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Freemium – how does it work?

Posted By: Jason

The writing is on the wall when it comes to the most successful way to market an app for a smash hit right now. A cursory look at the Apple store any time recently shows that all of the top selling apps make their money from In-App purchases. Essentially this means that the biggest moneymaking apps out there are all free. If you're scratching your head over how that works, here is an introduction to the idea of the freemium business model.

Something for nothing

It may seem strange that this model has the highest success rate, given that essentially these apps are 'free,' but it's not as odd as all that. Freemium apps usually aren't about giving everything away for nothing, but about giving away something for nothing, with a price tag added for any additional content you might want afterwards. This model makes the 'purchase' of many different types of app essentially a demo version of the real service on offer. Getting to know and like a product is a great way of inducing a customer to commit to a purchase - in fact, it seems like a good deal all round.

Examples of freemium models

Take an example; you give a standard version of an app for free, but if you want to unlock the premium features of the app you have to pay a small fee. Alternatively, you could release an app that then offers the option to buy virtual goods within as part of the experience, but for real money (this is how almost all of the top selling game apps work). In case you had any doubts about its viability, the game Kim Kardashian: Hollywood is reputed to have made over $200 million recently.

Ad revenue

Alternatively, apps can be totally free for users and the mobile app developer can still get paid. It might sound like something out of Catch 22, but it's pretty simple really - revenue from well placed ads means a good profit for developers, and a tacit understanding from users that the ads are 'paying' for what they get means no one feels cheated. So it's clear that there's actually a lot to be said for giving away something for nothing - especially when these kinds of profits are involved.