How Do Free Apps Make Money in 2018?

We use smartphones for essentially everything. The number of apps with rich functionality is growing every year which leads to harsh app market competition among developers.

As of 2018, there are 3.8 million apps on Google Play and 2 million in the App Store. The market is huge and worldwide app revenue is expected to increase to almost $190 billion by 2020. According to Statista, the top grossing apps are all free of charge.

Nowadays, users have become picky and usually have only 4-9 daily active applications.

From 5 to 10% of users are willing to pay for an application with high quality and performance and specific functionality. That is why, the majority of downloads and profits (98%) come from free apps.

Developers who offer apps for free expect to get pay in some other form. If you want to develop a free app and don't know how to get profit from it, the following article will help you.

Here we will explain how famous free products made money off their apps, we will offer advice on how to choose an app monetization strategy, and help you to choose software tools for integration.

In brief, free applications make money from one of the following 8 most well-known monetization strategies:

1- Advertising

Nowadays, mobile ads are the easiest and most widely-spread way to receive money from a free app. 7 out of 10 apps have embedded commercials that generate payments per its display (per impression), per click, or per install.

There are 5 different ad variants to utilize in a mobile app:

App advertisement is the most popular app revenue stream, but this has begun to annoy and irritate customers. Thus, this massive use of ads has become ineffective, because less than 20% of users click on them. Besides, this monetization strategy can be effective only with apps that have a large pull of users, not for a startup project.

2- Referral Marketing

Referral marketing is connected with the previous model of in-app advertisement to monetize your app. There is even a separate direction in marketing - affiliate marketing. Informational content about an affiliate company is placed in the app and, based on clicks and installs, you receive rewards. These rewards are based on a cost-per-action (CPA) model or revenue share.

You can use the referral marketing model in the following ways:

• promote another application
• in-app advertisement
• advertise products or services via in-app-store

You can find many affiliate network companies (AdMob, Flurry) which specialize in finding a suitable affiliate for your application. Different software programs and tools can help you to integrate this model.

Campaigns used in affiliate marketing include:

• CPM (cost-per-mille, cost-per-impression)- you receive payments based on the number of impressions, the advertiser is usually charged every 1,000th time (mille, in Latin, is one thousand)
• CPC (cost-per-click)- you receive payment based on the number of clicks on a displayed app
• CPV (cost-per-view)- you receive payment based on the number of video views or other ad interaction
• CPI (cost-per-install)- you receive payment each time the promoted app is installed via its ad in your product

Free apps can make money without ads. There are 6 more monetization tactics, which include:

• In-app purchase & freemium model
• Sponsorship model
• Subscription model
• Crowdfunding model
• Email marketing
• App merchandise & e-commerce

3- In-App Purchase & Freemium Model

A very popular strategy used in the freemium app model is in-app purchasing. You can sell virtual or physical items, offer premium functionality or bonuses, block ads, or open new app content. Such transactions are controlled by the app store and the owner gets a commission from every trade.

This model is only possible and profitable for top apps which have many users. Such system has complex payment system development and integrations which are harder to implement. Besides, a disadvantage of this model is the high commision fee (30%) taken by app stores. A freemium app model has two app variants - light and full, and a user may only use the free version.

4- Subscription Model

This model sets up revenue streams from the weekly, monthly, or annual fees for a specific service provided by the free app. It is mostly used in cloud services, audio and video content providers (Spotify, Google Music), and digital news portals. According to the chosen subscription plan consumers receive access to the content.

It is vital to have resources and detailed content strategies to give fresh, up-to-date materials to keep up with competitors and guarantee a high level of subscriber services.

5- Sponsorship Model

It is a profitable model to make money from a free app by getting a sponsorship. This type of model is usually available for developed apps that already have regular users. Applications with a specific market niche get the most benefits. In such a way, you may contact sponsors in the same industry to match their brand with ads, information in the app, or adapt the app design to the brand.

Only if you have a specific niche and unique app idea this model works well. Although, even with the right app and niche, it is hard to find a proper sponsor.

6- Crowdfunding Model

It is quite a new way to monetize an app for free. Developers can raise funds for app development and marketing needs, using the following platforms: KickStarter, Indiegogo, CrowdFunder, and AppsFunder.

These are thousands of applicants and can become very difficult to be crowdfunded. It is essential to show the value of the product and that idea that is worth taking a risk and investing.

7- Email Marketing

Email marketing is considered to be a profitable strategy in any industry. This is an old technique of collecting user data, to send corresponding marketing materials to heat up the subscribers’ interest in a product or a service. It is very useful when your user retention indices drop or when it is used to notify about new features, rewards, app news, etc.

In any case, do not forget to notify, ask permission, and explain why you use personal user data. This is important especially if your target audience is in Europe, according to the GDPR (General Data Protection Policy).

Today email marketing has become less effective, because of its wide usage. It is less powerful for a startup, but it is the biggest advantage for the top branded apps.

8- App Merchandise & E-commerce

The e-commerce industry is developing very well and more and more consumers are joining the online buying community. The majority of physical items are sold with the help of free mobile apps.

This model is only available for the top apps with a large audience.

You can develop a free app for your regular business and sell any other items with its help.

How to Make Money with Mobile Apps

There is some difference between how app developers and app consumers see the value and revenue generation. That is why app developers should examine how to earn money from apps from different sides. You should try to examine the possibilities of a mixed monetization model - not only by using ads and in-app purchases, but by seeking to enhance user experience based on target audience needs.

It is essential to conduct profound market research and see what services are already available, their successes and failures and their monetization strategies. Generally, such products have a unique feature - offering solutions for people's pain points.

Learn what inspires potential app users and/or annoys them. If you take this information into account, you can see how to earn money from the app and which model(s) to choose. The model should be natural and relevant to your target audience.

In this article you can get full information on the ways how to make money from free apps