Most of the free apps make money from the digital advertisements they show after every few minutes, which may give them revenue per click, or per ad, or per a certain period of time that is fixed by them with the company of the ad.
Some free apps also have different monthly or annual subscriptions that people buy, and they earn money from, and people also make many in-app purchases that give money to these apps. There is also a concept of freemium upselling that will be discussed later in the article.
Most of the apps that exist today in the market are a part of the Google Play Store or the iOS App Store and are downloaded by people through them, depending on whether they are an Android user or own an iOS. As well know, many of these apps are totally free for us to download, so how do apps make money is the first and foremost question one may ask.
There are multiple different avenues through which a free app may earn money, and not just any money, billions of dollars, as it is suggested that last year, these free apps gained revenue of $73.1 billion. This is not just any amount; it is quite a heavy price that we, the users, are paying without even knowing when and how.
The Existing App Market
The mobile market, in recent years, has grown tremendously and is expected by the experts to continue growing as more businesses are coming up with their apps, and many people are finding different apps more appealing than previous ones.
On average, an adult spends about 4-6 hours in front of a screen, be it smartphones, a laptop, a tablet, or any other device. The market is that much in demand, and as mentioned earlier, grosses billions of dollars. The Fortune 500 and other companies and entrepreneurs are all trying to get their hands on this modern-day technology upgrade and entering the tech world.
As trends show, free apps earn more in the market than paid ones, when talking in terms of profits and the number of downloads, and again the question arises, how do apps make money, which may confuse many people, but has simple solutions to it.
But, before we get into the details and answer that question, we have news from Techcrunch that says that this booming app era is still here to stay, and will further grow, and is going nowhere anytime soon. So all mobile app developers and companies should gear up and be ready to move ahead with their ideas.
Difference: Free Apps vs. Paid Apps
|Free Apps||Paid Apps|
|Lower average revenue at each download, but higher average revenue overall||Higher average revenue on each download|
|Users are less likely to stay loyal to a free app, but they may get addicted and depending on the genre of the app (e.g., games)||Users are more loyal to their paid apps as they have a higher perceived value|
|The following of a free app depends on what service it is providing or what purpose it is serving for the users (e.g., work, entertainment, etc.)||May have a lesser following if users cannot try the app before purchasing|
|Has multiple competitors, but is itself free, so it can lure people towards itself||Has a lot of free competitors available in the market|
|Needs to keep the users engaged and give regular updates to intrigue them or they may delete the app altogether||Needs to provide more to the consumers as they are paying for it and expecting their desired outcome|
Android vs. iOS
Many people, before building an app, actually weigh the pros and cons of both these OS types: Android and iOS, and then see where their app fits best. The success of an app does not actually depend on which software to use, rather on the target audience that your app is looking forward to capturing.
For example, the US market for smartphones is dominated by iOS, so if your app targets the US market, you would most likely make more money from apps for the iOS system. If you are outside the US market, where Android is total domination, you are most probably going to resort to an app that appeals to that market and is for Google Play Store.
Thus, it is not a question of which platform would help the app developers make the most amount of money; rather, it is the target market that will set your platform goal for you. Though what most developers settle for is building an app that caters to both the iOS store and the google app store so that maximum results are gained from both parties, and the app becomes a success overall.
How Do Apps Make Money?
Different apps that are free use different methods of earning money, depending on what the company’s needs are, who their target market is, etc. Some of the simple ways in which apps can make money are as follows:
This is one of the easiest ways to make consumers pay when they download a free app. In-App purchases can be of different kinds, for example, if a user is playing on a game app, the game app can prompt them to buy coins and go forward to higher levels, or if a user is reading an online book, the book app can prompt them to buy the next chapter of the book in order to go forward. This intrigues the user, who is excited to go forward, so they purchase as required, and the app gets its revenue.
Another way the app can gain revenue and make money by being a free app is through advertisements that they can display. Digital advertisements can be seen in all kinds of apps, while playing a video, or any game app, or even when you are just browsing through, you can see ads that you may able to skip or ads that you have to watch till the end. In this case, though, the user is not the one paying the app developer, it is actually the company whose ads are being displayed that pays the developer, and that is how they make money here.
The apps also earn much of the revenue by providing its users that avenue of subscribing to the apps after downloading the free app. For example, people who download Netflix for free on their mobile phones or laptops can only watch anything on it once they have subscribed to a Netflix account. Bloomberg works in a similar way, where it prompts the user to make a subscription in order to receive updated information about the financial market. Many novel-reading apps also need you to make a subscription of how many books you can read in a certain paid amount.
Advertising Techniques in Apps:
As you may have already noticed while using an app on your device, multiple different kinds of ads come up on the screen, for example:
These are the ads that are displayed at the top or the bottom of your device’s screen and do not bother while the user is busy using the app. These have quite a low engagement rate as per research by companies.
