“I make my living by giving away great products.” – Mark Roberts
Give It Away, Give It Away, Give It Away Now
I’ve been getting a fair amount of emails and questions about a widely disregarded topic – how do free apps make money? It deserves attention given that free apps clearly trump paid in terms of download numbers. The trick is to figure out how to capitalize on those new users.
You need to leverage the free download numbers to create a better revenue stream than a paid app.
I personally do this with almost all my apps. I find that when I have them priced at $0.99 I make a little less money than I do from in-app purchases when it’s free. The other difference is that I get about 10x the download number when it’s free. That opens up a whole new set of tools I can use to make money and leverage myself.
Without further ado, let’s talk about the ways you can make money when your app is free.
1. The Freemium Upsell
This requires having a second version of your app that’s paid. Typically you’ll see this as the “Lite” and “Regular” or “HD” versions of an app, paired together. The free app will have a link that a user can click that drives them to the iTunes store on their phone.
It’s kind of a feeder system – users can download your free app and get a sense of what you have to offer, then they can easily purchase the full version (which will have lots more functionality and game play.)
The other piece of the freemium model is….
2. In-App Purchases
In-app purchases allow users to unlock features or purchase more of something, maybe coins in a game like Tap Zoo or gold in a game like Infinity Blade. In fact, 6 of the top 10 grossing apps in 2011 were free – they were able to use in-app purchases so well that they drove millions of dollars in sales, even though the app was free.
When you build an app, you can set IAP (in-app purchases) to be a one time purchase (I want to unlock this feature) or an ongoing option (I want to purchase 20 coins for $0.99), meaning you can purchase that over and over again. You can easily start racking up enormous amounts of revenue with the second, but you also need an incredible app that can justify it.
In-app purchases can also be subscriptions if you were in the market of news feeds. The Newsstand functionality within the Apple framework allows you to set up an in-app purchase that will automatically charge every month. One idea I’ve had for Bluecloud is to sell a premium membership through an app – members pay $2.99 a month and have access to exclusive blog posts and other information only available to members. Someday
Oh ads. What a love/hate relationship I have with banner ads. The bottom line is they work but require a sizable amount of traffic to make it worth your while. When you start getting traffic, it can be a terrific (and consistent) revenue source.
The biggest two ad networks are iAds and Admob – the first being Apple and the second being Google. I’ve talked to a lot of developers and most agree that iAds pay out better. Typically it’s a pretty small CPM (cost per thousand impressions) that’s under a dollar and a CPC (cost per click) that can be a few bucks.
If you’re looking to make money, you can expect to make around $2 if you get 100 downloads. That’s just a ballpark figure based on my own experience and can vary widely based on how many people click on your ad.
I did a quick experiment with a basic open source tic tac toe game to see if it would make any money with ads. I skinned the app with Zombies and other weird stuff to see if I could get some downloads. I installed the iAd framework and let it rip. Since I released it, I’ve had 157 downloads which has translates into $1.88.
You may think those are small numbers, but actually they’re not horrible. For other games I get a few hundred downloads a day and make zero money sometimes. Some make $120 a day. It all depends on the ads you get served up and the amount of people that click.
So – it’s good to have ads in the game and they can make you money. Just be ready to market the hell out of your app.
4. CPI Networks (Cost Per Install)
Cost per install is a relatively new marketing mechanism and is the mobile equivalent to CPA (cost per acquisition) in the web marketing world. CPI is exactly what it sounds like – you pay per install that you get. Examples of this are Playhaven and Chartboost – they are third parties that have software you install into your app.
You’ll often see this as a “pop-up” in games and apps, prompting you to look at another game and “Get It Now.” Those apps are dynamically served based on what app you have yourself.
I’ve talked to a few networks about their pricing and it ranges from $0.80-$3.00. This means that if you want to promote your app, you will pay Playhaven this amount every time someon installs your game. This actually works out to be a better deal than most developers report on advertising networks (often report 0.3% CTR with translates into a $15 CPI). $3 is cheaper than $15. Rocket science.
On the other side of that, I get about $1 per install through Playhaven. So – a developer wants to promote their app and will pay $3 to have a new user install it on their device. If I can provide that installation, I get paid $1 of that. It’s actually good money and very consistent (unlike in-app purchases). It’s directly proportional to my download numbers and grows as your user base grows.
There are tons of CPI companies popping up these days and be sure to let your developer know you want to incorporate them. They’re not too difficult to add onto a game or app, but is helpful to discuss early on.
These networks can be extremely lucrative as a developer or publisher - Read this article about my experience.
Landing a sponsor is a great way to make money on your free app. The money is up front and you gain brand credibility with your audience.
The deals typically go like this: you approach a company and say “I have this app idea, I’ve got the plan, etc etc and I will white label it for $XXX.”
“I built this app a few months ago and it has 50,000 downloads. I will update the graphics with your brand for $XXX”
And so on. It can take a little while to get the right match and a company that is forward thinking enough to realize how powerful the mobile platform is, but it can work.
What’s even more compelling than the sponsor’s money is their marketing horsepower. They most likely have a website with good traffic, email newsletters, and social media. If they sponsor your app, chances are they’ll be happy to promote it for you. That’s great value.
I am personally working on a few deals like this and will write more about them when I lock a few things down.
This list covers almost everything you can do to make money on free apps. If I missed anything important, please let me know!
UPDATE – JULY 1, 2012
6. CPI + Premium Advertisers
This has been such a game changer, I needed to write an entire post about it. Click below to read the full story: