Overview

This might come as a surprise to you but, free apps make money, and a lot of it; yes, you can make money from mobile apps, even if they are free to download. No, it is not easy, but it is possible to monetize your free app. We are sure the title gives the article’s focus away.

It will provide answers to a critical question – How do free apps make money?

The answer lies in adopting a multi-pronged approach towards app monetization; even if one approach fails to deliver the results you are looking for, another approach can bring in the moolah.

Let’s take a look at some of the top Android apps available on the Google Play Store worldwide on June 2019, by revenue (in million U.S. dollars):

The top 5 apps are gaming apps, and these mobile apps are essentially free.

Surprised! Don’t be, you can make money with apps.

Here are some of the best ways to make money from free apps.

1. In-App Advertisements

No prizes for guessing, an in-app ad is displayed within your app. The first step of mobile advertising is you must sign up with a mobile ad network.

These are platforms that are created with the express purpose of connecting mobile app publishers and advertisers. Mobile ad spending in 2018, reached a mammoth figure of $159.57 billion and is a testimonial to the fact that this is a very popular avenue for mobile app monetization.

The above figure illustrates that the largest share of digital budgets is assigned to mobile in-app advertising. So, it must be doing something right!

One of the most popular ad networks is Google’s AdMob, but there are plenty of other networks that you can choose from based on the following parameters:

• ROI
• Mobile digital advertising business models
• Geographical and demographic targeting mobile advertising options
• Platform reputation/mobile advertising ranking
• Supported ad formats
• Campaign types
• Alignment with your advertisement goals

You will then have to choose the right ad format; typically, you need to choose from the 6 available options:

1) Banner Ads

You must have seen these text and/or images staring at you from the top or bottom of the mobile app screen. These are some of the most commonly used in-app adverts.

2. Native Ads

These non-intrusive ads are designed to blend in with the existing look and feel of the app and usually promote a particular business offering (pertinent to your business), or prompt users to try out a new app functionality.

3. Video Ads

Video ads are the go-to mobile ads for many publishers as these have better engagement than most and are built and used on the premise that app users love watching videos. According to Smaato, the CTR of video ads is 7.5x of normal display ads. This means, your mobile ads have a better chance of working if they are video ads. 

4. Offer Wall Ads

This advertisement is like a wall promoting a collection of offers and incentives that can further enhance user experience and benefits accrued from the app. Such ads might/might not demand an amount of financial investment, and basically incentivize users to use the app or at times, even download another app.

Use this type of ad, if you want to showcase a collection of offers; typically this type of mobile digital advertising has a good chance at conversion.

5. Interstitial Ads

These are full-screen ads that can either be images or videos that are shown when an app transition takes place between two screens, e.g. when a game begins or between levels of a game.

6. Playable Ads & Rewards Ads

This is arguably one of the most commonly used, as well as, the most effective of in-app ad formats. As the name suggests, this type of ad is used in games wherein a user (gamer), can play another game for some time.

These are also a type of interstitial ads and if you are using these, you must make doubly sure that these don’t interfere with the gameplay of your app.

So, a question you might want to ask is how mobile advertising rates are calculated? After all, the rates need to be feasible and must fall within your earmarked advertising budget. This article from InMobi is a good read on the subject.

2. App Subscriptions

Asking users to subscribe to a more enhanced or premium version of your app is another app monetization model that is paying rich dividends to publishers.

According to the 2018 Mobile App Engagement Index, conversion rates for subscription-based apps increased by 32% over the previous year. This means users are more inclined to sign up for app subscriptions.

A subscription-based revenue model for an app charges a certain fee per month/per year for app usage, wherein users can pick app packages based on their budget, e.g. a free version of the app limits app usage to certain features; if users choose a subscription, newer features are unlocked

Benefits of subscription-based mobile apps:

• Subscription apps are a coming together of the free app and the paid app business model.
• A reliable source of revenue wherein your user’s signup for a monthly/yearly subscription model.
• More chance of users being engaged with your app as they want to maximize the amount invested in the app.
• You can release feature updates or add new features to the app and easily monetize these features.

