Freemium – the future of apps?
With app numbers set to explode in 2012, the task of monetising them becomes ever more challenging. A new study, however, suggests that future profitability for developers rests with the in-app purchase model championed by gaming apps.
The findings, from US-based technology research firm IHS, indicate that the dominant model for apps will be one where the app is free and revenue is generated via in-app purchases, such as a ‘freemium’ model.
In 2011, 39% of total app market revenues, or $970m, were derived from in-app purchases, a figure forecast to hit 64%, or $5.6bn, in 2015.
The majority of downloaded apps in 2011 were free apps. “Smartphone users overwhelmingly prefer free apps to paid apps, as we estimate 96% of all smartphone apps were downloaded for free in 2011,” notes Jack Kent, senior analyst, mobile media for IHS.
“In 2012, it will become increasingly difficult for app stores and developers to justify charging an upfront fee for their products when faced with competition from a plethora of free content. Instead, the apps industry must fully embrace the freemium model and monetise content through in-app purchases,” Kent says.
“Games pioneered the in-app business model… now the approach has proven so successful, companies building other types of smartphone apps must adopt this strategy if they are to maximise their mobile app revenues.”
The research found that most in-app purchases at the end of the third quarter of 2011 in the US and UK involved buys of virtual currencies, such as additional chips for poker, or redeemable points in games.
In the US’ iPhone App Store charts, 63% of in-app purchases at the end of the third quarter in 2011 were for virtual currency.
The next most popular category of in-app purchase was for specific in-game functions or features, rather than general currency, which accounted for 22% of the most popular US in-app purchases.
Other popular in-app purchases include time-limited navigation services, dating and premium social network access, as well as specific functions or features for photo and video apps.
Time-limited subscriptions or in-app purchases to newspaper/magazine content did make an impact.