These are the videos that pop up during the usage of the app and make you pause whatever you are doing for a duration of about 10 to 30 seconds. These disrupt the work you are doing on your device, but may also be a rewarding process. For example, the app may prompt you to watch a video in return for coins, or tickets which may help you move forward in the game or the work you are doing, so you willingly watch them at times.
These kinds of ads include sponsored material or important video content that is naturally integrated into the app itself, and do not necessarily disturb the consumers’ process of work; thus, users do not find these kinds of ads irritating like they do the rest of them.
These are the pictorial or graphic content ads that are not in video form but pop up in full-screen mode while the user is doing any work or playing on the device. This mostly happens when the user either opens or closes the application, and the user can press the cross sign to close the ad or click it if they are interested to know more about what is displayed.
These ads provide some sort of incentive to the user for watching it or acting upon the call of action presented in these ads. For example, mobile companies may present their offers and subscriptions in these ads that people may click to use, or an ad for making a certain donation or getting any kind of prize can be displayed that people may click to donate money or check if they won or not. This kind of advertising gets the attention of the users. (1,581)
Are Apps only for Mobile users?
As we have already read in multiple articles, apps are not only confined to the Mobile Phone users, and rather, apps can be downloaded and used by many other devices too, such as desktop computers, laptops, tablets, the iPad, and many others amongst these. The same apps also are downloadable on almost all of these devices with a similar outlook and frontend to make it easier for the users to use them.
In addition to these, many apps are a freemium upsell or subscription-based, which have a laptop or desktop version as well. For example, if you download Netflix on your mobile phone and subscribe to it, you can also use the same account on your laptop too, which gives you the advantage of a bigger screen and higher volume. So the usability and ease of use of any app depend on the usage of the app itself that determines which device would be suitable for its use.
Any app could or could not be successful, and it all depends on what the company at the backend has in mind. An app would not be successful only based on whether it is free or paid, because even free apps might fail at the end of the day. The success of apps relies on how do apps make money, and the following principles could help the company in this regard and should ideally be followed:
Know Your Users:
This is a very crucial step in the success of developing an app because you need to do some research and find out who would be using your app, for what reasons, and whom do you want to be targeting for maximum payback. This could be easier for people who have an active business already flowing, so they would know their target market and the demographics they will be catering to.
For others who have a completely new business they are going to be launching, they need to go in more detail and find out who exactly they want to target and who will be highly willing to go for the app they are offering. One needs to have a thorough understanding of the way people in the app market behave and think, and what attracts them the most.
For starters, find out the operating system where your app would be available and the kind of users that exist on that network. Then you can work your way through finding out what your app is offering and to whom and why would the users need this app. Once you have all the answers to these questions, you are ready to launch your app.
Know Your Competitors:
Many businesses overlook this highly important step but knowing your competitors that exist in the market is very crucial to the success of your app. The company or people wanting to develop an app need to see how their competition is doing online, and if their app is successful or not, and also try to find out what is making their app so famous and successful.
The first step, in this case, is to identify who your competitors are. Then, move forward to find out what they are offering through their apps and what operational components they are using to take that app to the end-users. The following graph can show in one snapshot what all is important for a company to find out about their competitors in the market.
Next, move on to finding out what is making your competitor successful, or why they are failing at their job. Find out their monetization methods, their marketing strategies, their distribution channels, and every detail that you can find about them before stepping into the market with your own product.
Once you’re done with the analysis, make a differentiation strategy that would take you a step ahead of your competitor in a slightly different way, and make that the focal point of your whole strategy. Include a branding strategy too, and then you will be ready to launch your app with no risk of competition.
Work with Subtlety:
Now, your know your users, and you have an in-depth idea about your competitors too, the next step in making your app successful would be to figure out how to convince our consumers to buy whatever your app is selling or make purchases within the app itself. You can do this by making the consumer believe that their app experience would be enhanced if they spend the right amount of money.
You need to create an illusion that spending money would take the users forward in a heightened way, and this could be done through offering the right amount of in-app purchases or just the right kind of advertisements that would attract your target audience.
What this also explains is that your free app should not be 100% perfect, and should be good, but not provide everything that the user needs, as this will lower the chances of the user buying anything and spending any money at all. You’ve got to create the illusion that they need to spend money to get the most out of your app. This is where your art of subtlety comes into play.
Your app needs to subtly tease the users with some enhanced features or benefits that they would be highly interested in buying. Like give them a chance to buy some tokens or coins in order to buy fancier belongings in the app, or show popups and banners at different intervals that advertise just the thing your target users need so that you get more clicks. In this way, you can use subtlety to get your consumer to spend and have you earn in no time, taking your app on its way towards success.
