In-App Purchases - Why the Freemium Model of Apps is Helping Developers and Businesses

1. In-App Purchases - Why the
Freemium Model of Apps is
Helping Developers and
Businesses

2. Introduction
Monetization of apps has always been a priority for developers and businesses.
Until 2009, paid apps were the only way that developers could earn revenue
from apps, and with most apps being priced at $0.99, significant revenue was
dependent on a large number of downloads. Premium apps came with in-app
purchasing options, but with a higher price tag, only a small fraction of
consumers opted for them. In 2009, the scenario changed completely, beginning
with Apple extending in-app purchases to cover free apps. This meant that
developers could create a single, basic version of an app (rather than having to
create a ‘lite’ version and a premium version), with the option to improve
functionality through offering purchase of additional features or premium
upgrades. Today, the Freemium model is not restricted merely to the iTunes
Store, but has been adopted by developers for Google Play(formerly Android
Market) and more recently, the Amazon App Store.

3. In-App Purchases
The Freemium approach is not new to software and gaming. For years, companies
have offered free downloads to customers for a trial period as a means of letting
them sample the product, with the belief that it would lead to paid conversions
at a later stage, when they were convinced of the benefits of the product.
However, with the surge in the number of mobile device users, the number of
people with access to apps or games has increased considerably. According to
statistics from Juniper Research, revenue from in-app purchases will reach $4.8
billion in 2016, more than twice the figure of $2.1 billion in 2011. The main
reason for this is that more and more consumers are opting out of having to pay
upfront for their apps and prefer the availability of choice as to whether or not
to upgrade depending on their experience and frequency of use. For developers
too, the Freemium model is beneficial for a number of reasons.

4. Additional Revenue Per Customer
In-app purchases help developers get additional
revenue from regular customers through offering
extra features at a price. For instance, the Photo
Effects app on iTunes Store lets users download
the free version and edit their photos or videos by
cropping the image, balancing colour or
brightness, applying filters or photo effects,
rotating the image and a host of other features.
However, the user has to make an in-app
purchase worth $2.99 for the option of saving and
sharing the image on email or uploading to social
networks.

5. Drop in Piracy
Many paid apps faced the threat of piracy due to cheaper
copycat or pirated versions being made available to
users. This issue was faced by both iOS and Android
developers. However, Freemium apps reduce the threat
of piracy as they allow users to download the basic
version at no cost. An example is the popular apps,
Angry Birds, which went the freemium way on Google
Play(Android Market) to put a check on piracy.

6. Reduced Development Costs
Another benefit that the freemium model offers developers is that they can
initially develop a basic version of the app and offer smaller upgrade
features at a price once the customer is a hooked. This reduces the time and
development costs involved in getting the app on the store compared to
developing a fully loaded premium paid app or offering several different
$0.99 versions. In addition, as was the case with free apps, there isn’t a long
wait for building up a fan base before recovering costs or gaining the
confidence to develop a premium version.

7. Conclusion
Despite these benefits, the freemium model will not automatically guarantee
success to all developers. Like with paid apps, consumers will only be willing
to pay if they are satisfied with the functionality, features and the
uniqueness of the app. With Freemium apps trending across iTunes Store,
Google Play(Android Market) and Amazon App Store, developers will find it
harder to get their apps noticed. Only innovative developers, who learn to
maintain the fine balance between encouraging in-app purchases and
overselling or exploiting the user, will see long term success.

8. TechAhead has developed hundreds of apps for iOS, Android and other mobile
platforms. We have helped clients from across the world develop mobile apps
in various categories, and are well acquainted with the process and
technicalities of incorporating in-app purchases within apps.
info@techaheadcorp.com
5/15/2012