By now you probably understand how monetization of the paid app works, more importantly, how it generates revenue for the app publisher. Monetization of these apps works in many ways, one of them being the direct payment from the customers while downloading them from the app stores. The question arises when there are free apps in the mix. Currently, there are around 5 million combined apps present in the App Store and Google Play Store, the majority of which are free to download. Then how do these apps on the app market make money for their developers?

Before we come to that, there are a few points that you need to take into consideration. Free apps, when compared to paid apps, are downloaded more in numbers and generate distinctly more profit. Secondly, the mobile app market is a billion-dollar industry. The future of mobile devices is intact and its popularity is not going to end anytime soon. According to a report from Google Play Store, free apps account for 98 per cent of worldwide Google Play revenue. So before you conclude that free apps are not as profitable as the paid ones, you need to get these facts down. We are going to show you why you don’t need to put your dream of mobile app development down and in what ways one can monetize a free app.

Primarily, we can categorize the monetization methods used by the companies in two categories: 

• In-app advertisements 
• In-app purchases, upgrades, and add-ons

However, these primary approaches might not necessarily work in every circumstance, there are, in fact, seven different strategies that can be adapted, to make money from your free apps.

1. Advertising

Implementing ads into an app is the most common method used by the majority of free app providers. Advertisements on an app work in the same way it does on a website. The ad networks will provide promotional content in the form of a picture or a video that will go into the app as an ad. Based on the ad type, you get paid a certain amount per click(each time a user clicks on the ad), per impression(each time an ad gets displayed), and when the user installs the promoted app.

There are mainly four different types of ads displayed on an app:

• Banner Ads

This kind of ad gets displayed on the top or bottom part of the app screen. From the user point of view, banner ads are less interrupting as they can still use the app freely. The downside of these ads is that they have low engagement rates as a user can interact with the app without having to click on the ad. For example, e-commerce apps and dating apps like Tinder make use of banner ads. 

• Interstitial Ads

Interstitial ads are displayed as a full-screen pop-up during the opening /closing of the app or between the game levels. They generally have a close button on the top right or left corner. You can either press it or click anywhere else to open the advertised link. These ads help in gaining more impressions and higher engagement rates. They are mostly used in photo editing and newspaper apps.

• In-app Video Ads

These ads act as an in-app reward and pop up automatically in video form. The user can close the ad once they have watched the complete video to get additional benefits in the form of app currency or extra features in a game. They are usually placed in mobile games, to skip levels and video editing apps to save the edited media to the gallery.       

• Native Ads 

The term 'native' in advertising refers to placing an ad into the app so that it appears to be a part of the app's interface. The ad function as an element of the app to subtly promote a brand or product. These types of ads are less intrusive and bring more engagement from the users as they don't face the hassle of skipping or closing the ads. For example, Instagram place native ads in the app's environment, which looks like a regular post on the feed.

2. Email Marketing

Email Marketing technique has been into existence for a long time, using it as a method to generate revenue from free apps has proved to be a profitable one. By this method, you can leverage your real users into giving their email id to sign up for the app. So that afterwards, those email addresses could be reached and utilized for sending promotional content and notifications to them. The promotional content can correspond to a brand or service that you want to promote.

To make the process of collecting email addresses successful, you could offer additional in-app features in return. Additionally, you can also integrate login through the Facebook account in the app to collect email addresses. These email addresses can be reached later, in case you need to notify users about the app's latest features and updates. As beneficial as this method is, it doesn't work well with less popular apps that fail to gather email addresses.

Source: Castbox

3. Sponsorship

Acquiring a sponsor to take care of the funding required for your app's maintenance and use is also a viable app monetization option. The complication with finding a sponsor is to find one with a similar target audience so that both could mutually benefit from the partnership. Also, you need to make sure your app is good enough to appeal to potential sponsors. Once you find a sponsor company for your app, you have to alter the app interface to match the need of the sponsor's brand.

In the sponsorship method, you need to come in agreement with your sponsor on two things. First, on a fixed monthly sponsorship fee that you require from your sponsor, and the other on equally splitting the revenue generated by the app. The only downside of this method is that it is relatively difficult to find the ideal sponsor for the app, so unless your app is unique or you have a specific niche idea for the app, you are pretty much out of luck.

4. Merchandise sale

Another unique approach to generate revenue from your free app is creating and selling merchandise of your brand. To make this process more convenient for publishers, Amazon came up with a platform known as Merch by Amazon. This service allows the publishers to create their customized merch and sell in on the Amazon platform. In return, the publishers will get their share from the sale without having to worry about production, payment, and shipment process.

Source: Merch by Amazon

5. In-app purchase

In-app purchase is probably the most preferred method of monetization used by freemium apps as they generate the highest revenue to their publishers, according to Forbes. It provides a user with the ability to purchase and access certain features or bonus content, right in the app. It also includes purchases made for blocking ads and unlocking premium functionalities.

The in-app purchases are categorized further,  into three different types:

• Consumable 

The items that you purchase can be used once within the app. For instance, virtual coins that are used in the mobile game can revive or increase a character's health. 

• Non-consumable

A feature or product that is purchased permanently to use for the entire course of the app. For example, the payment for blocking ads in the app is a non-consumable purchase.

• Subscription for additional features 

A user can unlock and renew these additional features in an app for a definite amount of time. Generally, these type of features comes with a monthly or annual subscription plan, for example, news or music subscription.

6. Subscription

As mentioned in the in-app purchase method, the subscription method generates a revenue plan in the form of a monthly or annual subscription fee for the features offered by the app. An app publisher can offer the content for free in the beginning and start charging for a subscription fee once the trial period is over. This way the user has to pay the subscription fee only if they wish to continue using the app’s services.

This type of revenue-generating method is commonly used by apps that provide cloud services, streams media, and digital newspapers/magazines. For example, media apps such as Netflix, Spotify, and Google Play Music uses this monetization plan to provide services to their users. Newspaper apps such as Wall Street Journal and the New York Times have over one million annual subscriptions to their app’s digital content.

Source: Castbox

7. Collecting Data

Collecting and selling user's data to third parties is probably the most unorthodox method for generating profit from your app, but it proved to be a very efficient one. Every tiniest information/input provided by the user gets stored in the app's database. The information includes everything from personal information, social media accounts, to user's behaviour and preference on the app, which is beneficial for marketing and advertising purposes. Several third-party marketers and agencies pay a decent amount for this kind of information and behavioural data. When marketers have more information on their customers, they tend to have a better grasp of their needs. So if you have high-quality relevant data, you can choose to make a profit from selling it.

Conclusion

So now that you are familiar with the workings of monetization methods for free apps, the next step is to determine which method is best suited to your needs. To sum everything up, advertising has been the most successful method in the past, while in-app purchases and subscription method generates a higher revenue stream. However, it's essential to know that each method has its drawbacks, which makes it necessary to understand your product, its value, and its target audience.

Evon Technologies have decade long experience in the custom mobile app development. We will help and consult you with any app idea you have and turn that into reality. If you have any app idea or inquiries on mobile app development, get in touch with us to hire mobile app developer in India, our representatives will get back to you as soon as possible to assist with your project needs.