App Monetization Strategies of 2020:
An app can be monetized in multiple different ways, but the most effective of these ways are discussed in details as follows:
As discussed earlier, multiple kinds of advertising exist for app developers to take the opportunity of as follows:
- Banner Ads
- Video Ads
- Native Ads
- Interstitial Ads
- Incentivized Ads
All these kinds of ads are paid for by the companies whose ads would be playing, so the users still get to use the app for free, but the developer makes their money anyways.
Through research, it was found that ads of duration 10 to 30 seconds are ideal for any app. Moreover, it was also found that ads giving incentives by the end of it are preferred by users, because there was a sense of reward binding to them, and people were willing to watch a complete ad if it gives them a substantial reward at the end, making it a 2-way reward system.
Referral marketing is very similar to the advertising way of monetizing an app. It also has a marketing entity for it called affiliate marketing and is closely linked to an affiliate company.
The referral marketing, however, places some information and content regarding that affiliate company in the app and based on how many people click or install whatever is shown, an award is given to the user. These rewards have a model that they are based on, called the cost-per-action (CPA) revenue model.
This referral marketing is a model that is conducted in multiple ways, such as:
- To promote another application that is affiliated to the current one
- To promote an in-app advertisement which may be paying the company well
- To provide an in-app store where users can buy products and services from, in return, paying the app developer
A good example of this kind of marketing would be Amazon, whereby the developer can choose which products to showcase in their app depending on their target market, and the payout would be based on that product.
In-App Purchase & Freemium Model
As already discussed, in-app purchasing is a very rewarding monetizing strategy if the right things are available in the app for the users on it. Under the freemium model, though, the app should only allow a certain amount of free things to be available for the user and not the whole portion of the app, or else people would never buy anything and would only use the free offerings.
This is why a premium offer is always present, for example, a bonus of sorts, the option of blocking ads, some new app content, etc. that would lead to people buying any of the following kinds of products:
- Consumable items: those that can be used in the app for e.g., mobile game tokens, or extra points, or currency of the game, etc.
- Non-Consumable items: those that cannot be used but are a function in the app for e.g., blocking ads, app extension, etc.
- Subscription items: those that can be bought for a certain period of time, for e.g., unlimited chapters readable in a month, or full working capacity for a month in a game, etc.
Game apps such as Pokemon Go or Clash of Clans use this model appropriately and high gross revenue from their in-app purchases.
This has already been discussed often in this article and is related to drawing subscriptions of a certain period of time in return for some reward to the users. This means that this model gives the app revenue on a weekly, monthly, or annual basis, and is a fee charged to the users for certain incentives.
This model is highly regarded in the cloud services sector, where subscription can be bought for cloud storage, or other content, such as watching shows, movies, listening to music, receiving the news, etc. through free apps but with certain charges.
Many apps function in this way, for e.g., Netflix has a monthly subscription model if you want to watch TV shows or movies, and Spotify follows a subscription model if you want to hear music. JioSaavn Pro also gives a subscription choice if you want to listen to free music without any ad interruptions, and many big names like the Wall Street Journal or the New York Times gained a lot of revenue from their subscription model.
Getting sponsorship is a difficult task for any app developer, but it is highly profitable if free apps want to make money. This model is most successful for apps that are already developed and have a regular user base. This way, they can appeal to different companies, especially belonging to the same market niche, to sponsor the app and match the ads with their brand. Additionally, in-app information and content, plus an adaptation of the app design, could be done by the brand.
Two of the most common sponsorship deals that exist in the app market currently are:
- Set up a monthly sponsorship fee, which the company that is sponsoring would give to the app developer for their ads, content, design, etc.
- Equal division of all the revenue that is gained from the app between both parties: the developer and the sponsor.
An example of this kind of model is seen in the Weather Channel app, where they have a Home Depot background, showing that Home Depot has sponsored it.
This app monetization technique is new to the market, and developers use different fundraising apps to develop and market their own apps. The fundraising apps that help in this case are CrowdFunder, Kickstarter, AppsFunder, Indiegogo, and many more. This way, the developer gets the money to develop the app from elsewhere and does not have to pay from his own resources.
Examples for this kind of a monetization model usage are the games categories, that gross the most amounts of funds on Kickstarter, and even the Hello Earth game gained a lot of funds for its development.
Email marketing is an old technique that has been profitable in most industries over the time period. Through this strategy, the app developer company collects the users’ data – their cell numbers and email addresses mostly – and sends them company-related emails that spark their interests.
These could be emails about any product or service that you are selling, which interests them, or some update, feature, or reward notification that you feel will get them interested back into the app, etc.
The email addresses and contact numbers can be collected in different ways, like:
- Prompting the user for their email address with a popup that offers them bonus tokens or coins in return.
- By giving the user an option to sign in via Facebook or Google Accounts and get it from those sources.
- Through third-party tools that can easily collect email addresses for the app.
