Freemium: King of the App Store

The software jungle known as the Apple App Store is home to a new king, the freemium app, and my word is it making a roar. This new animal encourages high volumes of free downloads, and monetisation through unlockable content, features, consumables and more. Can this enigmatic animal continue to eat away at the success and potency of the traditional premium app; or is extinction from the App Stores imminent?

What is “freemium”?

Freemium.org explains to us what exactly a freemium app, or business model is:

The word “freemium” is a combination of the words “free” and “premium.”

It describes a business model in which you give a core product away for free to a large group of users and sell premium products to a smaller fraction of this user base.

One of the most well-known examples of a freemium business model is Skype, which provides free computer-to-computer calling but sells voicemail, calls to landlines and other products.

The apps within the App Stores follow the instructions above to a point. Giving away their apps away as a free download, then up-selling users on in-app purchases.

How is freemium affecting App Store revenue?

App analytics platform Distimo released a recent report outlining the revenue share per business model on the Apple App Store in January 2014 [1]:

You’ll see in the 10 countries listed the freemium model is contributing to a minimum of 70% of the revenue being generated, with highs of 94%. Whereas, apps being sold with no in-app purchases, under a traditional premium model, are seeing lows of 4% of overall revenue generated within the App Store.

Notably China & Japan seem to be the leaders in freemium monetisation. Reasons for this could be analysed in-depth but the fact that Japanese smartphone users make up 23% of the global iOS and Android users [2] would have a notable effect. Equally, the popularity of the “Games” category in these countries, in which the freemium model arguably was first picked up would have significant part to play. We only need to look at Japanese giant, GungHo Online Entertainment, who are the top app publisher by monthly revenue on iOS & Android in January 2014 [3].

This is just a phase, right?

No. Freemium applications are on the rise, the trend identified by Distimo once again shows the gradual climb in App Store revenue share of freemium apps, as discussed above [4]:

Where will freemium strike next?

In the Windows Stores, the in-app purchase is the fastest growing model once again, surpassing paid apps revenue in January 2014 [4].

In terms of apps being distributed independently of the App Stores, the freemium model is yet to be mastered. Perhaps this is where this ruthless, revenue hungry animal will strike next.

With millions of downloads occurring weekly on the likes Softonic, Download.com etc, the freemium model outside of the App Stores has huge potential.

In an effort to target this market, Paddle have recently launched an SDK to create freemium apps & games with in-app purchases outside the App Stores; for more information click here.

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Sources:

  1. Distimo - February 2014 (PDF)
  2. iPhone Apps in China and Japan – Asia’s App Market on the Rise
  3. GungHo Online Entertainment, Inc. - App Annie
  4. The fastest growing revenue model in the Windows Store? In-app purchases