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An Ultimate Guidance On How Do Free Apps Make Money In 2020

How Do Free Apps Make Money in 2020 [Examples]

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17 min read

I bet you have used dozens of free apps and wondered, how to make money off an app if it comes at no cost? And it seems to be a logical question. But are free apps really free?

Not really. I mean, not all the apps are actually free. Some of them let you try the product for free and then charge you for a subscription. Others use ads to direct you to another app or service to get paid. It is all about marketing.

In this article, I want to explain how free apps make money and list the best ways of how to monetize an app. We will consider the best approaches for those entrepreneurs, who already got an app idea.

But first of all, I want to answer your burning question. Are free apps worth developing and how much money do apps make today?

How Much Money Do Free Apps Make?

There has always been a deep-rooted prejudice that free apps cannot bring much profit. Yet, the mobile app industry statistics proves otherwise. Let’s compare the number of free apps available on the market today and their revenue.

The statistics in December 2019 shows that 96,2% of all apps on the market are free. Meanwhile, the mobile app market forecasted revenue is $581 billion in 2020. The numbers make it clear that this niche is highly competitive and profitable.

The research on how much money apps make shows that the revenue of mobile apps in 2019 was $461 billion.

But how do apps make money if they are free?

Statistic: Distribution of free and paid Android apps in the Google Play Store as of December 2019 | Statista

How Do Free Apps Make Money?

The main question is how to make money with free apps? The secret lies in the various app monetization strategies apps owners use.

Most apps use good old-fashioned advertising monetization to make a profit. But there are many other monetization strategies. As well as there are ways how do free apps make money without ads.

Today, subscriptions and in-app purchases become more attractive monetization methods for free apps. Usage of freemium model increases by 56% each year

Whatever app you want to develop, a chosen monetization strategy is a key to your future profit. If you launch a free app and just wait till it becomes popular by itself, it’s a wrong path.

How to Monetize an App Idea?

Let’s have a detailed review of all mobile monetization strategies. That is how to make money from your app even if it is free.

In-App Advertising

The first and the most widespread monetization model is in-app advertising. Making money with ads seems to be old news, but this year advertising in apps will become even more popular. This mobile app monetization model allows to cooperate with brands in various spheres.

Today’s in app advertisements usually come in a form of native ads. Thus they are relevant to the user’s needs and interests. Marketers also use banner app ads. They are usually displayed as an image and aim to push the user to click.

In-app advertising provides founders with vast targeting opportunities. One of the most popular examples here is Instagram. The app is free, but has ads that are displayed as photos and videos. 

They appear in your news feed or stories but are usually targeted. Instagram uses algorithms that help to understand the user. Thus it knows what a particular user is looking for and show the most relevant ads to solve the need.

While most users don’t like ads within apps, this model is still highly effective. Today, app marketers tend to control the intensity and content of their ads. They try to attract users with soft and well-thought ads in the most non-aggressive way.

In-app ads come in a format of banner, video, native, interstitial or incentivized ads. Let’s consider each of them.

Banner Ads

Banner (or display) ads is one of the mobile ad formats. App banner ad is a rectangular picture that is displayed at the top or bottom of a mobile screen. 

Banners usually contain text and static or animated images. They are placed in the most high-visible areas of the app screen.

Banner ads are not highly effective. But they are still able to attract users and generate awareness. Even though users take banners as spam, they still find them unobtrusive.

Still, today’s banners tend to be more personalized, and thus users pay more attention to them.

Video Ads

Video ad is a short promotional clip displayed within an app. Today, a video advertisement is one of the most effective mobile ad formats. But it is still rather controversial.

In-app video ads introduce an app and give a direct link to download it. They require large investments. But can provide founders with a high level of engagement. 

Such type of app advertisement can be rewarding for users (offering some bonuses). Yet, it is still may be annoying. Usually, video ads are accompanied by loud sounds and can’t be skipped. 

Thus, you should be careful with this format. Especially if you choose video only advertisement.

Native Ads

The most effective model of app advertising is a native one. Native ads is an organic and seamless way to present your app.