According to SensorTower, the top subscription video-on-demand apps like Netflix earned a massive $ 1.27 billion in the US, in 2018. This figure alone says a lot about the value of taking a subscription-based app monetization route.

3. In-App Purchases

You must have come across certain advertisements while using an app that asks you to buy access to special content, or features, or a product or service that is in some way linked to the app or the business behind the app.

Check here How to decide the perfect price for your Mobile App? In-App Purchase Analysis

An in-app purchase allows you to up-sell and cross-sell products and helps you create a new revenue model for your business from within the app. Typically,  it is gaming apps that are best configured for in-app purchases, wherein you can sell certain gaming “advantages’ at a price. This can take the form of game currency, game lives, and even game levels.

A free gaming app like Candy Crush made a mammoth $1.5 billion in 2018 largely from the microtransactions taking place from within the app.

Now, here’s another statistic that you should look at:

In 2017, in-app purchases accounted for 43% of gaming app revenue and 21% of non-gaming app revenue. These figures illustrate that in-app purchase is one of the more successful in-app monetization strategies.

In the above figure, what we are looking at is mobile app revenue figures of $71 Billion in 2018; if we combine both the Statista and SensorTower figures and do the math, we can get a fair idea of the tremendous revenue generation capability of an in-app purchase business model. 

But while this is a popular revenue generation model, it requires smarter app development and even smarter decision making. Here are a few considerations you must keep in mind, to make the most of in-app purchases:

• Make sure you are targeting users who are using your app regularly – who are more engaged and committed than others.
• Think about in-app purchase personalization wherein you can target specific users with an in-app purchase, within the group of engaged users.
• Keep testing multiple price points to identify the price at which a purchase is made.
• Incentivize in-app purchases by offering something extra like a discount.

4. Sponsorship

With a sponsorship app monetization model, you are getting buy-in from a sponsor to advertise their products and/or services on your app. There is a catch here.

You can’t find sponsorship for your app if it doesn’t have a high and growing user base. It needs to be the kind of app that its users spend a lot of time on, daily.

You then find out which other company can advertise its products/services on the app, which essentially means, the company must have a customer base composed of your app users, yet it mustn’t be a competitor. Also, it needs to offer something useful to your app users, something that works for them.

Sponsorship is typically seen in the form of the sponsor’s logo present on the app’s interface, an icon or a splash screen appears as soon as the users open the app on their devices. It really depends on the deal you make with the sponsor.

To put it simply, the sponsor is your advertiser and they can choose to put up banner ads, video ads, wall ads, or use another promotional avenue to advertise their products and services on your app.

There are plenty of examples of app sponsorship, you might have come across including Subway sponsoring the PrePlay football game. 

Important Note: Once you get a sponsor on board, you will need to redesign your app to align with the sponsor’s app. Think of sponsorship as a symbiotic relationship between your app and the sponsor’s app. If your app is successful (‘engagement’ + ‘downloads’), so will the sponsor’s app.

5. Referral Marketing

Unless you have been living under a rock somewhere, you must have used a ride-sharing app such as Uber or Lyft; and while doing so you must have come across their in-mobile app referral programs; users are incentivized with a discount if they refer a friend, and the said friend is also incentivized to use the app.

There are two types of app referral programs at work:

1. An in-app referral program incentivizes users to refer to other potential app users. The purpose of this program is to onboard new app users, which will then generate app revenue through increased app usage.
2. External referral program wherein you refer to another app/product/service to your app users and you get a commission when they use/buy that app/product/service.

In case of the first, you will need to zero in on the right time to start your referral programs; you should have a user base in place before you launch your program.

Also, you need a referral program promotional strategy in place to ensure this referral program is constantly visible to your app users. This can be achieved with in-app promotions, innovative incentives, push notifications, email marketing, and more.

