Free vs. Paid vs. Freemium App Marketing Strategies

We receive a lot of emails here at AppsMarketing.mobi and many of them start much like this. “We are currently in the development stages of an app. We have the concept and usability down, but we’re trying to decide on a monetization model. We’re thinking of starting with a free version and shifting to a paid model once we’ve reached a critical mass of users. Is this a strategy you would recommend?”

To best answer this type of question, we need to break down the app into three main factors. The first being the platform the app is being developed for, considering that buying trends shift drastically from one app store to the next.  The second factor is the app’s category. Third and one of the most critical is the developer’s long term brand strategy.

Just like with mobile games, monetizing mobile apps has a clear set of rules to play by.

Factor #1: App Stores

Back in June, Distimo published a report that focused specifically on the proportions of Free vs. Paid apps through various app stores. Since then, there’s been an increasing trend of Freemium based apps which we’ll go into further with this post. Even at the simplest free vs. paid level, understand that app store economics play a significant role in your apps potential success.

Factor #2: App Categories

While some app categories such as Games, Books and Music offer a perfect opportunity to build your strategy around a Freemium based model, other categories such as Utilities, Productivity and Finance have proven to be very successful for apps that have monetized from the get-go. The real secret lies in delivering a rich experience for your users, regardless of the fact that they’re using a free or paid version of your app.

Think of it this way, you want to keep users satisfied, but hungry for more.

Far too many developers are frightened by the big 300,000 number (total amount of apps in the Apple App Store) that’s being thrown around way to carelessly. To truly put this number into perspective, apps need to be looked at within their individual categories. Take a deep breath and realize that your app isn’t competing with all 300,000 available apps. In the games category for example, there are currently a total of 55,375 apps in Apple’s app store, 35,997 of which are free and 19,378 are paid. Educational based game make up a total of 7,474 games. Still nothing to sneeze at, but it does tip the odds of success slightly in your favor. Remember, it’s about creating added value, which by the way, doesn’t necessarily have to come in the form of more features.

Factor #3: Brand Strategy

The vast majority of app developers are looking to hit it big with their very first app release. The fact is that scoring big on your first try is a risk we never recommend taking.

It took the Boulder tech startup company Occipital, makers of hugely successful apps such as RedLaser which turns the iPhone’s camera into a bar-code scanner and Panorama 360, a couple of tries before they eventually got it right.

“We were down to almost zero,” Said Jeffery Powers, Occipital co-founder “Fortunately, there was only Vikas and I, so we made it through.”

The company survived on a $20,000 loan that it was able to pay off thanks to the success of its apps.

For many other app developers, that success hasn’t arrived yet, despite the fact that they’ve released dozens of apps. Your Initial app releases should set the groundwork for any subsequent apps you may be developing. By doing so, you will already have your first batch of apps to leverage off of.  This also means that your “brand” should in no way be focused solely on your app’s name, as is too often the case. Have a short and long term strategy in place to avoid bigger challenges down the road.

With this initial research and strategy set in place, a clearer decision can be made in terms of what monetization model will work best for you brand spankin’ new apps!

Free App Strategy

I’ll be the first to admit that focusing on a free “Ad Sponsored” app monetization strategy offers a lot of benefits, first and foremost being the potentially wider install base. Apps that cost even as low as $0.99 force users to make a purchasing decision, going free is a no brainer. Second, free apps offer prime opportunity for third party ad sponsorships. The real question then becomes; how does including ads within your app affect the overall user experience? Truth be told, most users, including myself can deal with a little ad exposure at the exchange of the app being free.

Monetizing free apps “in most cases” comes in the form of integrating ads via Mobile Ad Networks such as iAd, AdMob and AdWhirl. The process is fairly simple. Signing up to an ad network, register your app with the service, embed the ad code and send your app off for approval, Voila! The downside is that there’s an upwards of 100 mobile ad networks to choose from, leading most developers to take a wild guess as to which one they should install.

Luckily ad network aggregators such as Inneractive are providing an answer to the dilemma.  Inneractive has partnered with top tier ad networks across the globe to maximize ad space fill rates. This basically means that you work with one ad management platform, integrating one piece of code while maximizing your ad space.

In a nutshell, Free in no way means giving it away.

Paid App Strategy

Launching a paid app is essentially a double edged sword. Paid apps are downloaded far less but may be perceived as being of higher quality. Granted, hype, need, trends and other forces play an important part of impulse buys, but price, and the ability to instantly weigh price vs. value, is king.

If you’re set on launching a paid app of any kind, then by all means do, but strongly consider developing a free trial version of the app. It will be the smartest marketing play you’ll make.

Study other app prices specifically in your app’s category and position your app respectively.

Keep in mind that it’s always easier to go down than up.

Freemium App Strategy

It’s clear that the freemium based model has built momentum, however this doesn’t necessarily mean offering more content, new levels or extra features. One of the biggest purchasing triggers we’re starting to see is virtual goods and currency.

A recent report from Flurry states that 80 percent of revenues for mobile developers in September came from virtual good sales. Although Apple has a vague policy against virtual currency which states the following: “You may not offer items that represent intermediary currency because it is important that users know the specific good or service that they are buying.”  This doesn’t mean you can’t buy virtual goods such as Apples, Pears, Tokens, Peanuts, Votes, etc… Poker games sell Chips, not Money. So give your virtual goods a name and you’re good to go.

Implementing the concept of virtual goods is much easier in games than in any other app. impacting the way we interact with new environments. –

Good examples of effective freemium based apps include: Smurf’s Village (#1 Family Nov 12th), Tap Zoo (#2 Adventure Nov 14th) Bakery Story (#1 Simulation Dec 3rd) within the games category. The official Marvel Comics and DC Comics apps have also seen huge success in the books category, all of which have made it to the top grossing apps in the app store.

A personal favorite of mine is Capcom Arcade which lets you play your favorite Capcom Arcade games such as Street Fighter II, the original Ghouls ‘N Ghosts, 1942 and Commando in their entirety on iPhone. Every day, players are given three free tokens to play and additional tokens can be purchased for $0.99.

The Freemium based model is proving to be the method of choice towards monetizing apps, with 3 out of top 5 highest grossing apps being “free”.

In conclusion

This post merely touches on the most commonly used app monetization practices. There are dozens of other strategies that should be taken into consideration such as; utilizing free apps to increase brand awareness, leading visitors to destination sites, generating leads and many more. We’ll surely touch on these tactics in a follow up post.

In the meantime, I hope that this post opened your mind to alternative monetization models. I’d like to hear from your app marketing trials and tribulations. Share your thoughts in the comments and as always, follow us on Twitter @Apps_Mktg or join our Facebook Page – AppsMarketing for more app marketing insights.

Most of all, remember; Assumptions play a part of no marketing strategy.