The main purpose of native ads is to display an advertisement as a part of a publisher’s content. The best approach is to present ads without obstructing user flow within the app.

Most users try to avoid any kind of ads and block or skip them as soon as possible. That is when native ads step in. If to get them right, native ads will be integrated into the app and won’t look like ads.

It is a soft type of in-app ads, but it still works pretty well.

Interstitial Ad Model

Interstitial ads are full-screen ads shown within the entire mobile screen. They are usually shown in the most non-disturbing way. Interstitial ads are tapped in the app flow. They are usually displayed while the app is loading, between levels or during the pause.

Users can close, tap or just watch an interstitial ad. The main purpose of this ad type is to catch the user’s attention. Thus, these full-screen and high-quality ads usually use creative and smart call-to-actions.

Interstitial ads are one of the most effective monetization models. Yet, it should still be used strategically. Users can become annoyed if the publisher displays an ad too often. Founders should think over the timing and frequency of an ad. It will help to avoid aggressive marketing.

Картинки по запросу "Interstitial Ad Model"

Incentivized Ad Model

Incentivized advertising is also called sponsored, rewarded or value exchange model. It rewards a user for particular actions. For example, users can gain something through actions. They can watch an in-app video ad, install an app, engage with app features and so on.

The research shows that users are 27% more likely to convert if they are rewarded for watching an ad. Typically, the reward can be an extra life in a game, virtual cash, discount on product, etc. Yet, incentivized ads have a negative side as well. 

People like to be rewarded, but they want to get their awards as soon as possible. 

Thus, they are unlikely to click through the link and install another app. They are likely to watch an offered ad, collect reward and continue interacting with app.

These are the main formats of how do free apps make money with ads. Let’s get down to the next model ⁠— affiliate marketing.

Картинки по запросу "Incentivized Ad Model"

Affiliate or Referral Marketing

Affiliate marketing allows monetizing the mobile app by promoting third-party products or services. The revenue is based on pricing models. This monetization strategy is closely linked to the previous model ⁠— in-app advertising.

Amazon Associates is an example of an affiliate marketing program that helps monetize apps. You can advertise any Amazon goods by placing links to them. If users click the link and make a sale, you receive a reward. Yet, there are other marketing pricing structures available for affiliate marketing. Let’s consider some of them.

CPA Ad Pricing Model

CPA (cost-per-action) ad pricing model is sometimes called PPA (pay-per-action) or PPP (pay-per-performance). This ad pricing model is an effective way to gain revenue.

This pricing model presupposes that you pay for the number of users, who performed a specific in-app activity after tapping on your ad. 

A publisher offers an in-app ad. A user sees an ad while using this app. The user clicks on the ad (signs up, downloads an app, makes in-app purchases ⁠— it can be any action). An advertiser is paid for it. 

This is how to make money with the cost per action model even if your app is free.

CPA pricing model is beneficial for a publisher, i.e. a free app founder. It is not risky since he or she pays for specific actions the business needs. 

Meanwhile, an advertiser risks a lot. Users may find an advertisement boring or annoying. Thus, they might refuse to take any actions or even delete the initial app.

PPC Ad Pricing Model

PPC (Pay-per-Click) ad pricing model presupposes that an advertiser pays a particular fee (CPC or cost-per-click) for each user, who clicks an ad that redirects to the advertiser’s predetermined destination.

PPC pricing model can sometimes result in false positive results. It is very easy for users to click ads by accident. But PPC is still one of the most cost-effective and easy-to-implement pricing models.

PPC marketing campaign is easy to arrange. Moreover, it allows to use iTunes or Google Play app stores to track inbound traffic. It enables founders to see where the clicks are coming from. It enhances the transparency of any actions.

CPV Ad Pricing Model

CPV or Cost-Per-View is a video ad pricing model that is based on the number of views or interactions your ad gets. 

What can be counted as a view? A user should watch an ad for 30 seconds (or less, if the video itself is shorter than 30 seconds) or interact with it.

