How do free apps make money? Free apps largely outnumber paid ones. In the competitive app market, customers have a number of options available at their disposal when it comes to choosing a mobile app that meets their needs. They are more likely to choose an app that is available for free over one that has to be paid for.

According to recent statistics, 88 percent of apps available on the Apple App Store and 94.24 percent of apps on Google Play Store are free apps. There is a huge imbalance between the number of free apps vs paid apps not just in terms of availability on the app store but also in the number of downloads the two of them receive. 

Developing a free app thus increases your chances of getting users to download your app, but do free apps make money?

Having a game changing app idea, hiring top app development companies like Arkenea, designing and developing a mobile app that provides a stellar user experience and publishing your app successfully on the app store won’t really matter if you don’t have a monetization strategy for it in place.

The good news is that you no longer need to wonder whether it is possible for free apps to make money. The truth is that you don’t really need to charge your customers to download your app.

You can make money from your free mobile app by following one or more of these proven app monetization strategies to make sure you can cover your app development cost and more, quickly. Depending on the niche and the industry vertical your mobile app falls in, you can choose your preferred way to make money from your free app:

App Monetization Methods

1. Advertisement model

In-app ads are a love hate relationship in itself. Love them or hate them, you definitely can’t ignore them. In app advertising is by far the most common and arguably the most effective method of app monetization.

In-app advertising spend is predicted to reach $201 billion by 2021 according to forecasts, making it the consistent method of money generation for free apps in the years to come.

In-app ads basically fall under one of the following four categories.

1. Interstitial ads: These are the full page ads that appear during transitions within the app. Since they align with the breaks or pauses in content, they are intended to seem less intrusive to the users. Since they operate on a full screen mode, they also demand higher user attention.

When coupled with showing ads that are relevant to the user, interstitial ads have a great potential to bring in revenue. These are commonly used in gaming apps and are displayed when a user completes a mission or crosses a level within the game.

2. Banner ads: These are the oldest form of mobile advertising and comprises of text and/images ad banner placed on the top or bottom panel of the app screen. Since they are smaller in size, they tend to be less obstructive to the normal functioning of the app.

The smaller size causes them to have lesser impact than the full size rendered apps but since they do not hinder the functioning of the application, they are more preferred than the former.

3. In-app videos: Video ads are gaining more traction and popularity with every passing day. The new ad format is proving to be highly effective for a number of businesses. Apart from normal video ads, reward videos in which the users have the option to watch short videos in exchange for in-app rewards are also gaining popularity.

The rewards can be bonus ad-free content along the lines of what Spotify is currently offering (30 seconds of ad free music in exchange for watching 30 seconds of video) or rewards in the form of access to additional levels in case of gaming apps

4. Native ads: Native ads blend in among the other content of the mobile app because of its native like look and feel. Since they are targeted and more relevant without posing any obstruction to the user experience, native ads are more effective and engaging than any other form of in-app advertisements.

The best examples of use of native ads for app monetization are Instagram and Facebook which includes sponsored posts based on the individual’s preferences into the feed.  

Downsides of the advertisement model of app monetization

While the app monetization method through the use of in-app advertisements is a popular choice, it is disliked by users because of its inherently intrusive nature. The full size interstitial and video ads disrupt the user flow and act as a distraction which negatively affects the user experience within the app. The banner ads also become a nuisance when the user accidentally clicks on them while using the app.

The best form of in-app advertising are the native ads which do not disrupt the flow. Understanding user preferences and displaying relevant content as advertisement within the app is necessary for successfully making money from free app via advertisements.

If done correctly, in-app ads have a great potential. Not only do they generate revenue for the app developers, they are also beneficial to the marketers as the ads displayed within the mobile app are reportedly more memorable than those seen on TV or laptops, the ease of clickability instigates direct action resulting in instant revenue generation.

2. Subscription model

Monthly or annual subscription plans work great for primarily content based mobile apps. The news and audio video content providers like Wall Street Journal, Netflix, Amazon Prime etc are excellent examples of apps that have successfully monetized via a subscription based model.  