In all cases, the app must inform the users where their personal data will be used and take consent in order to avoid any legalities.
The New York Times and other newspapers and magazines work with this model, where the email part of the news, or juicy headlines, and prompt you to pay to read the full post.
E-commerce and Merchandise Selling
The e-commerce industry is at its all-time high, especially in the pandemic situation currently, and otherwise too, has more consumers coming on board regularly. What the e-commerce companies do is, make free apps and have people buy their products online, whereby they make their money and also sell their services effectively.
Moreover, many clothing companies also have their online free apps, where people can buy clothes online and pay money to the company. This selling of physical items also helps many other game apps, etc. like Angry Birds or PubG sell their merchandise too, in the form of t-shirts, caps, mugs, etc. (3,857)
How much money do apps make per ad?
Apps get paid in multiple different ways by using advertisements as a monetization strategy. These are some of the ways:
- Cost-per-mile (CPM) -– also known as cost per impression is when the company pays you after a certain number of ads placed, for e.g., after maybe 1,000 ads.
- Cost-per-click (CPC) – by this method, the company pays you once the app users click on their ads being displayed.
- Cost-per-view (CPV) – as the name suggests, the company pays you once their ad is viewed by the users of the app.
- Cost-per-install (CPI) – in this case, the company pays you once the app users install whatever is displayed in the ads, which may be another app, a game, or anything of the sort.
Also, the type of ad that is displayed in the app (static, video, etc.) also affects the pay rate that the company would give the app developers. For example, the company would most probably pay you higher for a video advertisement in relation to a banner or a static ad.
How do apps make money without ads?
Free apps make money through multiple different sources and monetization strategies as given in the article, and also listed below:
- Referral Marketing
- In-App Purchases and Freemium Offers
- Email Marketing
- E-Commerce and Merchandise Selling
How much money do apps make per download?
A research suggests, Android makes lesser money than iOS per download, but free apps hardly make any money when downloaded. The actual monetization starts happening when the app uses other means (stated above) to start earning money.
How Much Money Do Free Apps Make?
Some recent statistics suggest that an estimated 25% of iOS developers and about 16% of Android developers make at least $5,000 each month, on average, from their free apps. As this is the highest that has been as of yet, this is a benchmark for the industry currently.
How do food delivery apps make money?
Food delivery apps, just like the other free apps, also have their own monetization strategies to explain how do apps make money. These strategies consist of:
- Delivery Charges – each food delivery app has its own fixed delivery charges for each delivery, which is paid by the restaurant or the one who has ordered, depending on how the app functions.
- Order Commission – the delivery app also has a small commission amount that is set per order, so every time any food delivery app gets an order for a certain restaurant, that restaurant gives the delivery app a commission.
- Premium Hours – this is a way for the food delivery app to make more money, but seldom come to use. In this strategy, the food delivery app stays open at odd hours of the day, or holiday season, and charges a premium (higher commission/delivery charges) for delivering in that time period.
- In-App Advertising – just like other free apps, food delivery apps also do in-app advertising of different kinds and make money from the company whose advertising they are doing.
How do receipt apps make money?
Receipt apps do not make money as soon as people use them; rather, they make money from the information they gain from customer receipts.
Once the customer scans their receipt from the app, the app gets hold of their personal information as a customer, and they use this information to sell to third-parties such as stores, other apps, etc.
The information stored in the receipts can help other parties determines shopping trends, demographic data, and a few other market research-related information that can be insightful for those parties.
How do social media apps make money?
Social media apps are also free apps that people are using almost every day and have thousands of users. They also make money through different monetization strategies, as shown below:
- Advertisements – as for all free apps, advertising is one of the major sources of revenue for social media apps too, since companies pay a lot to advertise on different social media platforms due to their huge user base.
- Products – social media apps such as Facebook give multiple gifting options that you can send to your loved ones on different occasions such as birthdays, festivals, etc. that cost as low as $1, which gives quite some revenue to the app in return.
- Premium Subscriptions – not most, but some social media apps such as LinkedIn do offer a special premium service if you pay the price for it, and that is its main source of revenue, by offering extra services in return.
- Venture Capital – most of the social media apps, for e.g., Facebook, Twitter, etc. started as a venture capital project that raised millions of dollars to start with, and have, henceforth, succeeded in becoming one of the main social media apps being used today.
How do emoji apps make money?
Emoji apps are also free, and the same question arises here too, that how do apps make money in this case, too. Just like all other kinds of fee apps, emoji apps have their strategies to make money, as follows:
- In-App Purchases – this counts a lot for emojis, as emoji apps can sell some new and different emojis to those who pay a small premium fee.
- Subscription – emoji apps also can offer a subscription to different types of emojis for a small fee.
- Sell out – this is what most emoji developers do, they sell their apps to bigger apps such as Facebook or Snapchat, and earn a huge amount in return.