How Do Free Apps Make Money in 2023
Making money with free apps is a trending topic in the mobile application development world. The mobile app industry has been active for over a decade and is now generating billions of dollars in the revenue. Research shows from 2021 to 2022 the app and game revenues increased by 19.1% to $133 Billion and most of these Free Apps and games are free to download upfront and then charge for subscription or in-app purchases. Hence, it’s an estimate that the mobile app industry is most likely to hit a whopping $407.31 Billion by 2026. With more than three billion smartphone users, the industry keeps on expanding and bringing more revenue in the upcoming years.
While there is so much growth and spread of apps across the globe, the demand for custom app development is at an all-time high. For App Tech startups, the app is a core product, but even for non-app tech startups the app is an essential tool to engage with their customers and users and to improve the overall business process. Hence this makes startups and entrepreneurs curious for answers to a few questions. Such as “How do apps make money”, “how do you make money from an app”, and “some successful app monetization strategies for business”, if you are also looking for answers to such questions, this article is for you.
Current Market Statistics on App Monetization
Let us now draw your attention to the statistics of Android and iOS mobile apps and their revenues:
- As of 2022, 96% of Android apps are free and only 4% of Android apps are paid upfront on the Google Play Store. It is observed that the Apple App Store generates more revenue than Google Play.
- 98% of Google Play revenue comes from free apps.
- Users’ spending on the Apple store will reach nearly $200 billion by 2025.
- The prediction for the overall mobile app market is on continuous growth. It is most likely to reach $935 billion in revenue in 2023.
It’s a lucrative market, but a highly competitive one too. And that is why it is important to do the things right with your Free App right from step 1, which means identifying the core features and the UI/UX design and most importantly – the App monetization Strategy.
Popular Revenue Models For How Do Free Apps Make Money
Here are the most famous App monetization models finally:
1. Revenue through Mobile Advertising
In-app advertisement method, the most common and easiest method to implement when it comes to money-making apps via a third-party ad network like Google AdMob or Tapjoy (iron source) etc. As per the latest report by business standard the global mobile ad spend is going to reach $362 Billion and $412 Billion in 2023 and 2024 respectively. The free app market has always outnumbered the paid ones when it comes to profit and download numbers, however an app should have a large user base in order to convert that into significant revenue through in-app ads.
Different Types of In-App Ads:
Cost-per-impressions: If your app shows an ad to 1000 users, you will get a certain amount of money.
Cost-per-install: On display, if the user installs the app you have successfully achieved your target. A certain amount will be credited to your account.
Cost-per-view: You can also charge the advertiser for the number of times an ad is viewed.
Cost-per-click: Basically for the display ads, if the users click on the display ad promotion, the advertiser receives a fixed amount of payment.
Mainly there are four types of display ads by the app providers for monetization. Interstitial ads, banner ads, in-app video apps, native ads, and rewarded ads.
Common app categories that make money through in-app advertising are Music Streaming Apps, Gaming Apps, News and Media Apps, Social or video sharing apps, etc.
Pros of an In-app Advertising Revenue Model:
- Ad SDKs are free and easy to integrate.
- Massive reach to the target audience.
- Faster Results via video ads.
Cons of an In-app Advertising Revenue Model:
- You need to have the large number of users in order to get significant revenue out of in-app advertising.
- Non-appealing or irrelevant ads get easily ignored, resulting in no revenue for the hosting app.
- User navigation might get disturbed in the app, and people get annoyed.
2. App Monetization through Sponsorships / Sponsored Content
Another interesting and exciting method to earn money from a mobile app is sponsorship. In this method, the app owner needs to figure out the appropriate platform to launch the app. A platform or brand that has its identity before and a great audience base should be preferred.
Collaborate with the Influencers to frame content for “your app” in “their style” so it looks natural. News Apps and many social apps (even Facebook) offers promoted content that looks native to the app however it gets published through a paid arrangement between the App publisher and the advertiser. The influencers are like the ordinary audience who deliver content per their experience. Compared to celebrities, influencers have more weightage, and hence reaching out to them is giving your brand a shoutout. There are 2 sorts of sponsorship deals-
- Uniformly divide the revenue generated from the app.
- Set a monthly sponsorship fee.
Example of Sponsorship Model: If you have a fitness app you can find sponsors among fitness centers, personal trainers, or healthy diet websites.
Pros of Sponsorship:
- Builds brand awareness by exposing it to a wider audience.
- Minimal disturbance to the user experience since sponsored content looks and feels like the organic content of the app.
- You can have niche-targeting sponsorship partners that would otherwise not advertise over big networks like Google or Fb.
Cons of Sponsorship:
- Possible controversies as actions of any person/brand/event you sponsor will immediately be linked to you.
- It’s hard to get the sponsors through one-on-one arrangements unless you are a big brand yourself. Basically, time to invest into creating such partnerships can be overwhelming.
