AppBoard Tuesday – Deciphering The Success Of Freemium Apps

By | November 18, 2014
  •  
  •  
  •  
  •  
  •  
  •  
  •  
  •  
  •  
  •  
  •  
  •  
  •  
  •  

Hello everyone, and a warm welcome to yet another edition of AppBoard Tuesday (ABT). Now, if you are one of those who like to keep abreast with the latest data trends from the mobile app domain – you are probably already aware that well over 95% of the total annual revenues of Google Play Store is contributed by ‘freemium’ apps. At the Apple Store too, freemium applications have a healthy 60%+ share in the overall revenue figures. This week, we will try to find out some of the key causes for the popularity of these apps.

 

But first, a detour. A basic understanding of ‘freemium’ is essential, before we take this discussion any further. To start off with (till 2009), apps used to be of two types – the ‘free’/’basic’/’lite’ version (generally with limited features), and a more functional ‘paid’ or ‘premium’ version. Then arrived the concept of providing in-app purchase options within free apps. In other words, users could buy premium content on applications that were available for free at the stores. Hence evolved the concept of ‘freemium’ (‘free+premium’, see how the word has emerged?), and suffice to say that it has been a raging success among mobile app developers worldwide.

 

Okay, now let’s move on to the factors that make freemium apps tick. We can easily pinpoint the following reasons:

 

  1. Opportunity to earn more per user – In-app purchases allow developers to bundle such in-app purchase options that help them earn more from each user. For instance, in a free mobile app for kids – there can be additional digital storybooks available for download, each at, say, Rs. 100. Now, someone who has downloaded the app will download at least some of these paid files as well. With each download, revenues would increase.
  2. A natural extension from free downloads – The word ‘freemium’ might be new (at least it was when Apple introduced it first), but the concept is far from being anything novel. Mobile app companies have always offered free download options (mostly for a pre-specified trial period) with their applications. Providing ‘freemium’ content follows from this relatively old practice. It’s only that the ‘free downloads’ have now been replaced by ‘paid downloads’.
  3. People love free apps – The ratio of free app to paid app download is significantly skewed in favor of the former, at both iTunes and the Google Play Store. Freemium allows developers to earn revenues from their products, while keeping their apps free (which rules out the chance of people switching over to other applications). Users have full freedom to decide whether to pay extra bucks for the freemium content, while iPhone/Android app companies can boast about having (and retaining) huge download figures.
  4. Chance to gather more accurate user data – The way in which people are reacting to the in-app purchase options in a free app serves as a clear pointer of their preferences. To put in another way, the freemium content complements the mobile app analytics data. If people are mostly staying away from making paid downloads, that’s a telltale sign that they are not liking the stuff that is being offered. Via researches and survey, there is every chance of tweaking around with the freemium content over time (i.e., during every app upgrade). Chalking up a freemium policy is certainly not a one-shot game.
  5. Less dependence on consumers’ willingness to pay – Consider this: you create an excellent mobile game, and price it at $50. Getting five-star ratings on that game won’t be an issue – but there are serious doubts as to whether it would have enough takers to start with (and let’s face it, there is a lot of competition from similar yet  cheaper rivals). A mobile app development company can work around this uncertainty by going for the freemium strategy. The ‘lite’ version of the game would now have a ‘free-to-play’ environment, and users can download extra features ONLY WHEN they feel like doing so. Nothing is being forced on the end-users. Take our word – people love that!
  6. A way to target a larger audience – Going freemium can considerably expand the target audience set of certain web and mobile apps. For example, there is an IM app which can be used by a) a teenager to chat with his/her buddies and b) by his dad, for conference calls with professional colleagues. The latter option can easily be included under the freemium content of the app. No longer is there any need to create separate apps for users from different age groups (and worrying about their pricing strategies). A single freemium app would suffice.
  7. Strong stand against software piracy – The case of Angry Birds is a classic example in this regard. Both iOS as well as Android app development experts agree that software piracy is a big threat for paid apps, in particular. It is hardly difficult for any obscure company to develop and release a cheaper clone of a popular paid application, and eat into the latter’s sales. With freemium apps, there are no such risks. The basic app remains free to download, which makes it impossible for other companies to offer cost-advantages.
  8. Enhanced testing opportunities – Right from A/B testing to other forms of beta testing, freemium enables mobile app marketers to be extra sure about a lot of things. For developers whose apps have a pretty wide user-base, there are ample opportunities to test new products (read: mobile software content), before finalizing a particular set of freemium content to be offered. Since the testing involves actual users (instead of a sample focus group), the results are likely to be more useful than ever.
  9. Freemium model is easy to implement – For the simple reason that, mobile app companies do not have to lose their sleep about building a significant clientele for their new applications from scratch. A well-made, free app will already have a fairly large number of fans, and you can offer the freemium stuff (via an upgrade) to this existing user-base at one go. Now compare this with the task of popularizing a brand new paid app. Way more difficult and time-consuming.
  10. Smaller development cycle (and lower costs too) – Adopting the freemium app monetization strategy makes the overall mobile application development cycle smaller too. As already highlighted above, there already exists a healthy pool of users of your existing free app. All you have to do is release an upgrade, with freemium software add-ons that can be downloaded by users. Apart from the time-factor, the total app development costs are also reduced (compared to the expenses associated with creating an entirely new app).
  11. Offers greater market exposure – What if you have brought an entirely unique app to the market? People have no idea about it, and you cannot expect them to spend big bucks to download it. On the other hand, if you have made the app free (and do not have an advertising strategy), making money from the app can be a huge challenge. However, if your app is free but includes paid premium content – that offers a viable channel for earning revenues from new users. Those who shy away from unknown paid apps are more than happy to check out free ones.

While the popularity of freemium apps has no chance of abating in the near future – there can be a couple of potential issues with it. Firstly, there is no assurance that users WILL download the paid stuff (and developers are no longer forcing them to do so). As a result, conversion rates are likely to remain on the lower side, at least during the initial stages. The other concern would be about how the freemium package is priced. There have been cases where a company offering freemium apps has been upstaged by a rival whose premium apps are cheaper. Now that is a sad case of missed opportunity!

 

That wraps things up for this week’s AppBoard Tuesday (ABT). Next week, we will be back with a discussion on some other relevant issue related to the mobile app business. In the meanwhile, you can write in to us – suggesting probable topics that we can cover, and any queries that you may have. Till next Tuesday then, stay well…and stay in love with apps!

Hussain Fakhruddin
Follow me

Hussain Fakhruddin

Hussain Fakhruddin is the founder/CEO of Teknowledge mobile apps company. He heads a large team of app developers, and has overseen the creation of nearly 600 applications. Apart from app development, his interests include reading, traveling and online blogging.
Hussain Fakhruddin
Follow me
 

Leave a Reply

Your email address will not be published. Required fields are marked *