If you prefer going with the second option, you will need to sign up for referral programs and integrate their SDK into your app. Pick the one that is in some way linked with the interests and preferences of your app users. This will drive its success. Look up the web for the top refer and earn apps to check whether they fit your needs.

6. Merchandize Selling

Merchandizing is yet another great way of app monetization, but it is a money-intensive strategy.

You will need to think about creating merchandize, that app users will buy and invest money in creating this merchandize. It makes no sense to offer merchandize that no one is going to buy; that’s just a waste of money.

The sales of app merchandize depend on the popularity of your app. If the app isn’t popular, its merchandize isn’t going to sell.

You must have come across gaming apps like PUBG, Bendy and the Ink Machine, Monument Valley, and others that have an online store for their app merchandize.

You could even think about building an online store directly within your game. This can be a better option than building a brand-new online store to sell your app merchandize. In either case, your sales are directly proportional to the popularity of your app.

Merchandizing as means of app monetization is a challenging task and has a high chance of delivering returns if you have a gaming app.

7. Email Marketing

Here’s an interesting stat from Adestra – 73% of millennials want business communication to be sent to them via email. Also, according to a study by SalesCycle, 59% of respondents said email marketing emails influence their buying decisions. These figures and many others make it amply clear, email marketing is a great way to monetize your app.

You need to send emails that pique the recipient’s interest in your app and will make them want to download your app and use it. You could also send personalized offers for app subscriptions, discounts, or app merchandise to a select group of users.

The idea here is to use email marketing wisely and in a targeted fashion to increase app usage, spur downloads and boost in-app purchases, merchandise sales, and more.

This leads us to a question – How do you build an email contact list? No list. No email marketing. 

Here’s what you can do:

• Use email signup for the app.
• Ask users to enter their email ID to access an app function or a free goodie.
• Ask for email IDs, through the app/business website (if you have it).
• Innovate and continuously think of using new ways and means to build your email opt-in list.

8. Freemium Upsell

This monetization approach works on the premise that once users are engaged with your app, they would love to pay money to access paid or premium features. Your mobile app will be available free to download, but have plenty of great features that can be purchased through the app.

You are basically allowing the free content and the app’s functionality to work its magic on the app user. Once the user cannot do without your app and wants to get the next level of features, he/she will shell out money for these features.

This monetization model is to be used with the subscription-based approach.

9. Data Collection and Data Selling

The choices you make on a mobile app, are being monitored and stored in the form of data, which in turn might be sold to third parties. What you do on an app, gives away your interests and preferences, your buying behavior, and much more; this information is then sold by mobile app publishers to monetize their free app. Location data is in great demand as companies buy this to configure targeted ads.

As an app publisher, you can take this route to earn money, provided you make it very clear during sign-up that the app data will be shared with third parties. Otherwise, you might get on the wrong side of data protection laws such as GDPR.

It’s important to note, that as users become more aware of the perils of data passing into the wrong hands, they don’t take kindly to apps sharing their data, even with permission. They might avoid signing up for the app.  So, make your decision with care.

10. Transaction Fees

In this app monetization model, you are a commission earner between two parties conducting a digital transaction through your app. You take a small percentage of this transaction.

For this monetization strategy to be successful, your app should be a meeting place for buyers and sellers, a ’la Amazon or eBay, and the premise of the app should be that of a marketplace, wherein prospective buyers and sellers meet.

As can be imagined, this strategy only works if your app has transactions taking place between users, otherwise, it won’t.

If you are thinking of monetizing your app through this strategy make sure to read about the policies of both Google and Apple in this regard.

Conclusion

App monetization isn’t easy and the strategies you adopt won’t be successful all the time. The trick is to use a collection of monetization strategies to ensure you can earn consistent revenue. And, always remember – monetization models only work, if your app is good. So, focus on the basics, and build and publish a great-looking, extremely functional, and highly engaging app.

That is the first step and the most important one. You can then leverage the popularity of your app, to monetize it. 

All the best!