Freemium app biz flourishes while paid apps take a dive
At least once I week I think about building an app. With the wide range of options and explosive growth, it reminds me of the early blogging days. We all jumped on the wagon to tell our tales. Some fell off along the way leaving behind a final blog post dated 2009, others turned their blogs into a successful business.
Along come apps and we’re doing the dance all over again – with one difference. You don’t need any technical skill to blog, with apps you need at least a little bit of tech know-how just to get started and a lot of know-how if you want to swim in the big pond.
You could hire someone to build it for you but that leads us to the big question – can the average guy make money with an app?
IDC and App Annie just released a report entitled: Mobile App Advertising and Monetization Spotlight 2012-2017: The Economics of Free.
Right off the bat, we see a shift in the app economy:
In one year, revenue from paid apps dropped off 29%. Freemium – apps that are free to use but have in-app purchase options – banked an insanely huge increase in revenue. A 211% jump in one year. In-App advertising also showed impressive growth with a 56% increase in revenue.
Mobile advertising growth is actually outpacing browser based ad growth including PC search, PC display, and mobile display. Sounds like somebody is doing something right.
Now, look at this chart:
What we see here is that it only takes a few buyers to keep the store in business. On average, less than 5% of freemium app users made an in-app purchase. If you only looked at that stat it would seem like a bad business bet. But when you combine it with the rise in revenue it’s a different story.
Compare these two scenarios:
1. Freemium app with a single $5.99 upgrade for full feature access.
2. Freemium app with multiple $2.99 upgrades to open new levels or tools over time.
Which one would you go with? Grab the money up front and let everyone stay for as long as they like or take a smaller bite at the gate and keep offering them more chances to buy as time passes?
I’m sure there are pros and cons to both options but I think about what happens when I go to the movies. If all I buy is a ticket, the theater loses money on me. When I stack on a large bucket of popcorn and two sodas – now I’m pure profit. I take my seat and the first thing I see are the pre-movie advertisements. That’s more money in the theater’s pocket and they don’t have to do anything except turn on the ad feed.
It works the same way for apps. You can charge for upgrades and you can still serve up in-app ads. Think it’s not worth the effort? Look at these stats:
- Breakout apps can make over $100K per month
- Developers in the 75th to 90th percentile can make up to $10K per month
- This illustrates the uniqueness of Flappy Bird reportedly making over $50K per day in in-app advertising
Okay, I get that results aren’t typical and many apps never breakeven but I still want a piece of this action.
If you’d like to learn more, download the free mobile app report from App Annie and IDC.