An app advertiser sets CPV bids to make it clear how much he or she is ready to pay for each view.

CPV model enables app owners to get to their target audience and expand awareness.

Moreover, this video ad pricing is highly effective for advisers. They pay only for those views that last no less than it is required. It means that those users, who skip ads or click away from them too quickly are not paid for.

CPM Ad Pricing Model

CPM (Cost per Mile or Cost per Impressions) is an ad pricing structure that helps to create an app awareness. An app advertiser pays for every 1000 times the ad is displayed to the user. The revenue per impression is based on the formula:

App owners use a CPM pricing structure if they need to scale.

CPI Ad Pricing Model

CPI or cost-per-install ad pricing model presupposes that advertisers pay per app download. Thus, a publisher gets payment after each app installment followed the ad. It is a specific marketing model for apps monetization.

Founders use CPI pricing to incentivize visitors to download your app. This model often costs founders more money and lower the quality of the incoming traffic.

Crowdfunding Model

One of the popular ways to monetize apps is to use the crowdfunding model. This monetization model is an effective way to raise money. Thus, it is widely used by startup companies. 

You can monetize your app via platforms like Kickstarter, IndieGogo, GoFundMe or CrowdFunder. But you need to keep in mind that it is better to refer to a crowdfunding model as to a channel of extra income.

Sponsorship Model

Sponsorship (or influencer) monetization model is all about cooperation. It allows to work with other brands or people, your target audience is familiar with.

Sponsorship model can be implemented as a part of sponsored (incentivized) ads. Check the examples of Facebook and Instagram sponsored posts:

Yet, a sponsorship model offers major opportunities besides direct advertisements. Cooperation with Instagram influencers is quite popular today. And it doesn’t need a big investment. 

It presupposes that you find the right influencers respected by your target audience. Then, you offer them a barter system that depends on the type of your app. Thus, an advertiser can have your discounts, free access or various benefits.

Your business partners (bloggers or celebrities), in their turn, promote your app. They offer bonuses to their subscribers for downloading your app or any other activities.

You can also offer an opinion leader or famous blogger to become an ambassador of your brand. People tend to listen to the opinion of famous people and are likely to at least check what they are promoting.

The results of such a monetization plan won’t be long in coming. 80% of marketers suggest an influencer model to be highly effective.

Email Marketing

Email marketing is an old-fashioned way to monetize apps. Yet, if done right, it still works pretty well. 

The truth is that Email marketing can bring much profit. The research showed that for every $1 you spend or email marketing, you can expect an average return of $38.

But to set up email marketing efficiently you need to take some actions. For example, arrange multiple channels to collect email addresses, such as in-app forms. This monetization model needs the usage of email marketing tools and detailed strategy. 

Paid Transactions Model

Another model of app monetization is to become a mediator of paid transactions. It means that your app stands between vendor and buyer. 

A good example here is AirBnb service. It is a platform where customers and vendors meet. Customers, who want to rent an accomodation and vendors, who want to give it in rent. 

Such services help both sides and receive a particular commission for provided services.

Freemium: In-App Purchases and Subscriptions

The in-app purchases model is one of the most popular monetization strategies. It allows making users pay within a free app if they want to get more.

This strategy works great with mobile games and various entertainment services, such as dating apps.

Depending on the specification of your app, you can use a particular type of in-app purchase or subscription model. There are four types of in-app purchases:

  • Consumable

This type of in-app purchases is widely used in gaming apps. 

Users can purchase consumable goods within app. These can be extra lives or valuable items to progress through an app. 

Consumable in-app purchases are used once, and then need to be purchased again.

  • Non-Consumable (Freemium or Freemium Upsell)

These in-app purchases are usually premium features. Users can buy them within app to enhance their experience. 

Once users pay for an extra feature, they are able to use it. It doesn’t expire, and users don’t need to renew it.

Non-consumable in-app purchases are usually used in a freemium upsell model. 

Freemium or freemium upsell model is one of the most popular ways of app monetization. It presupposes that users don’t pay to download an app, but they are offered optional in-app purchases.

