MONETIZE: Paid vs Free Apps

September 08, 2010 |  Posted By : Saverio  In : Advertising, Developer Community, Developer Resources, Mobile Industry

Over the next few weeks, we’ll be doing a series of posts on app monetization and how you (the developer), can make the most out of your apps. This will cover a variety of topics including tools you can use to maximize revenue in your apps (aside from Mobclix) and even some suggestions on how to plan your new apps. The first part of our monetization series will cover paid vs free when determining how to make money from your app.

So you built your app, it works great and people are going to love it, but what avenue are you going to leverage to earn money from it? Are you going to charge $3.99 for it, or are you going to sell advertising space? It’s a tough decision. On one side of the coin you have the paid model, which guarantees you money from every user who downloads your app. Then there’s the advertising model, running ads on your app allow your app to be free, reach the widest audience and therefore garner downloads right away without doing much promotion. What’s most important to consider when making this decision is the audience of your app as well as the costs for developing this application.

Paid App

What’s the quickest way to make the most money? The idea of selling your app in the first place is to recuperate your costs and make a profit; however, that’s not always possible with the paid model. Unfortunately, the AppStore (and even the Android Marketplace) has been driven to a point where the average price point is very low. At what point cant you charge a high enough price point to make money but low enough to get people to buy it? But forget that for a minute: Say you can justify charging as much as $10 for your app and you sell a few thousand copies. Sure you made some good money, but what happens in 3-4 months when you need to put out an update…an update  that your users expect to be free. That $20k-30k that you initially made off your product launch won’t last forever and you can’t keep updating your app without seeing income from it. You’ll keep selling copies of your app, but new users mean that there are even more people and expectations to satisfy. Your users will get pissed if you aren’t fixing your app and maintaining it — mad users mean that future sales will slow down, making the problem even worse. The fact is, revenue generated on that first $10 sale won’t cover all the costs of supporting that user after a certain period of time. You’ll start to realize that your price point just doesn’t match up with the “real cost” of that user buying your app.

But if the market just won’t support itself in the long-term, what is the solution? How can you possibly create a reoccurring revenue stream when the audience who uses your app is unwilling to pay a premium? That’s where advertising comes in…

Ads seem like the obvious choice here, but be wary, there are a few cases where ads might not be the best choice for your app. The determining factor is figuring out how to maximize the lifetime value of your users:

1. If your app is dedicated to a super niche audience and you have a very small user base, you might not have the usage to generate enough revenue to make ads generate meaningful revenue.
2. Ads won’t always “fit” in your app. It’s not easy to squeeze ads into an app that wasn’t designed for it. Users will get annoyed if you plan poorly and this will result in you not making a lot of money off the ads that you “force into” your app. Plan plan plan and you will be rewarded. If you can’t properly fit the ads in your app, you may decide to stick with a set price and wait until you can properly fit your ads into your app before switching to a free model.

Most people have made up their minds at this point to go with ads; however, there are a few questions that we often get from users who are still on the fence:

My users hate ads in other apps and they don’t want to see them in mine!
There are some users who will get annoyed with ads in an app; however, if implemented correctly, they really shouldn’t “bother” anyone.  (If you have users complaining, you should evaluate the way you’re displaying ads in your app). However, a great way to solve this problem is to add an “In-App Purchase” to remove ads if users don’t want to see them. Now you can appease both types of users: Those who are OK with ads as long as they can get the app for free and those who don’t want ads and are willing to pay to not see them.

It’s a pain to integrate a ton of networks and I hear you won’t make money unless you do that.
Indeed it is and less networks equal less money due to lack of high fill rates, but Mobclix makes all of that pain a thing of the past. Just integrate Mobclix and you’re done. We bring together just about every mobile network (plus online & video networks) to developers into one convenient package that makes it super easy to get going with advertising.

I left a few things out for simplicity’s sake; but, if anyone has any questions or wants to discuss this further, be sure to comment and I’ll do my best to talk about anything that I’ve missed here.