Nir Slonim is a VP Marketing at Apply where he works with app developers on user acquisition and monetization for their Android and iOS app portfolio across Apply’s network Upapps.
The Challenges of an Ideal App Pricing
Here are some stats to get us started: more than 90% of app developers choose to list their app for free; only 3.38% of users spend money on in-app purchases. App developers and mobile startups are constantly dealing with the big question of deciding whether their app should be listed in stores for free and have an idea for monetization, or charge for downloading the app and be dealing with other risks such as overpricing, lack of demand etc, which might destroy the chance of success before touch-basing the market.
They Are the Heroes of the Free
Angry Birds, Candy Crush, Instagram and Draw Something are great, memorable success stories. But these apps wouldn’t be where they are today without their free pricing model. One key factor that affects app pricing is the product’s potential audience reach, which in turn determines its monetization potential. As marketers, we see many mobile startups that raise money from venture capitals with no monetization drivers in hand. They usually come with a vision to create something big and meaningful, aiming to reach millions of users. You will mostly see such apps given away for free, as their developers usually have the aspiration of selling-off to giants such as Facebook or Google.
Israeli startup Waze makes a great example. Although appearing as another GPS app, Waze managed to raise $67M without even earning one dollar by creating the largest social mapping location database in the world. They probably had a rough idea how to monetize their app once they reach their goal of becoming a market leader. That’s all nice and fun. But the bottom line remains: Waze was sold to Google for more than $1B. Pretty cool, don’t you think?
What Pops in a User’s Mind Means Money
People do their best to avoid being risk takers, which is exactly why they prefer to download free apps. But that doesn’t mean they won’t spend their money on something that moves them. Think of a diamond-themed lockscreen designed by a top-notch designer that costs $10,000, or a game that “everyone” is playing, priced at $0.99 only. In both cases, there will be users who find these apps attractive enough, gradually building up a strong user-base.
When Should You Go With a Paid App?
Not everyone are planning, aiming, or dreaming of becoming the next Angry Birds or Instagram. App developers who choose to go with a paid app present a more realistic approach: They usually don’t have a VC behind them, and they target a smaller market segment, making it virtually impossible for them to gain profit from ads. For such products, charging users for the app is pretty much the only way to build an initial revenue stream.
Wrong Pricing Might Be Your Biggest Mistake Ever
Paid or free, it always been a matter of changing trends. The mobile app era kicked off with the $0.99 convention, but not for long, as app developers started seeing the benefits of the free model. Before ‘selfie’ exploded, photo editing apps were aimed at a very specific use-case. But ever since the selfie madness, we’re witnessing a significant rise of non-free photo editing apps hitting the app stores. At the moment of writing this post, 2 out of top 10 paid apps in U.S. are dealing with photo editing.
I believe the crucial metrics that should serve you as obligatory guidelines are:
- Your app’s category
- The designated frequency of use
- Potential market size
- Branding and reputation within the app’s vertical
- Market-specific needs
Good luck with your choice! I’m always happy to discuss and advise on app monetization and user acquisition strategies. Feel free to give me a shout on Twitter: @nirslonim.
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