According to an app monetization survey, only 5 percent of mobile apps developers are currently utilizing subscription model. Despite the low adoption rate of this plan, the success stories are many and the revenue generated by free apps following this model is high.

Both Google and Apple want you to follow this model and both these platforms have been incentivising app developers since 2016 in an attempt to boost more subscription based free apps. Apple takes 30 percent of the subscription fees in the first year and reduces it to 15 percent every subsequent year while in case of Android, the fees cut in app development is 15 percent right from the beginning.

Downside of the subscription model

You need to deliver fresh and engaging content in order for your customers to sign up for your periodic subscriptions. This increases the amount of resources necessary for creating relevant content along with a carefully thought out content strategy in order to succeed.

The model also requires an understanding of human psychology and behavior patterns in order to come up with subscriptions plans that would be perceived as value additions for which the users would be likely to sign up for.

3. Referral marketing

Referral marketing involves promoting third party products or services via your mobile app. In theory it is similar to the typical website advertising and the revenue generated is along the same lines as well.

There are a number of affiliate network companies such as Admob, Avazu, Flurry which specialize in finding the perfect affiliate for your mobile application. Depending on the referral marketing model chosen, the revenue generated can be according to the following parameters

• Cost per mille/ Cost per impression (CPM): The advertiser pays you every 1000th time their advert is displayed on your application.
• Cost per click (CPC): The advertiser payment is based upon the number of times the user clicks on the advertisement in the mobile application.
• Cost per view (CPV): This is the referral marketing method that involves the video ads. The amount is charged based upon the number of views.
• Cost per install (CPI): This involves advertising a third party mobile application within your app. Every time a user installs the app, you get paid for it.

4. In-app purchases

Prior to 2011, app developers worked on two separate versions of their mobile app as a part of their monetization strategy. A free version of the app had the basic features that the users could avail but for access to the complete feature set, they had to download a sister app which was a feature packed paid version.

The introduction of in-app purchases by Apple in 2009 and Android in 2011 made the development of two different app versions obsolete. The app purchases transactions are managed by the app stores and the app owner gets a commission on every purchase made.

The in-app purchases fall into three major categories

• Consumables: Products or features that are purchased within the app and can be used only once. Virtual coins and tokens used to purchase premium features are an example of consumables.
• Non-consumables: A feature that is intended for use on a permanent basis i.e. which doesn’t come with a predefined expiry period. Access to newer levels of the game or access to a ad-free version of the app are non consumables.
• Subscriptions: Unlocking of additional features for a limited amount of time, on a monthly or a yearly basis. Subscriptions can be auto renewing on non renewing.

Downsides of in-app purchases

The technical complexity of an app that offers in-app purchases is higher because it requires integration of additional payment features within the app. The in app purchases need to provide significant value to the users in order to get them to spend money to unlock the features otherwise generation of revenue using this model becomes a huge challenge.

5. Sponsorship model / Crowdfunding

Crowdfunding is a great way to turn your app idea into reality. There are a number of crowdfunding platforms such as kickstarter, patreon, fundable etc where you can raise funds for app development while spreading the word and marketing your app at the same time.

If your app idea is unique, looks promising and has the potential to add value to users life, these platforms help you raise funds by collecting donations and help you reach your financial goals for developing your app.

Sponsorship on the other hand works in case of already established apps that are performing well in the market. You need to contact sponsors within the industry vertical or niche that your mobile app operates in. Contact the key stakeholders and organizations within the industry and partner with them.

Downsides of crowdfunding and sponsorship

The app market is a competitive one. Your app needs to demonstrate value to the target audience as well as the stakeholders and your idea needs to be compelling enough for the investors to put their money in your app. The challenge factor associated with this model is high but the rewards reaped are worth putting in the effort.

The Future Is Free

There is no right answer to which monetization model would work for your mobile app. The answer may lie in picking one strategy over the rest or you might need a monetization mix that comprises of using two or more strategies together to ensure that your free apps make money and become profitable in the long run.

The key to a successful app that lets you reap in the rewards by generating a consistent revenue stream is having a revenue model in place right at the beginning. The future of app development is all set to be dominated by free apps. How do you plan to make money from free apps would determine the level of success your business enjoys.