How Do Free Apps Make Money?

How Do Free Apps Make Money?

Business today has come light years ahead of what it used to be, 2-3 decades ago. Everything is online these days. And the e-business has literally become the richest business. Conglomerates like Facebook, WhatsApp, Instagram, etc. are worth billions of dollars each. Most people wonder how an mobile apps like WhatsApp or Facebook, which you install on your device for free, makes so much money that its worth is in billions. That’s right. Billions. WhatsApp was bought for Nineteen billion dollars! Do you even have any idea what kind of money we’re talking about here? Insanely huge. So, how do these mobile apps make so much of money, when you do not pay even a single penny to use them? Where are those billions of dollars coming from? How does this happen? Stay tuned and keep scrolling down to understand the process, as we explain to you how free apps ‘monetize’ money in this article.

So, the question boils down to answers, as listed below:

1) THE FREEMIUM UPSELL 

The Freemium Upsell. The Freemium Upsell is one of the major earning sources of most free mobile apps. Almost all of us have at least once come across a ‘freemium’ app- You download an app from the App store/Play store for free, and when you start using it you notice an ad for Premium’ or ‘VIP’ version of the app available with better features. Say, you use a freemium photo editing app, and some exclusive filters are available only when you upgrade to premium version. Or, you download a freemium online Music app, and only if you get the paid Premium version, you can download songs on your device and listen to them later when you are offline.

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The benefit of the freemium upsell is that it removes a lot of friction from the download decision. People are very hesitant to download paid mobile apps because they don’t know exactly what they are getting. But with a freemium app people can download it, test it for free and just delete it if they don’t like it. The only big con of freemium apps for a developer is that only a small percentage of free users upgrade paying customers. A lot of focus is required to find a balance where you are making a high number of free users to paying customers without driving people away from your app.

2) SPONSORSHIPS

While many of us common people do not know it, but even mobile apps do have sponsors. The principle of making money here by sponsorships is pretty much like anywhere else – you get good people and brands with a lot of money to sponsor your app, and then you make money. In the app monetization world, Sponsorship was not one of the most common ways to make money until recently, but now it has started taking off well. The idea is to develop a niche app focusing on a particular audience and then finding a person or company who has a similar target audience and do a deal for them to sponsor the app.

The sponsorship arrangement usually looks something like this:

The developer takes the app and changes out most of the graphics, content in a way that they display the new sponsor’s brand. Commonly known as ‘white labeling’, this process that the developer follows is basically taking their own app and making it look like it is owned by the new sponsor. The sponsor gives the developer money in return. The amount of money the developer can make and how it’s paid can vary depending on the deal they make with the sponsor. Revenue split – The owner and the sponsor agree to split the revenue generated by the app, monthly sponsorship fee – The sponsor could pay the owner a set monthly fee for use of the app. Another benefit of taking on a sponsor is that they probably already have a large online following. Often sponsors will have popular social media accounts, blogs, YouTube channels etc.

3) Advertisements (Ads)

Ah. Ads. We all hate them, and find them so annoying! You’re using your mobile apps and suddenly a small pop-up pops out of the blue on your screen, advertising something in which you’re so-not-interested at the moment! But these ads which annoy us, help the app owners make money- Lots of it. When they start getting traffic, Ads can be a highly productive and constant revenue source. The biggest two ad networks are Aids and Ad mob – the first being Apple and the second being Google. Typically, it’s a pretty small CPM (cost per thousand impressions) that’s under a dollar and a CPC (cost per click) that can be a few bucks. You may think that this is just a matter of few bucks, but when it comes to the bigger brands, these ‘freemium’ bucks’ add up to insanely huge amounts. So, it’s good to have ads in the game and they can help the app owners monetize a lot of revenue.

4) CPI (Cost per Install) NETWORKS

Cost per install is a relatively new marketing mechanism and is the mobile equivalent to CPA (cost per acquisition) in the web marketing world. CPI is exactly what it sounds like – you pay per install that you get. Examples of this are Play haven and Chart boost – they are third parties that have the software you install into your app. You’ll often see this as a “pop-up” in games and apps, prompting you to look at another game and “Get It Now.” Those apps are dynamically served based on what app you have yourself. This actually works out to be a better deal than most developers report on advertising networks (often report 0.3% CTR with translates into a $15 CPI). $3 is cheaper than $15. Rocket science. There are tons of CPI companies popping up these days and be sure to let your developer know you want to incorporate them. They’re not too difficult to add onto a game or app but is helpful to discuss early on. These networks can be extremely lucrative as a developer or publisher.

5) SUBSCRIPTIONS

The subscription way to make money off free mobile apps is something that is very likely if the app has a regularly fresh and new content added to it. How it works, is pretty easy. Firstly, all the apps with subscriptions are available for free. The user downloads the app. There may or may not be some free content in the app. The user must then pay a regular subscription fee- just like you’d do for a magazine or newspaper, – to unlock all the other content offered by the app. How do the app owners manage the subscription model? The good news is it’s not much harder than adding in-app purchases to an app. Apple and Google offer subscriptions through their platforms just like IAP’s. This means Apple or Google handle the payments from users and then let the owners of the app have their share.

Examples: Some of the most talked about and most successful apps in recent times have been the Kardashian / Jenner series of mobile apps. Basically, a bunch of the Kardashian / Jenner’s released their own mobile apps with makeup tips, fashion advice, videos etc. They monetized the apps by having a $2.99 / month subscription fee. Users must subscribe to get access to any of the content inside the app. You would think that requiring a subscription before letting a user see any content would be a deterrent for new users. But here’s the kicker: The mobile apps offer a free 7-day trial. Users can subscribe with a couple of taps and no up-front payment. Unless they manually cancel the subscription before the trial ends they are automatically billed after 7 days. Pretty smart. The other interesting thing about these mobile apps is the very small monthly subscription fee. Even with such a small fee, the sheer volume of users quickly rocketed them to the top of the top grossing charts.

6) MERCHANDISE 

One of the first big mobile apps to use branded merchandise as a monetization method was Rovio’s Angry Birds. We all had seen at least angry birds merchandise somewhere- be it the t-shirts, the stationary, or the plastic ware. The basic principle here is taking your app as a brand and creating physical goods to sell alongside it. These physical goods can be sold from within the app, and they can also be sold through email marketing if email addresses of users are being collected. For a long time, it was difficult to create branded physical goods to sell alongside a mobile apps.

Then there are issues with handling payments & fulfillment as well. The good news is that this is getting easier, with new services being offered that really simplify the whole process. Amazon is a great example. They have a program called ‘Merch by Amazon’ that allows developers to easily sell custom designed t-shirts from within their mobile apps. Here’s how simple it is to use Merch by Amazon: You just create & upload the artwork you want on your t-shirts, promote the shirts using the tools provided by Amazon, and collect your share of the revenue. With Merch, Amazon handles the payment processing & fulfillment. This makes the whole process super easy for mobile apps developers.

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