In-App Purchases - Why the Freemium Model of Apps is Helping Developers and Businesses


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In-App Purchases - Why the Freemium Model of Apps is Helping Developers and Businesses

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In-App Purchases - Why the Freemium Model of Apps is Helping Developers and Businesses

  1. 1. In-App Purchases - Why theFreemium Model of Apps is Helping Developers and Businesses
  2. 2. IntroductionMonetization of apps has always been a priority for developers and businesses. Until 2009, paid apps were the only way that developers could earn revenue from apps, and with most apps being priced at $0.99, significant revenue was dependent on a large number of downloads. Premium apps came with in-app purchasing options, but with a higher price tag, only a small fraction of consumers opted for them. In 2009, the scenario changed completely, beginning with Apple extending in-app purchases to cover free apps. This meant that developers could create a single, basic version of an app (rather than having to create a ‘lite’ version and a premium version), with the option to improve functionality through offering purchase of additional features or premium upgrades. Today, the Freemium model is not restricted merely to the iTunes Store, but has been adopted by developers for Google Play(formerly Android Market) and more recently, the Amazon App Store.
  3. 3. In-App PurchasesThe Freemium approach is not new to software and gaming. For years, companies have offered free downloads to customers for a trial period as a means of letting them sample the product, with the belief that it would lead to paid conversions at a later stage, when they were convinced of the benefits of the product. However, with the surge in the number of mobile device users, the number of people with access to apps or games has increased considerably. According to statistics from Juniper Research, revenue from in-app purchases will reach $4.8 billion in 2016, more than twice the figure of $2.1 billion in 2011. The main reason for this is that more and more consumers are opting out of having to pay upfront for their apps and prefer the availability of choice as to whether or not to upgrade depending on their experience and frequency of use. For developers too, the Freemium model is beneficial for a number of reasons.
  4. 4. Additional Revenue Per CustomerIn-app purchases help developers get additional revenue from regular customers through offering extra features at a price. For instance, the Photo Effects app on iTunes Store lets users download the free version and edit their photos or videos by cropping the image, balancing colour or brightness, applying filters or photo effects, rotating the image and a host of other features. However, the user has to make an in-app purchase worth $2.99 for the option of saving and sharing the image on email or uploading to social networks.
  5. 5. Drop in PiracyMany paid apps faced the threat of piracy due to cheaper copycat or pirated versions being made available to users. This issue was faced by both iOS and Android developers. However, Freemium apps reduce the threat of piracy as they allow users to download the basic version at no cost. An example is the popular apps, Angry Birds, which went the freemium way on Google Play(Android Market) to put a check on piracy.
  6. 6. Reduced Development CostsAnother benefit that the freemium model offers developers is that they can initially develop a basic version of the app and offer smaller upgrade features at a price once the customer is a hooked. This reduces the time and development costs involved in getting the app on the store compared to developing a fully loaded premium paid app or offering several different $0.99 versions. In addition, as was the case with free apps, there isn’t a long wait for building up a fan base before recovering costs or gaining the confidence to develop a premium version.
  7. 7. ConclusionDespite these benefits, the freemium model will not automatically guarantee success to all developers. Like with paid apps, consumers will only be willing to pay if they are satisfied with the functionality, features and the uniqueness of the app. With Freemium apps trending across iTunes Store, Google Play(Android Market) and Amazon App Store, developers will find it harder to get their apps noticed. Only innovative developers, who learn to maintain the fine balance between encouraging in-app purchases and overselling or exploiting the user, will see long term success.
  8. 8. TechAhead has developed hundreds of apps for iOS, Android and other mobileplatforms. We have helped clients from across the world develop mobile appsin various categories, and are well acquainted with the process andtechnicalities of incorporating in-app purchases within apps. 5/15/2012