Why should you opt for Freemium Business Model in 2014?

Free apps aren’t a new thing in the market. Infact people became familiar with the ‘Free app’ tag just when Apple had launched the app store with more of paid apps along with fewer free apps. However, 2013 had a different story to tell, as Freemium model was all that mattered the most and now is all set to contribute some key trends to the app market in 2014.

Freemium Model comes with a simple format to understand. The audience can avail the app for free at the first go and then avail the premium version or an advanced version that serves them with advanced features and functionalities of the app by paying a specific amount for the same. In a way, an app which is free and offers in-app purchases can unleash a critical gateway to bring in maximum number of installs by attracting majority of the audiences with the free app tag. As a developer, you offer them a chance to try your app for free and if they find it interesting enough they can go ahead and indulge with the paid version of the app.

Now, there is a major possibility of users of the free version or lite version to show keen interest in knowing what the advanced version has to offer, which might compel them to pay and indulge with the premium app. It is a procedure similar to the tiered services where in people gain something more for the money they pay.

Moreover, experts have to say that, In-app purchase model might take a bit longer in generating revenues compared to the regular models in which people are to pay upfront, but the results of the former are much more intriguing and rewarding when compared to the income acquired by the regular apps. 

Some critical insights on In-app purchase model:

The app market in 2013 saw major evolution taking place in terms of mobile app monetization models. Tons of researches indicated that the Freemium business model has been the most lucrative one in the year 2013. Indeed it was in the year 2012, when the freemium games managed to combine together approximately 80% of the mobile market, giving a thorough push to the app business.

According to Distimo, the monetization strategy of the freemium business model (free apps with in-app purchases) continued to be successful through 2013 as the revenue share of this business model increased. If we pay attention to the revenue proportion of in-app purchases, it increased from 77 percent to 92 percent in the Apple App Store and from 89 percent to 98 percent on Google Play. While the other app monetization models such as paid apps and paid apps with in-app purchases showed minimal revenue share.

Infact the top grossing apps of 2013, Supercell’s Clash of Clans and King.com’s Candy Crush Saga acquired the success due to their In-app purchase models. Which also suggests, that it was the Games Category that made the maximum profit in 2013. Distimo’s Christel Schoger was quoted saying, “ For games especially, freemium has become a successful business model. If the user is interested after the first look at the free game, I can imagine that he will often be likely to ‘invest’ more in the game.”

Interestingly, Mojang's Minecraft was the only paid app amongst all the other nine free games with in-app purchases in the Top 10 grossing Apps in the Apple App Store.

While it is evident that the freemium model is largely popular with the gaming industry, there are even more categories in the app stores that have been cashing in through in-app purchase models which opines critical options for developers.

If we go by the above chart, there are in all 7 categories that have cashed in above 50%  revenue through in-app purchase model. To top it all, the revenue in the top categories i.e Games and Social Networking is majorly generated from free apps with in-app purchases. While there are categories like Newsstand and News that managed to bring in even higher revenue portion through in app features.

While in terms of geographical market, Asian market brings in more revenue through free apps with in-app purchases compared to the Western market, where the paid apps still make a considerable portion in revenue.

To summarize, all these tendencies help us derive that by all means, freemium model shows a major scope of leveraging the success of mobile applications from not only gaming genre but from many more categories on both the platforms and across the globe. It seems to be the right time to smartly exploit the the in-app purchase model in this favoring app market scenario. However, it still remains a question whether to choose a freemium model or not, as each app has different business needs to accomplish. Unless your aim is to provide value to your customers with unlocking features.