In-app purchases – the best way for developers to monetize ?

mobile-appsWith the App Stores having good enough alternatives to paid apps, such apps might be getting a hard time to secure more number of downloads than similar free apps. But is it correct to say that the game is now over for paid apps ? Well, it might make some sense when you ask someone how many paid apps has he/she ever downloaded as compared to those which are available for free. Free apps often get more downloads than those which are paid.

Take Sygic’s example for an instance, it is a GPS navigation app for Android and iOS. The company made its Android app available for free last month – which was initially priced at INR 1399, and since then the app is witnessing 53 times more downloads every day in the Indian market as compared to the number of downloads before the start of the campaign, the company revealed in an email interaction.

When free apps started taking the game away from their paid counterparts, many developers resorted to in-app purchases.

In-app purchases are referred to the purchases made from within a mobile application. Such purchases are usually done to unlock a special content or a feature in an app such as restricted levels/versions, virtual money, special characters, etc.

In 2009 alongside the release of its iOS 3.0 software, Apple introduced in-app purchases to its App Store and opened up a whole new source of revenue for the developers. The idea behind this was, instead of monetizing from the initial installation of the app, developers could create a free-to-download app and offer in-app purchases. These are called ‘Freemium’ apps and have rapidly become more popular / successful apps and games within the App Store.

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Analytics firm ‘Flurry’ reported that from 2010 to 2012, the proportion of free apps on the Apple App Store ranged from 80% to 84%, but by early 2013, that number had grown to 90%. And 6% of paid apps fell into the 99 cents (or $0.99) price point – giving a clear impression of how app developers are changing their perception towards the market.

According to another report, which studied how the most successful apps monetize, in-app purchases make majority of revenues in app stores. In U.S 76% of all Apple App Store revenue in Feb 2013 was generated using in-app purchases. The figure was even higher in Asian markets including South Korea, China, Japan and Hong Kong, with over 90% of revenues coming from in app purchases.

App Annie’s list of the top 100 grossing iPhone apps in the India as of October 15, 2013, shows that only 21 out of 100 apps are paid, rest 79 of the top grossing 100 apps are free to download and then make money using in-app purchases.

People using iPhone are more likely to engage in mCommerce and pay for the apps, however Android users are in general aligned with free apps – revealed a study conducted in 2012. With India being largely an Android market (with over 90% of market share), it would not be wrong to say that it is more of a free apps market.average-app

The image on right shows the data for the global average price paid for apps on different platforms.On an average – as of April 2013 – Android apps cost about $0.06, which is quite low than that of the iPhone apps which accounts for $0.19. It’s clear that developers have learned to keep prices down on Google’s mobile platform. But it also speaks to the larger shift in app economics.

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Talking of WhatsApp as a relevant case study, the company launched Whatsapp on iOS in 2009 with a price tag of $0.99. On Android, it took an entirely different approach. The app was free to download and users will only be charged a recurring $0.99 fee after the first year of use.

Iamwire Take

Looking at the data we can conclude that making your app available for free and monetizing from indirect ways is a good way to go. However, this doesn’t mean that paid apps are dying any time soon. Freemium model offers a good way for developers to monetize from their creations, but finding the right balance is the key here.

To make sure that in-app purchase user experience will not create frustration and understanding your users and their behaviors and what they truly want in an app is crucial. However, utilizing in app purchase models can create lucrative opportunities for developers to build a sustainable business in this industry.

Keeping the facts apart, we would like to know whether you buy paid apps, stick to those which are free or rather prefer making in-app purchases? Let us know by leaving your comments.

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