How Do Free Apps Make Money?

by PixelForce     Posted on

Mobile apps enable the user to be in control of their experience. What this means is businesses have to think outside of the box when it comes to making money. If users are not being charged to use an app, there are multiple avenues to take to generate revenue and to make money with free mobile apps. We will explore the ways free mobile apps can make money - without charging their users a single cent!


What's the difference between a paid app, and a free app?

 

Paid apps

Paid apps are mobile apps that the user has to pay for before they can use them. Users must pay to download the app, which is common in productivity apps, fitness apps that are content heavy and those with useful functionality that users open and explore in their day to day lives.


Free apps

Free apps, on the other hand, are completely free to download and use on your mobile device from Google Play, or the Apple App Store. There are pros and cons to both paid and free mobile apps. Paid mobile apps give businesses a guaranteed stream of revenue, but with all paid products, there comes a price. The deliberation to whether or pay for something (or not) is enough to deter some users, therefore paid apps get fewer downloads than free apps.


How do you make money from free apps?

 

Just because there is no instant revenue from downloads, businesses can generate revenue from mobile applications in a variety of ways which we will delve into further.

 

In-app advertising

In-app advertising is a common way for free mobile apps to make money. Advertisers will pay mobile app developers to display their advertisements within the mobile app and these advertisements can be in the form of text, images or videos.

One of the main mobile ad networks, Google AdMob, currently serves over one million mobile app developers and reaches more than one billion mobile users around the world through its network of mobile websites and applications. As an advertiser, all mobile ad networks provide users with several types of business models to run mobile ad campaigns with. There are 5 major types – cost-per-mille (CPM), cost-per-click (CPC), cost-per-install (CPI),  and cost-per-action (CPA) and cost-per-view (CPV).

AdMob is the most popular mobile ad network, but there are others including Meta Audience Network (formally known as Facebook Audience Network).

There are different ad formats that can show in-app:

Interstitials (full-screen ads) - a classic example of interruption marketing. These appear when you're downloading an app, or when a particular session in the app comes to an end.
Banner ads - typically in rectangular ad unit blocks. Banner ads generally occupy the top or bottom position of a typical app layout. The ad that is displayed will change at regular intervals based on information received from the ad network.
Native ads - these ads present as a native component to the app by using the colours, and look and feel of the app’s branding and functionality. Native ads are a popular choice as they don't interrupt the user experience. You can manage this by uploading templates when you choose to show native ads within the app, and advertisers will use these templates for the ad.
Rewarded ads - these ads reward the user in some way for watching the ad in-app. This is a popular choice for advertising in gaming apps or where a particular currency is used. Rewarded ads are commonly found in gaming apps.

 

Freemium apps

Freemium is a great way to monetise free mobile apps by making the app free to download, but users can then choose to pay for additional features or content within the app. Freemium apps may utilise gated features, think Spotify and Tinder. The apps have such great usability that users are inclined to pay for additional features. Spotify Premium subscribers can listen to music offline, access playlists and songs on multiple devices - all for a monthly subscription fee. Tinder premium subscribers are able to undo swipes they regret as well as see who has liked their profile among other additional features. These features are powerful and once users have already downloaded the app and experienced it for themselves, they are more likely to be willing to pay for the extra benefits. By inserting paywalls once users have already engaged with the app and its basic functionalities for free, revenue is unlocked by offering more advanced features.


In-app purchases

Another way for mobile apps to generate revenue is through in-app purchases. In-app purchases generate revenue by offering one-off purchases to users, rather than offering a subscription model. Many mobile games make use of this kind of monetisation as it helps them to stay free and generate revenue through one-off purchases, such as currency or power-ups.

If the price for in-app purchases is perceived as low, it can be an effective way for mobile apps to generate revenue. However, if the price is too high, it could deter users. The key is small and incremental repeat purchases to ensure income using this monetisation method. The high frequency and repetitive low-cost, seemingly insignificant purchases are what generates revenue for free to download apps. Time-limited offers that create scarcity and urgency can also persuade the user to make in-app purchases. Use the oldest marketing trick in the book and leverage a user’s FOMO (fear of missing out) for a useful revenue stream for free apps.


Sponsorship

Sponsorship is a strategy free apps can use to generate revenue once they have a loyal number of users. By partnering with brands, companies or other app developers, free apps can offer in-app advertisements or sponsored content specific to that brand. This is a more targeted way to offer in-app advertisements and a brand can offer payment for product placement in a chosen section of your app that suits the user experience. For example, an app that offers cooking tips and recipes could be sponsored by a food company to advertise their products to the free mobile apps' recipe section. Remember, this has to be a valuable investment for the brand. Attracting sponsorships takes an app of premium quality, with many users. Having metrics about who the users are, including demographic information and usage metrics will help in winning sponsorship opportunities with brands.

If you have a free mobile app, there are many ways to monetise it. You can get creative with the strategies and offer a mixture of monetisation methods to generate revenue. Before deciding on one, or a combination of these methods, extensive research and understanding your end-user is key.

We can help you figure out which of these options will work best for your product and budget - all tailored specifically to suit your needs as well as those of the end-user. Book in a free 30 minute consult to learn more.

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