3. In-app Purchase Freemium Model
Another way to make money with free mobile apps is to offer in-app purchases in a Freemium Model. A Freemium Model means you offer some features of the Apps for free, while charge for some premium features. These are purchases that are made while the app is open. In-app purchases include things like extra lives, bonus levels in a game, or virtual goods in a social media app. This method makes your app another sales channel. Offerings in the in-app purchase model are of two types-
Digital Consumables: Users can use them within the app, such as health points or digital currencies, boosts in a dating app to increase profile visibility or digital tips for creators within social media or credits in a Game App. The purchases are valid for a certain period of time as they are used and hence can be purchased again. Apple and Google both charge 30 % on any sale made through in-app purchase.
Non-consumable: lifetime offers such as new game levels, maps, or blocking. They are commonly offered in games that use a freemium business model.
In-app purchases increase user engagement rates. In-app purchases account for 48.2% of the total mobile app earnings as compared to the 14% from ads-based revenue and 37.8% from paid app downloads. Users’ are spending $380 billion worldwide on in-app purchases. The revenue generated by users making in-app purchases was 20 times higher than revenue created by subscription apps for about 48% of mobile app earnings in 2022.
A conventional but still very famous example of in-app purchase Freemium Model is “Pay to remove ads”. It works well for smaller apps and games and also for as many bigger apps as youtube where you pay a subscription fee to keep avoiding ads on a month-on-month basis. Although smaller apps play it a little differently, they charge you a one-time fee to remove ads forever – especially in the case of small but engaging games or small-sweet productivity apps like reminder-apps, email tracker apps etc.
Pros of In-app Purchases:
- Generate great monetization hence the stable source of revenue, and you don’t need a large user base before starting to make money.
- It’s like “try before you buy”, so you get to see App in action before going and purchasing extra features or continuous usage by paying.
- In-app purchase oriented apps get more visibility in their respective App stores. The more they earn, the better visibility these stores provide to them resulting in more downloads and sales.
Cons of In-app Purchases:
- App store and google play charge as big as 30% cut on any in-app purchase sales.
- If your app is on both platforms (iOS and Android) then managing is a tedious job. For instance, if a user purchased a subscription on Android and plans to use it on iOS. In that case you have to write more code and programs to sync subscriptions paid through both platforms.
- You have to be absolutely meticulous in identifying which part of your app is as compelling as one would pay for it, while still keeping it as an interesting app for free for the users. Apps like VPN Apps offer a lot of services for free, but the moment you want to change your location to a desired one then they charge you. So not everyone would need to pay for “setting up a desired location” but the ones who are using it for business purposes would pay for the same. The trial and error approach can work great here, and we’ve seen many apps doing customer surveys and asking them only which of the given features they would pay for. Another important aspect is pricing it rightfully, if yours is a regular target market then charging more than $ 10 per month can result in chasing away the customers. However, some famous dating apps charge more than $10 and are still seeing success because “Heart wins over mind” when it comes to dating apps, pun intended! 🙂
4. App Subscription Model
The App subscription-based model is one of the most popular and finest app monetization strategies over the last few years, however it is also a part of the in-app purchase. In this method, users can subscribe to join, try for a while, and then pay a regular monthly fee for access. Subscription-based apps tend to see higher revenue per user than apps with other business models. This type of monetization is recommended for cloud-based services, audio and video streaming apps or OTT Apps, and Media Services etc. As per the Subscription Trade Association, 75% of distributor-to-consumer businesses will have a subscription-based leg of their business by 2023.
Examples of Subscription Methods: OTT Apps like Netflix, Spotify, Tinder, and Disney+.
A very famous form of App Subscription Model these days is the Advanced multi-layered subscription model. A model like this means you sell a subscription for the basic usage of the app, and then sell several other services/ content for an additional one-off of the subscription price. For example, Amazon Prime these days sells their subscription as the base offering for $ 14.99 in which you can watch a lot of movies, shows, get prime delivery, and enjoy amazon music. However, there are certain movies, shows or channels that don’t come free with that subscription and you’ll to pay extra (as a one time fee or another add on subscription) in order to watch that premium content.
Youtube also used this strategy (however, it isn’t very successful!) where they would sell you a youtube ad-free subscription and then would ask you to join the channels you love for a free. Read this – Become a Channel Member on Youtube. So you pay for youtube ad-free version to start with and then pay further when you join channels, or rent or buy a youtube movie.
This kind of strategy is more like a play-around by the bigger giants who have most of the mobile-user world as their users. That being siad, it can be a counter-productive strategy for new apps with less user base, unless your premium content is so good that people would be compelled to pay for that.
Pros of App Subscription Model:
- It provides convenience to users so you have an engaged audience.
- Reliable Income source as multiple purchases can be made from a single user.
- Higher Revenue generated per user.
- Your brand loyalty builds and you can upsell and cross sell a lot of other services through subscription.
Cons of Subscription:
- Updated features and content are a must. Hence, it demands a lot of regular investment and privately funded apps may not be able to invest that much unless investors show up.