Freemium model allows users to try your app for free by using limited free features. If they like the app, they are more likely to pay for premium features, digital goods, additional content and so on.

  • Auto-Renewable Subscriptions

Auto-renewable subscriptions allow users to buy access to particular services or periodically updated app content. 

It can be monthly access to music service or a weekly subscription to a magazine. 

A user, who once subscribed for a service, will be charged on a recurring basis. Right until he or she decides to cancel subscription. The example that first comes to mind here is Apple Music. 

  • Non-Renewable Subscriptions

There is also a non-renewable subscription model. Unlike an auto-renewable one, it allows to subscribe for a service for a fixed duration. 

It doesn’t renew automatically, so users need to renew each time.

Free Trial

The best way to show your app is worth paying for is to give users an ability to use it and confirm that for themselves. 

This monetization strategy is successfully employed by Apple Music. Users can enjoy the benefits of the service for 3 months at no cost. And if they like it, they continue the subscription, if not ⁠— they can cancel it any time.

Картинки по запросу "Free Trial in app"

App Merchandise & E-commerce

Apps that have become brands found a way to monetize through their popularity. Such apps like Angry Bird or Tik Tok started to sell their branded items, like T-shirts, stationery, accessories, toys, stickers, etc.

While fans are ready to buy, such tools as Amazon’s Merch are ready to help to create and distribute such goods.

Thus, app founders can earn money on their brand and become even more popular.

Картинки по запросу "App Merchandise & E-commerce"

How To Choose an App Monetization Strategy?

Before choosing a monetization strategy, you should first handle several matters. They are crucial for attracting users and generate mobile app revenue.

  • Consider Your Business Goals

Every product has its business goals. It is very important to define them before choosing an app monetization strategy. The perfect start point is an idea validation.

Think your app business model and the potential ways it can be monetized.

  • Define Your Target Audience

A monetization strategy cannot be chosen without a thorough user research. You should understand who is your target audience, their needs, and problems.

User research helps to understand your future users and their willingness to pay. Without this information, it’s a guessing game.

  • Analyze Your Competitors

Founders shouldn’t forget to analyze their competitors. Your application would probably have competitors with the similar idea or in the same field. 

Competitive research will give you an insight into the most efficient ways to monetize your app. Ultimately, it will help you to choose the best model to generate more revenue.

Use your target app store to find similar apps. Analyze them. Check their design solutions, features, and monetization strategies.

  • Think of App Name Ideas

First of all, you need to choose the best name for your app. Collect all your ideas and write them down. If there are several good ideas, you can ask your friends and colleagues for advice.

Remember that a catchy app name is very important for any app. 

Some founders choose a name that sounds good but doesn’t reflect an app purpose. My advice here is to start out from the app functions first. It will help potential users understand what is your app about at first glance.

You can be as creative as you wish. But keep in mind that your app should have a snappy short name (under 100 characters).

  • Make an App Description

An informative app store description is an easy, but still powerful thing. Users are unlikely to read a full version of the description. But the fist sentences need to be composed in the finest style.

By the first several sentences, I mean that part, which users see right away. Here is an example:

The purpose of the first part of the apps description is to make users understand what your app is about. Show them why it is valuable for them and how it can solve their problem

You have about 200 characters for that. Up to the “more” button, you can explain your main advantages and impress potential users.

The rest of the description may contain some specific details. You can describe app features and the way the app functions.

  • Make Attractive App Screenshots

People tend to look at the pictures first. If users like them or they make them curious, they are likely to see more. The same happens to app screenshots. They need to arouse interest.

Sometimes screenshots are so good that you want to download the app right away, or is it just me? Anyway, app screenshots should be really impressive. Show the users how great your app is.

It is better if your screenshots contain call-to-actions. A good example is Starbucks app screenshots:

Tools to Monetize Apps

As you can see, there are many ways free apps owners can go and become profitable. But it still isn’t easy to launch a free app on App Store or Google Play Market and start earning money from day one. 

But they can start monetizing products through services.

