sponsorship is a type of advertising that app publishers may not be aware of. If your app has a large user base and a high level of user engagement, you should think about how other companies can benefit from offering their products or services to your audience and how it will benefit your users to make it work. Using this model, the app will essentially have a single advertiser who will handle all of the app’s revenue generation potential. A sponsor in your app can be represented by an icon, a larger part of the app interface with your logo, a welcome screen that is immediately visible to app users or pushes notifications.
- Sponsorship placements are more static in nature.
- Compared to other advertising methods, this method causes less disruption to users.
- Capability to use existing resources or create a cost-effective solution through the formation of a dedicated team or brand studio.
- Calculating ROI for brands and demonstrating campaign success.
- In monetary terms, it may not be as profitable as other monetization models.
- This method is new, and the success rates are uncertain.
- Freemium Model
In this model, app publishers allow mobile device users to download apps with limited functionality for free and then charge them through in-app purchases for premium features, additional content, or digital products. This model is the desktop software equivalent of a free trial model. It’s a matter of making a carefully considered decision about which app features to provide for free and which to charge extra for your app users. Candy Crush Saga, Dropbox, Spotify, Evernote and others are well-known Freemium practitioners.
- Because there is no usage barrier, freemium apps attract more users.
- Since there are no barriers to use, the app attracts more users.
- It is simple to gain a massive user base when the product is being offered for free.
- Supporting a large number of non-paying customers can quickly deplete a company’s cash reserves.
- Non-paying users require more assistance, which may necessitate diverting your team’s resources away from the application’s development.
- The greater the number of paying users, the greater the chance of conversion; the lower the number, the greater the risk of business failure.
- Physical Purchase
Once an application becomes a household name and achieves success, it begins its physical purchase, also known as its own merchandise.
When it comes to physical purchases, a company’s popularity grows, they try to capitalize on it with their merchandise.
In today’s world, where companies must take the high road and pay for advertisement to gain popularity, in the case of physical purchases, the company places their merchandise in the market for their followers, and they gain more popularity when more people buy it, and that’s how they get better advertisement. In the case of merchandise, it’s a win-win situation in both cases since they get a free promotion when people buy their merchandise and profit from selling their merchandise to their user base.
- An easier way to gain popularity among the youth
- Distinguishable from traditional marketing strategies
- More personalization
- The execution can cause problems and become tedious.
- To keep the app visible at all times, it takes twice as much energy in the back-end and front-end developers.
- Comes with very little chance of success.
- Transaction Fees
In the case of transaction fees, the procedure is straightforward: whenever someone uses your app and makes a purchase, you simply request transaction fees. The trick is simple: they make the purchase, and you, as a business owner, ask for the charges they incurred during that time period.
For example, as an Amazon seller, the seller can sell their product on a third-party basis, and as the owner, you can add transaction fees to that product, so that every time a purchase or sale occurs, you get a percentage as a transaction fee.
Once you have a sufficient number of buyers and sellers on your app, the transaction fees function properly.
- The method of transaction fees is primarily profitable.
- The fees are essentially cashless, so the payment method is smooth.
- There is no fraud during the transaction process, and the user’s credibility will not get jeopardized.
- It is incompatible with any other type of monetization model.
- As its amount is pre-fixed, it cannot be changed for a set period of time, even if the cost does not meet market standards.
- If the transaction fees are higher than the market rate, potential clients lose out.
Crowdfunding is the process by which a project is publicly funded via the Internet. This method can be tricky because you never know how much money the public will contribute to your project. According to the study, the success rate of crowdfunding campaigns is around 50%, with a higher percentage for campaigns that exceeded their goal.
Some of the most famous crowdfunding platforms for funding your app are:
In addition to these crowdfunding platforms, you should understand that the actual income generation and how stable this income is certainly highly unpredictable.
- It can be a fast way of raising funds at no cost beforehand.
- Ideas that may not appeal to traditional investors are often more easily funded.
- Through the financing process, your investors can frequently become your most loyal customers.
- Someone else might see your business idea on a crowdfunding site and steal it if it hasn’t been protected by a patent or copyright.
- Failed projects endanger your company’s reputation as well as the people who have pledged money to you.
- If the rewards or returns are incorrect, it may imply that too much of the business is given away to investors.
- Email marketing
Email marketing is one of the most traditional forms of online marketing, dating back to the early 2000s. Email marketing fell out of favour with the rise of social media and mobile, but it has since resurfaced as an effective app monetization tool when done correctly. About 75% of Millennial generation interact with businesses via email, and the reason it’s been an important marketing tool again is that the other mediums are just too congested, so people naturally gravitate back to email to parse business-related information efficiently.
To effectively monetize your app through email marketing, you must have several structural components in place. For example, multiple channels to capture email addresses to build a list for further communication (a website, social media channels, in-app form), a robust email marketing management tool, a well-thought-out strategy for portraying your app to your target audience and how you’ll keep them engaged about your app and relevant down the road.
- Compared to other forms of marketing, it is significantly less expensive.There are no costs associated with advertising, printing, or media space.
- It is used to engage both large audiences and smaller and more targeted groups.
- Can send plain text, graphics, or attach files – whatever best suits the message A variety of design options allows you to convey your company’s branding.
- Consumers are irritated by commercial email, also known as spam.’
- If messages are not being delivered to the intended recipients, the recipient may delete or unsubscribe.
- Emails with poor design may not be delivered.
A mobile app is a business, and you should treat it as such, so its development should always begin with a solid marketing plan. In 2021, a mobile app is no longer a deal-breaker; it is simply one of the ways e-commerce businesses sell a product or service. It is a channel, and this should influence your decision about which app monetization strategy to use.
To learn more about the process of making free apps a complete success, please contact us; we would be delighted to assist you in developing the best app for your business.