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Paid Apps Giving Way to In-App Purchase Model

Interested in building that killer app that will be your grand slam home run of your career? Convinced that you are absolutely certain that there are AT LEAST 5 million people out there that would give up $.99 in a heartbeat for your “awesome” app or mindless game? Well, that is great copy for someone trying to recruit developers but the reality of the app world plays out a bit differently.

That’s not to say that paid apps are dead. It’s just that they are going to be more like hitting the lottery rather than a solid business plan. According to a study by IHS Media Intelligence only about 4% of app downloads are paid for.

“Smartphone users overwhelmingly prefer free apps to paid apps, as we estimate that 96% of all smartphone apps were downloaded for free in 2011″, noted Jack Kent, senior analyst, mobile media for IHS. “In 2012, it will become increasingly difficult for app stores and developers to justify an upfront fee for their products when faced with the competition from a plethora of free content. Instead, the apps industry much fully embrace the freemium model and monetize content through in-app purchases.”

The chart below shows what IHS feels will happen as the shift of revenue from apps moves more and more toward the in-app purchase model.

Which side would you rather be on? The shrinking one or the growing one? Do you agree with this assessment?