The most popular apps are free, with millions of people downloading them every day. But how can these apps stay free when developing them involves high costs? The secret is that developers use various monetization techniques to earn revenue, including advertising, direct partnerships, and in-app purchases. Let’s explore how these free apps make money and discover a new aspect of their business model.
Advertising Revenue
One of the most common ways free apps generate revenue is through advertising. The process is easy, App developers join ad networks, which allow third-party ads to be displayed within their apps when users are using their mobile app. The developer earns money each time a user either views or clicks on an advertisement depending on the model it follows. There are two main types of in-app ads: banner ads and video or interactive ads. A prime example is a gaming app that rewards users with extra lives or bonus points for watching a brief video ad. Apps with more users get more ad impressions, ultimately boosting the developer’s income. This model benefits both users, who get free access, and developers, who earn through ads.
In-App Purchases
Another popular source of free app revenue is the in-app purchase model. It is a model where an application is given free to users to download but is designed to attract users to make purchases within the application. Users often get power-ups, new characters, or premium skins in mobile games. Besides games, most apps rely on in-app purchases. A photo editing app might sell more filters, effects, or tools as premium add-ons. In-app purchases allow developers to give users a free taste of the app and then ask for money for optional features. It has proven to be a very profitable strategy since users are able to invest in the app at their own pace.
Freemium Model
Most applications across categories utilize the freemium model. With the freemium model, an application is free to download; it costs nothing for the basic set of functionalities; however, advanced functionalities will cost money to access. The latter is mainly applied in productivity and subscription-based applications. For instance, a task management application might allow its users to create a free but limited number of tasks but require a subscription for creating more tasks, features such as team collaboration, and advanced analytics. The freemium model is very effective because the user is allowed to try the application without committing to anything, and then they can decide whether to pay for additional features. It works well for applications that truly offer something useful or a service that people would spend money on only if they find the app very helpful. Also web 3 development companies are now building play to earn games where user can earn to play games.
Subscriptions
Free app subscription models have gained popularity, especially when apps provide content or services over a long period. The app may be free to download, but premium features, exclusive content, or an entirely ad-free experience may require a fee on a monthly or yearly basis. This model often applies to streaming apps, online magazines, and educational apps, which need subscription services to generate regular income. For example, a meditation app may offer some free sessions but charge money and provide a subscription for their entire collection of guided meditations. Subscription-based revenue attracts repeat users and encourages longer engagement with the respective apps, which is highly profitable for app developers.
Sponsorships and Partnerships
Many free applications monetize their service through sponsorships or brand partnerships. In this scenario, companies pay the developers of the application to sponsor the products or services being offered through the app. For example, imagine a fitness app partnering with an outfitting company to promote their products through advertisements in the app or promoted workout content. Sponsorships are a win-win: Brands gain access to the user base of an app, and the app generates revenue without needing to focus on in-app purchases or advertising. This model works especially well with niche apps because the users are passionate and dedicated to topics relevant to brands that have products to sell.
Data Monetization
Data monetization is another way free apps make money, although it’s a more controversial method. Some applications collect user data and sell it to third parties for market research, advertising, or other purposes. The data might include demographics of users, patterns of usage of an application, or preferences. However, data privacy, along with GDPR and CCPA regulations, should be very transparent in apps, as people have now begun to care more about privacy. The value of data monetization can be significant, but only if it is well managed for the users.
Affiliate Marketing
Affiliate marketing is a good way to monetize some free apps, especially when other products or services are recommended. In this respect, such an app could include links to third-party products or services and earn a commission for each purchase made through those links. One might think of an application such as a free travel app with affiliate links to hotel booking sites, car rental services, etc. Every time the user books through these links, it generates sales. This is one way such apps can make money without any clear-cut charge for users, and it is probably most effective when there is a very distinct niche—such as specific fashion.
Crowdfunding and Donations
Not many free apps make most of their revenue through crowdfunding or donations; this model is more common for applications developed by small teams, independent creators, and apps like Wikipedia and open-source projects, which often ask users to support their development with donations. Some apps also use platforms like Patreon to offer exclusives or special features. Crowdfunding and donations work well if there is a dedicated user base that appreciates the service and is willing to fund it to some extent.
Merchandise and E-commerce
Some apps make money by selling branded merchandise or through an e-commerce feature available within the app. For instance, a popular gaming app can sell T-shirts, accessories, or plush toys featuring characters from the game. Other social media apps provide a marketplace within the app where users can buy and sell goods. This is particularly useful for strongly branded apps or dedicated user communities because enthusiasts are often thrilled to purchase products related to an app they enjoy.
Paid Version Upgrades
Finally, some free apps offer a paid version with additional features, enhanced performance, or an ad-free experience. In this model, the user gets a free version of the app, but for a better experience with improved output and no ads, they can upgrade to the premium version. This model is generally adopted by utility apps, such as file managers or antivirus apps, because the free version provides core functionality, and the paid version offers extra value to the consumer. Users can try the app for the first time and then eventually make a purchase decision, increasing the overall conversion rate.
