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Paid or Free: What's Best for Your App?

Aug 27 2021


How do free apps make money in 2021? Ever thought how to make money from free apps? This article is for entrepreneurs who want to learn – how to create and monetize an app or make money with apps to earn passive income by publishing free apps in the mobile application market.

What's the difference between paid and free apps?

With paid apps, customers pay upfront to download the app from the App Store or Google Play. Free apps are free to download and typically make money through advertising, in-app purchases, or paid subscriptions. 

Gaming, education, business, and utility apps generally do well as paid apps, since the value is in the app's functionality. 

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What types of apps do well with the freemium model? 

Apps that become more valuable with a larger user base, like social networking apps, should consider freemium. Successful free apps are those that have a wide appeal and can capture thousands upon thousands of users that companies can then monetize effectively through in-app ads or purchases.

The categories of app monetization

Mobile app developers generally launch with one of these four monetization categories:

  • Free: no upfront cost.
  • Paid: upfront cost.
  • Freemium: no upfront cost, in-app purchases and membership options.
  • Paymium: upfront cost, in-app purchases and membership options.

Free and paid apps download statistics

In fact, here's an interesting graph that shows the difference between a number of paid app downloads vs. free app downloads.


So if you think that free mobile apps are not as profitable as much as the paid ones, then you couldn't be more wrong. The fact is, 98% of worldwide revenue comes from free apps, according to Google Play. And, you need to think more about app monetization strategy.

Techcrunch also says that more than 90 percent of apps on the market now are free. And, the revenues generated from apps that charge for download (paid applications) are expected to go down in upcoming years.

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Free apps: free doesn't mean unprofitable

Free mobile app developers rule the marketplace; or at least, it appears that way when you look at the top of the charts. Big names in tech like Twitter, Instagram, Tinder, and the like all have a zero-dollar price tag in common.

Free apps have one big thing going for them: a low barrier to user acquisition. In a crowded app marketplace where users are frequently presented with ten options that do more or less the same thing, and app that’s free often wins out — even if the 99 cent alternative is far more polished and useful. While frustrating for mobile app development companies, the industry has developed a number of ways to work around it.

Revenue models for how do free apps make money

Selling merchandise
In-app purchases
Referral marketing
Collecting and selling data
Freemium upsell
Physical purchases
Transaction fees

How do you get paid for free apps?

Android makes it very easy to build apps and release them on the Play Store. You can become an Android developer for free. You just need a computer which can handle Android Studio, and you can start building apps. There's nothing else stopping you. And if you want to release this app of yours on the Play Store, you just have to pay a one time charge of only $25. The barrier to entry is so low, compared to other platforms.

And I'm not sure if you have observed it or not, but placing ads in Android app is just so simple. Google makes it so fool-proof for developers to sign up for an AdSense account and start showing ads on their apps. 

There are different types of ads as well. Some just show up as a banner at the bottom of the screen, some can be embedded into the long list of cards in your apps, and some can even popup as full screen ads in-between activity transitions in your app. All these things are very easy to configure. Not just in Android apps, actually. Even on my personal blog, where I still show AdSense ads, it's very easy to configure all these things.

Now that you have all these ads configured, and released in the Play Store, you start money, right from day one. Well, only sort of. Just because you have ads in your app, doesn't mean you start getting cheques every month from Google. If you want to make money from ads, you need scale. If you have just a few hundred users, you're not making any significant amount of money. And if you want to depend on ad money for your livelihood, you better have an app that millions of users are actively using.

What I have learned from personal experience is that when you want to make money from ads, you are not going to be serious about your users. You will always be disconnected from them. Because those users are not paying you directly, or at all, you are not accountable to them, you don't have any kind of responsibility towards them. 

So if they report a bug, or request a feature, you don't even have to acknowledge them. This is unless you are very serious about your product or your users. But my argument is, if you are really serious about your product or users, you are not going to give them a bad user experience by showing them ads.

Monetization strategies for free apps

if you want to make any significant amount of money from your app, you can't go with ads. You just need to put it behind a paywall. There is a benefit of putting your app behind a paywall: you get loyal customers. What do I mean by that? I mean you get customers who actually like your app and are going to use it regularly. There's no point in having a million downloads of your app but only a hundred active users. It only means that about a million people tried your app and didn't like it.

And paying for an app is beneficial for consumers as well, because you can be assured that the developer is serious about the app, is going to listen to your feedback, is going to fix bugs, and possibly even introduce features in the future. It's a win-win for both the developer and the consumer.

And when you are already being paid for your app, you'll not want to throw a bunch of non-sense ads to your users. That would just be unacceptable. So the user gets a very pleasant user experience, you get paid, and everybody is happy. This is what we see over at the iOS world. Most apps you'd want are paid. 

But the number of ads you see on an iOS device is almost close to none, unless of course you install some shady apps.

Free or paid: which model is right for your app?

If your app has a social component or has the potential for viral growth through referrals or word-of-mouth, switching your paid app to a freemium model may be a smart call. You can always keep certain features or content gated behind an in-app purchase or subscription in order to maintain a predictable revenue stream. 

You might also consider keeping your app paid and offering an extended free trial or basic free subscription tier to capture more downloads and find ways to monetize your growing user base over time. Once you’ve demonstrated value and earned a loyal customer base that keeps coming back to your app, you’ll have more opportunities to upsell and convert. 

Achieve business resilience with any monetization model

Free or paid: however you acquire new users, your business won’t grow unless you can keep them coming back. 

The longer a customer stays with your brand, the more opportunities you have for conversions — which means higher customer lifetime value. With higher CLTV, you can afford to spend more on acquisition campaigns and grow your app exponentially. And since good retention helps you better understand who your most successful customers are and why they come to your app, you’ll be better equipped to attract more of them. 

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