Surf Report: Why so many apps are free
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Fashion Star Designer is free to download and play.(Photo: XMG)
One of the most desirable features of a smartphone has nothing to do with the hardware itself.
Rather, it's all about the apps, which truly customize the experience with your mobile device and unlock its full capabilities.
The best part? A good number of apps are free.
Great for the end user, you're thinking, but how do companies bring in revenue when they're giving away their software at no cost? There are a few different ways they're able to make money in this new age of software delivery.
'FREEMIUM' MODEL
One approach is to give away the app for free, but offer in-app purchases for more premium features. In the industry, it's referred to as a "freemium" model.
"People are willing to invest their time — rather than money — to try out a new app," explains Ross Dixon, executive producer at developer XMG Studio. "And if they like it, some will pay for additional content."
For example, XMG's clothing-design game Fashion Star Designer is free to download and play, but users can purchase "cards" — the in-game currency — for real money, ranging from 99 cents for a "cardholder" to $99.99 for "stacks" of cards. Or, in XMG's Totally Amp'd! — billed as the world's first mobile and interactive TV series — the first episode is free, but those who want more can pay $1.99 for the full season.
Dixon says fewer than 5% of customers will pay for additional content, but this is usually enough to turn a profit. And if you do the math, you can see why: XMG's entire Fashion Star franchise has been downloaded "several million times," says Dixon.
"Offering mobile games for free allows us to reach the largest audience possible and give players the chance to try out games risk-free," adds Frank Gibeau, executive vice president at EA Mobile.
Many of EA Mobile's smartphone and tablet games employ a freemium model, including The Simpsons: Tapped Out, Real Racing 3, Dungeon Keeper, FIFA 14 and The Sims FreePlay.
IN-APP ADVERTISING
As EA Mobile's Gibeau noted, another revenue stream for app makers is in-app advertising — selling third-party mobile-advertising space within your app.
XMG's Dixon says "unless you're a company like King [makers of Candy Crush Saga], it can be tough to give away a free app without [adding] advertising."
The catch, however, is in-app ads and purchase requests can be annoying, so developers need to find a sweet spot for when and how often they should appear.
"It depends on the company and app," suggests Maeghan Smulders, director of product marketing and communications at PasswordBox, the developer behind an app of the same name. Winner of the 2014 CES Mobile App Showdown, PasswordBox stores all of your passwords for you in one place and can log you into websites that require them. She notes that ads within apps are annoying for users.
In the case of PasswordBox, it makes its revenue by selling a premium version ($12/year), which lets you store more than 25 passwords. The company also profits from search-engine revenue.
TEMPORARILY FREE APPS
Another strategy is to temporarily give away a paid app for free, perhaps by partnering with one of the many "Free App of the Day" apps that push alerts to users when paid apps are free for a limited time.
There are a number of reasons developers consider this. Most app makers see a huge surge in downloads because it removes the one main barrier of entry: price. Then, if the user has a good experience, they'll spread awareness of the app and tell others — and by that time the app will likely be back up to its regular price, which should help bring in some money.
For example, at $9.99, Readdle's PDF Expert for iPhone usually nets between 200 and 300 downloads per day worldwide. But when the app went free, the developer saw more than 1.2 million downloads per day, says Denys Zhadanov, the company's marketing director. "However, this was a big campaign on our side, including press, social media and our partner that sent the notification about the app going free for the first time in history," explains Zhadanov.
Likewise, Readdle's Printer Pro for iPhone is a $4.99 app that went temporarily free last year. Daily downloads jumped from 200-400 per day as a paid app to more than 600,000 while free.
Downloads for both apps remained strong after the price went back to normal. "The tail usually stays, yes," confirms Zhadanov.
Finally, some developers have such a wealth of apps they make a small percentage of them available for free — mostly the slightly older offerings — which can help further spread brand awareness for the company or app franchise.
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