Users can download numerous apps for free. But how are these free apps financed? You can find out about various options and business models here.
Having an app developed, marketed and regularly updated is time-consuming and, above all, costly. There are different business models to offset the investment costs of app development. There are two basic types. Firstly, the apps for which the user has to pay to download and install them. Here the app provider either earns money after downloads, or regularly by subscription, which the user pays.
However, a study shows that the majority of smartphone users do not spend money on downloading apps. The second option which is to download the mobile application for free and then make payment in the app if satisfied is more popular. Other types of business models are used here that app developers can still use to make money.
Business models of free apps
Many app developers offer their applications free of charge in the Apple App Store or the Google Play Store. For an app to require payment, it must offer something different from its competitors. There are over 2 million apps on Google Play, many of which are free. For users to decide pay in an app, the app must offer something different. The business models on which these apps are based can be roughly divided into five categories:
Increase customer loyalty
The app improves or simplifies the service offered and increases the reputation of the company. Existing customers develop a stronger bond and the company can win new customers. So the mobile application contributes to a higher sales figure.
Funding through advertising
Some providers make their money by selling advertising space. Apps with many users, such as YouTube, benefit in particular from this business model. All functions are accessible to users free of charge. As an app provider, it is important to ensure that app users do not perceive the advertising as too disturbing. This may lead to rejection and falling user numbers. In this case, the app is paid for by third parties who place their advertisement there.
Download for free but pay later
In many applications, it is possible to make so-called in-app purchases, i.e. to buy certain features. In-app purchases are voluntary and users can disable them in advance to avoid accidentally spending money. It is different if app developers only provide a basic version of the app for free. With this so-called freemium model, the user can test the app free of charge. However, they have to pay whenever they want to use the full functionality of the app.
User data as a means of payment
Many apps request access to data such as location or contacts from the phone book. It is often data that is not relevant for the actual use of the app. App providers collect this user data and sell it on to other companies. With the increasing use of data as a means of payment, the relevance of data protection in online markets also increases. As a provider, it is important to create transparency for its users. The app users must be clear about which access rights they grant the application when using it.
Top app developers can also make money from mobile applications that they don’t publish. Software service providers digitize and simplify the workflows and processes within the company. This then benefits in the long term from the investment.
Which business model is the right one?
A study by the app analysis platform “App Annie” shows that in-app purchases and ads are a popular method, especially in the area of games.
Choosing the right business model depends on factors such as the target group, the type of app and the industry. The number of users can also influence whether a chosen business model is sufficiently profitable or not. Advertising is worthwhile, for example, if a large number of users use the app regularly. You should think carefully about the definition of a business model before publishing it on the App Store or Play Store. As long as there is a good app concept, there are plenty of ways to finance your mobile application.