- The Onboarding/Free Trial Period is important and may require tweaking to understand the true value of an app.
- Subscription apps need great support as the model has more engaging and active users.
5. Selling Physical goods
As the name suggests, the apps that sell physical goods make money by how? By selling physical goods on e-commerce apps or on food delivery apps or taxi booking apps. 🙂 These Apps are free, their content is free and all you pay for is to buy a physical good or service out of it.
Please note that such apps accept payments through a payment gateway (like PayPal, stripe) and not via in-app purchase. Hence don’t give a commission to Google or Apple but to the respective payment gateway provider. The commission of such payment gateways is usually 2.9 % of the total sales.
Whether you’re selling as a shop or as a big business or as an individual, having your own app is beneficial. Selling your stuff across multi-vendor stores is another advantage for you because you’ve got more control with no revenue leak.
6. Affiliate and Referral Marketing Monetization Model
Affiliate is another variation of sponsorship. In place of granting advertising rights solely to one organization, you negotiate with interested parties and place their reference links in your application. Referral Marketing includes promoting a third-party product or service as a way to upgrade revenue opportunities for your app. App publishers sell or promote affiliates based on the number of clicks or installs. For this one can use pop-up ads to endorse someone else’s application or advertise products.
How to Know Which App Monetization Model is Best for Your App?
It’s essential to invest your time in research and list down factors that are important for app design and development. During this research, it is best to seek technical guidance from a reliable mobile app development company. Industry experts are up-to-date with the latest insights on money-making app development. Agicent Mobile Web Development is top firm in the industry that understands the needs and requirements of customers.
- Recognizing the type of app: Before the monetization method is final. Understanding the type of application is important. To better understand your app’s purpose, know the answers to: What and how does your app resolve a problem? What primary problem does your application focus on? What might be the impact of app monetization on the market? When you have satisfactory answers it will be easy to choose an appropriate monetization strategy for your app. For example, subscription models are for content and service apps as they are not likely to work for single purposes. Gaming and shopping apps are another example of a subscription model.
- Competitor Analysis: Competitive analysis is not just features, functionalities, and design is more than that. Doing good research will let you know exactly what your competitors are offering, and which all features is most liked. Hence it will be easy for you to figure out which monetization business model is right for your business. A few questions one needs to ask themselves: how are your competitors earning money? Are there any loopholes that might be beneficial for your app? Once you figure this out you will know the challenges your business holds.
- Know the Target Audience: Any business model is successful when its complete focus is on the target audience. To successfully earn online revenue via mobile app monetization strategies, one needs to study the target audience. Therefore you should know their needs, the challenges they face, and how much they are willing to pay.
Future of Mobile App Development and App Monetization
The future and growth of Mobile Apps is looking as bright as it can get. With the advent of new AI apps like ChatGPT, Canva and more. 2023 will see more AI and ML features integrated into mobile applications for improved user experience and personalized recommendations. Hybrid monetization might be the one of the biggest app monetization trends in 2023. It is a mix of different monetization models within a single app. Example: an app that can monetize with in-app purchases, in-app ads, and subscriptions at the same time.
How can Agicent Assist You With Mobile App Development and Its Monetization?
Off late, we’ve started calling ourselves an “App Startup Studio” rather than just an “App Development Company”. Reason being, we assist our clients with creating the app and also in everything related to the app business. For example – App Monetization, App Marketing and Promotion, App Integrations, Scaling an MVP to a level that can support millions of users, help you raise funds and much more.
We’ve been part of some of the biggest success stories in the world of App Entrepreneurship. We’ve seen our HASfit App becoming a multi million dollar company from just an MVP in a matter of few years, we’ve helped build Telemedicine Apps like Mediorbis, IOT Apps like Swaralink and all these clients are just doing great and launching their next big startups too. Yours can be next big success story as well!
See our portfolio of apps here.
Well, this concludes our thorough understanding of the app monetization strategies and we hope you got the answer to the question “How do free apps make money?” As mentioned above, if you’ve any doubt or questions in deciding on your App’s monetization strategy – Feel free to get in touch. We’ll be happy to help you!
Frequently Asked Questions:
We can definitely help you identify your app category, target market, and competition and can send you a free suggestion/ advise on the best monetization options available for you.
OTT Video Streaming Apps, Gaming Apps and Social Apps are the ones that make the most of the money. However, there are apps that target niche markets and are no less than these top grossers.
Apple takes 30% of the revenue made on its store, and after a year of service, revenue is revised to 15%. The same figures are true for the Google Play Store as well.
The Best Course of Action Is to Identify Your Target User Base and Define App Monetization Strategy Right Before Starting Your App Development Because if You’re Not Using Only In-App Purchases Then a Lot Is to Be Factored in While Creating the App Architecture and Hence It Should Be Done in the Beginning. However, It Is Not a Blocker and We Can Very Well Start Developing Your App With a TBD App Monetization Strategy, but the Sooner the Better Is the Case Here.