With smartphone users downloading 218 billion apps yearly, the global demand isn’t relenting anytime soon. And not surprisingly, free applications have dominated the smartphone app development market. Statistics show that only 3.2% of apps on the Google Play Store generate revenue. That means, for every paid app, 31 other apps are free. So how do free apps make money?
Free apps outnumbering paid applications might not be a surprise since most applications we use are free. But the question is always around how they make money.
This article explains the monetization strategies by which free apps generate revenue and make profits.
1. Advertisement
For obvious reasons, mobile ads are a highly used monetization strategy by free apps. With many apps using mobile ads, it’s hardly surprising that its market spending is expected to be $412 billion by 2024.
Mobile Ads are famous for their ease of use and straightforward monetization strategy. App owners just have to display commercials on their platform and get paid per activity on the advertisement. It could be through:
- Cost per view: You get paid for every user viewing the ads.
- Cost per click: App owners generate paid based on the number of clicks from the ad.
- Cost per install: As the name suggests, app owners earn money if users install an app through your commercial
Besides, ease of implementation is what endears many app owners to advertisements. Unlike many other monetization strategies, it requires less effort and fewer processes.
For instance, Ad platforms like AdMob and MoPub let you show commercials on your app. You’d have to integrate the ad platform and choose a suitable ad type and location to show the commercial. Almost immediately, your app is ready to show ads.
Meanwhile, creating successful ads isn’t always guaranteed. You must align the ad type that best suits your app ecosystem. The ad mustn’t be too frequent or harm your user experience. Here are different mobile ad types used by developers.
Interstitial Ads
This is a popular ad type used by many software owners. These ads are full-screen pop-ups that emerge midway through an app task. It also has a close button on the top left corner to close the commercial.
Banner Ads
These ads are shown in a bit of space at the topmost or bottommost part of the screen. Unlike interstitial Ads, they don’t cut into app tasks. Thus, they are more suited to a good user experience.
Video Ads
Video ads could be displayed automatically on the screen or tied to a reward. For instance, by providing rewards to users, gaming apps use video ads to earn money and boost user experience. Users earn extra points, free lives, or in-game assets and tokens. Such rewards can unlock a level, allow users to play longer, or buy virtual goods.
Rewarded video ads are highly regarded for their effectiveness. Unlike other ads, it maintains retention rates and makes owners earn as much as possible from apps.
2. Subscription
As straightforward as an ad monetization strategy can be, it is only optimal in some cases. Users can get annoyed by constant ads, which would cripple the experience. Especially when developing software that performs crucial tasks, a subscription model is often advised.
The subscription model ensures your app is free to download. However, the app is usually attached to a free trial that lets users test the app’s features. Thus, they pay a recurring subscription fee to have unlimited access. Once the subscription time elapses, they pay the same fee again to renew it.
Many entertainment and news platforms, cloud storage agencies, and professional software companies use subscriptions. Netflix, Spotify, and Amazon Prime Video are well-known examples.
Fair enough, subscription apps are performing exceptionally in the app market. The 2021 subscription app spending reached $2.5 billion and $6 billion on Android’s Play Store and iOS’ App Store, respectively. The US gaming industry also recorded $780 million in in-app subscription revenue in the same year.
3. Sponsorships
Although tricky and less common, sponsorships, when done well, can be a lucrative monetization strategy. It involves creating white-labeled apps for sponsors. Then, devising a compensation strategy for support.
Once you find a sponsor, you must adapt the app features to suit your brand. Such software may perform a crucial task for sponsors, market their products or lead customers to their website. Upon launch, you agree on a reward strategy. It could be splitting the app revenue or receiving a fixed sponsorship fee.
It’s essential to perform adequate market research for sponsorship apps. You have to build customized apps for specific company profiles and users. Only then will you see the right sponsors from companies that need your app.
4. Crowdfunding
Crowdfunding is a well-known monetization strategy across all niches. But in mobile app development, it’s relatively new.
This strategy involves creating a brilliant app idea. Once done, it gets funded worldwide by investors, entrepreneurs, and interested people. Each audience might donate as low as $1, but it accumulates to a large sum.
When crowdfunding, it’s essential to know the specifics of every crowdfunding website. For instance, Kickstarter crowdfunding protocols differ from how Indiegogo, Fundable, or Patreon crowdfund.
Let’s examine an example. Indiegogo has two crowdfunding options – fixed and flexible funding. Fixed funding refund contributors if your funding goal isn’t reached. In contrast, flexible funding doesn’t. Indiegogo also charges a 5% fee on total project funds raised. Read more about crowdfunding here.
5. Freemium Model
The Freemium monetization strategy is highly regarded for making users pay without being intrusive. It lets users download and access app features for free. Then, to use premium services, they’d have to pay specific fees.
Freemium can also be in the form of in-game assets. Users can pay to buy premium content, in-game tokens, features, or virtual assets. For instance, a gaming platform can pay a certain fee to unlock a new game level.
Amongst other monetization strategies, freemium enhances higher retention and lowers user acquisition costs. Examples of freemium software include Skype, Dropbox, WordPress, and Trello, amongst many others.
Other Revenue Generation Sources For Free Apps
Referral Marketing lets you earn from your app by providing affiliate or promotion services. You recommend other apps, platforms, or agencies through your app and earn money as a reward.
You can also earn money by Selling User Data. This model lets researchers or interested parties purchase information you’ve collected from your users.
Need Advice on Choosing An App Monetization Strategy?
Mobile app development is a long and tedious process. And before choosing an app revenue model, you’d have to build a quality solution. While solving a crucial task, such an app must have a ready-made market willing to use it. You’d surely need expert advice and know-how for such an enormous task.
That’s where the Emphasoft company can help. They provide mobile app development outsourcing services that handle your app creation task. Consultation services give helpful advice to refine your app idea. Once you’re ready for development, they will get your app done till launch.
