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How Do Free Apps Make Money in 2018?

If you are thinking of developing an app and are unsure how a free app brings profit, the following article provides clarification.

Aleksandra Bessalitskykh, Blogger

December 10, 2018

7 Min Read

Do you know how free apps make money?

Developers who offer apps for free expect to get pay in some other form. If you want to develop a free app and don't know how to get profit from it, the following article will help you.

Here we will explain how famous free products made money off their apps, we will offer advice on how to choose an app monetization strategy, and help you to choose software tools for integration.

In brief, free applications make money from one of the following 8 most well-known monetization strategies:

  • Advertising 

  • Referral marketing

  • In-app purchase & freemium model

  • Subscription model

  • Sponsorship

  • Crowdfunding

  • Email marketing

  • App merchandise & e-commerce

Freemium Apps vs Paid Apps Market 

We use smartphones for essentially everything. The number of apps with rich functionality is growing every year which leads to harsh app market competition among developers.

As of 2018, there are 3.8 million apps on Google Play and 2 million in the App Store. The market is huge and worldwide app revenue is expected to increase to almost $190 billion by 2020. According to Statista, the top grossing apps are all free of charge.

Nowadays, users have become picky and usually have only 4-9 daily active applications.

From 5 to 10% of users are willing to pay for an application with high quality and performance and specific functionality. That is why, the majority of downloads and profits (98%) come from free apps.
Buy the way, Gartner Research Group states that 24% of users would interact more via in-app purchases rather than paid apps. As soon as an app proves its value, the users tend to conduct more in-app transactions, purchases, and to unlock extended functionality.

Developing a free app for your business is a wise action to do. The next decision is to choose your free app monetization strategy correctly.

App Monetization Strategies of 2018

Google Play and Apple App Store don't pay for app downloads, even there are millions of users who completed this action. Instead, they take some share from an app’s earnings (30% from in-app purchases).

That is why, to get money from a free app it is vital to set up revenue streams. The most effective monetization method in 2017 was the use of rewarded video ads. Because this is a win-win strategy for an app provider and customer, as once the user watches an add, they receive points and app bonuses.

So, let's take a look at how to make money from mobile apps:

1. Advertising 

Nowadays, mobile ads are the easiest and most widely-spread way to receive money from a free app. 7 out of 10 apps have embedded commercials that generate payments per its display (per impression), per click, or per install.

There are 5 different ad variants to utilize in a mobile app:

App advertisement is the most popular app revenue stream, but this has begun to annoy and irritate customers. Thus, this massive use of ads has become ineffective, because less than 20% of users click on them. Besides, this monetization strategy can be effective only with apps that have a large pull of users, not for a startup project.

2. Referral Marketing 

Referral marketing is connected with the previous model of in-app advertisement to monetize your app. There is even a separate direction in marketing - affiliate marketing. Informational content about an affiliate company is placed in the app and, based on clicks and installs, you receive rewards. These rewards are based on a cost-per-action (CPA) model or revenue share.

You can use the referral marketing model in the following ways:

  • promote another application

  • in-app advertisement

  • advertise products or services via in-app-store

You can find many affiliate network companies (AdMob, Flurry) which specialize in finding a suitable affiliate for your application. Different software programs and tools can help you to integrate this model.

Free apps can make money without ads. There are 6 more monetization tactics, which include:

  • In-app purchase & freemium model

  • Sponsorship model

  • Subscription model

  • Crowdfunding model

  • Email marketing

  • App merchandise & e-commerce

3. In-App Purchase & Freemium Model

A very popular strategy used in the freemium app model is in-app purchasing. You can sell virtual or physical items, offer premium functionality or bonuses, block ads, or open new app content. Such transactions are controlled by the app store and the owner gets a commission from every trade.

There are three categories in in-app purchase strategy

  • Consumable: these items are used once, mostly in mobile games. Example: digital currencies, health points

  • Non-consumable: these are features used permanently. Example: ad blocking, extension in app functionality

  • Subscription (described in more detail below)- this allows one to unlock additional content and features for a particular amount of time. Example: monthly or annual service subscription

This model is only possible and profitable for top apps which have many users. Such system has complex payment system development and integrations which are harder to implement. Besides, a disadvantage of this model is the high commision fee (30%) taken by app stores. A freemium app model has two app variants - light and full, and a user may only use the free version.

4. Subscription Model 

This model sets up revenue streams from the weekly, monthly, or annual fees for a specific service provided by the free app. It is mostly used in cloud services, audio and video content providers (Spotify, Google Music), and digital news portals. According to the chosen subscription plan consumers receive access to the content.

It is vital to have resources and detailed content strategies to give fresh, up-to-date materials to keep up with competitors and guarantee a high level of subscriber services.

5. Sponsorship Model 

It is a profitable model to make money from a free app by getting a sponsorship. This type of model is usually available for developed apps that already have regular users. Applications with a specific market niche get the most benefits. In such a way, you may contact sponsors in the same industry to match their brand with ads, information in the app, or adapt the app design to the brand.

Two primary sponsorship deals:

  • Equally divide revenue from the app

  • Set a monthly sponsorship fee

Only if you have a specific niche and unique app idea this model works well. Although, even with the right app and niche, it is hard to find a proper sponsor.

6. Crowdfunding Model 

It is quite a new way to monetize an app for free. Developers can raise funds for app development and marketing needs, using the following platforms: KickStarter, Indiegogo, CrowdFunder, and AppsFunder.

These are thousands of applicants and can become very difficult to be crowdfunded. It is essential to show the value of the product and that idea that is worth taking a risk and investing.

7. Email Marketing 

Email marketing is considered to be a profitable strategy in any industry. This is an old technique of collecting user data, to send corresponding marketing materials to heat up the subscribers’ interest in a product or a service. It is very useful when your user retention indices drop or when it is used to notify about new features, rewards, app news, etc.

There are several ways to collect email addresses:

  • ask for the email with a pop-up message by offering something in return (app coins, bonus)

  • via Facebook SDK for user to sign up where it collects emails

  • through third-party tools for easy email collection

In any case, do not forget to notify, ask permission, and explain why you use personal user data. This is important especially if your target audience is in Europe, according to the General Data Protection Policy.

Today email marketing has become less effective, because of its wide usage. It is less powerful for a startup, but it is the biggest advantage for the top branded apps.

8. App Merchandise & E-commerce 

The e-commerce industry is developing very well and more and more consumers are joining the online buying community. The majority of physical items are sold with the help of free mobile apps.

This model is only available for the top apps with a large audience.

You can develop a free app for your regular business and sell any other items with its help.

Here you can discover more details on how to earn money with an app

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