There are many monetization services that can help free apps to become profitable. We have sorted out the best and made a list. Let’s look at the largest mobile ad networks available on the market today.

Tool Specification
Facebook Audience Network Facebook Audience Network is one of the best ad networks for apps. It allows you to monetize your iOS and Android apps with targeted ads.
AdMob AdMob provides the best technologies to gain insights about your users. It helps to drive more in-app purchases, and maximize your ad revenue.
InMobi It’s a tool that provides the best user experience within an app. InMobi helps to get market insights about TA and provide user engagement with better ads.
Apple Search Ads It’s an effective tool that helps your target audience to see your app at the top of App Store search. You can choose between two solutions – basic and advanced.
TapJoy This tool maximizes the value of each user for freemium mobile apps publishers.
Amazon Advertising It’s a tool that offers a set of ad solutions to help you find, attract, and engage millions of Amazon customers.
Appsfire It’s an ad network tool for acquisitions and native adverts. Advertisers get access to rich audiences, effective targeting, and statistics tracking services.
StartApp It is a tool that helps to increase CTRs and prioritize ads.

Leading Trends in App Monetization in 2020

As the app market grows, app owners try to keep an eye on the latest trends on how to better monetize their apps. Here are some leading trends in app monetization in 2020.

  • Ratings and Reviews

The first thing app owners should pay attention to is app ratings and reviews. They will mean more than before. The market today has a lot to offer. 

Thus, users tend to look through similar apps. And they are likely to choose those ones that have higher rating and a bigger number of reviews.

It is very important for marketers to track app reputation and user feedback. It will help to increase the number of downloads and enhance conversion rates.

  • Apps Instead of Mobile-friendly Websites

Users become even more mobile-friendly every year. Today they want to have all in one place. Whereas previously it was enough to have a mobile version of the website, now users prefer to use apps more. Why? 

Applications offer enhanced user-interfaces and faster response time. They can instantly and securely pay for the products and services, which is a win-win deal.

  • Differentiate to Win

Like I have already said, users have a lot of similar apps to choose from. Today, even a non-tech founder can create an app and make it popular.

It is very important to your app differentiates on the market before launching it. Try to make it as competitive as possible. Especially if your idea has already been embodied.

  • Security Is Important

The more popular mobile applications become, the more insecure is this field. Cyberattacks happen in the app space too. Ensure security within your app and protect users data.

Today, security plays an important role for users. They have already started to pay attention to such things and put more value on their privacy. 

Some app companies use vulnerability scanners. Others hire security audit agencies to identify their weaknesses and eliminate possible risks.

Top Grossing Apps of 2019

Here is the list of top earning apps worldwide according to Sensor Tower research:

 

As we can see, among the highest grossing app games are Honor of Kings and Perfect World. The fourth place of the top 100 free apps worldwide gets Tinder. This dating app is well ahead of other non-gaming apps.

The latest research on Google Play top grossing apps shows some changes in the data. But still Android marketplace best apps are games. ⁠These include Coin Master, Candy Crush Saga, PUBG Mobile, Pokemon Go, and Gardenscapes. Here is the Google Play Store top grossing apps in November 2019:

The statistics on top grossing Google Play apps shows how much money does the to 1 make. A revenue of Coin Master, an Android top chart app⁠ is 42 million dollars.

How to Make Money with Mobile Apps

Now you know how do free apps earn money and ready to choose one or multiple monetization strategies to make your app profitable. 

Monetizing a free app can be tricky and times harder than developing it. But still, take your time to consider all the options. 

There are several good options to test hypotheses before investing in large sums of development. Use PoC, prototypes and MVP to get started.

Check all ad networks and models to choose those ones that suit your business goals.

But whatever ways to monetize an app you choose, the key to your success lies in listening to your users.

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Posted by

Max Babych

Max Babych

I am CEO of SpdLoad

I launched SpdLoad almost 7 years ago and now it has 20+ successful products in SaaS and Marketplace industry and several own products. I am an expert in Marketing, Lean Methodology and Customer Development approach.

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