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Mobile App Business Model 101: Freemium

Let’s face it, last time you looked at Apple’s or Android’s App Store you probably weren’t too keen on downloading apps that hit you up for money immediately. Instead, you would rather download and install apps that are completely free. If you think this way or you tend to lean this way, you’re hardly alone. In fact, according to a study that we wrote about earlier, the best selling apps actually started out as free downloads. In other words, the app developer would use the free app model to upsell their apps to people. This makes a lot of sense.

Unfortunately, there’ still a lot of app developers that would insist on you paying a premium up front. These guys simply aren’t getting it. While they are sure to attract some people, they are leaving a lot of money on the table because as much as they hate to admit it, the mobile app marketplace is really constructed on “try it before you buy” framework. In other words, most people would rather download the app for free and install it, figure out what it’s capable of, see if they like it and then possibly buy a premium version. In other words, the Freemium model.

How effective is this model? It’s so effective that Plants Vs Zombies launched as a free app with premium upgrades. That’s how effective it is. It is a very validated model and it’s a great way to make a great first impression in the app market. This is crucial: it can make or break any app developer or app startup business. Why? You need to hit the ball right out of the park with your app and you’re not going to cut it when you put a massive barrier like a payment requirement for people to download and try your app. The great advantage of the freemium model is that it allows app developers to establish a huge base of installed users. It really is a numbers game so if you want to let’s say establish a paying base of users numbering about one thousand, you probably need to distribute and get downloads for ten thousand so nine thousand will be using your app for free and one thousand is your recurring user base.

This is a very powerful model because it allows people to get a taste test of what your app is capable of. It’s also a great way of getting people hooked on the particular value you’re offering and then hitting them up for money later on. This works for games and it definitely works for other types of applications as well. Freemium is not going to go anywhere especially considering how competitive the app marketplace is currently. It’s not going to get any better. It’s just going to be more competitive in the future. This is why we are confident that the Freemium model is not going to disappear anytime soon.

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