android-app-ideas freemium

“The easiest way to get one million people paying is to get one billion people using.”

Phil Libin, Evernote

The mobile revolution had started back in 2008 when Apple released its “app store”. Since then the app usage has been growing.

However, the rate of increase has already reached a saturation point. According to Flurry Analytics, global app usage increased by 58% in 2015 (compared to 76% in 2014 and 103% in 2013). Currently, there are 1,252,777 apps available in the App Store, and as many as 60 thousand apps are added per month – and, on the other hand, this rate is growing.

To stand out in this crowded market place, you need to not only monetize your app business model but also get inside the app list of mobile users. And freemium model is probably the best, easiest, and the FREE method to do so.

App marketers have generated profit via paid apps as well as freemium business model to achieve success.

According to a Statista Report, in 2012 approximately 57.33 billion free apps were downloaded on mobile device. By 2017 it was projected to reach the figure of 253.91 billion.

app-download-stats

One model is right for you and one is not. You need to identify the one that fits in your mold. Some marketers shy away from freemium, but it has turned out to be a powerful way to get profits out of an app.

The onset of freemium model is probably the best thing that ever happened with Android app development market.

In this article, we will give you some insights into what freemium app model actually is, how it works, and its pros and cons.

What is Freemium?

The term “freemium” (“free” plus “premium”) was coined by Fred Wilson, a Silicon Valley venture capitalist, in a blog post about his “favorite business model.”

Here’s his basic outline for it:

“Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc., then offer premium priced value added services or an enhanced version of your service to your customer base.”

freemium-free-plus-premium

Freemium is not about “giving away the razor and selling the blade” or “giving away the free chapter and selling the book.” It is all about giving the product which people want all for free.

The basic objective of this model is to give user the free sample of the product so that they can see what it can do without giving them everything.

Also Read: The Beginner’s Guide to Making an App

Four Popular Types of Freemium

1. Classic Feature-Limited Freemium

The developer give away the limited feature of app to the user for free with an option to purchase a premium version that offer a full suite of feature.

Skype is a great example of this. The video calling app is free to download and user can make Skype-to-Skype calls without charge. However, Skype sells a range of other features that unlock greater potential in its app. For instance, if you want to call someone on their mobile phone via Skype, you would be charged.

2. Free Trial Period

In this freemium model, the user are granted access to the full feature version of an app instead of lite version app. The objective of this model is to give users a taste of the app’s premium features.

This allows them to ‘test drive’ the app before they consider purchasing the full version and also provides a pathway for users to grow familiar to premium features increasing trust and of course, habit.

3. In-app purchase

This is probably the most used freemium model in the app market. The app is designed in such a way that the user can use it only for a limited time in one go.

Let’s say a racing game offer 5 credits. For each race you spend one credit each. Once the 5 credits are exhausted, you would have to wait because each credit is renewed in 30 minutes!

And here’s the catch: To renew it instantly, you would have to make purchase.

It also works in many different ways. The user users can accelerate their progress in a game, unlock special features, or acquire in-app currency. It just like giving a gift.

temple-run-freemium-model

Popular games like Temple Run and Candy Crush abide by this model, banking on the fact that some users would rather pay than play through the whole course of the game.

4. Ads and sponsored content

The fourth freemium model where the free product is supported by ads. An example of this is the Metro newspapers that are distributed for free in many countries.

It is a technique that app developers across nearly all categories have utilized, and this monetization method is the favorite of major social networking apps like Facebook, Twitter, and Instagram. In fact, Facebook alone earned $2.68 billion in ad revenue in just the 2nd quarter of 2014 alone.

Can an in-app purchase freemium model be more beneficial than a paid app?

freemium-vs-paid-app

Most of the people DO NOT even go to the paid app section of the app. And if they do, they, like with any other product, certainly look at the price tag. That might not be the decider for the app download. But that is certainly a hindrance.

Remember the last time you downloaded a paid app? Or the last time you downloaded a freemium model based app?

If you don’t want people to drive away by seeing the price tag attached to your app, then freemium model with in app purchase is what you’re looking for.

According to Flurry Analytics of 2013, most popular business model among apps is free combined with in-app purchases. It is naturally because people want free content more than they want to avoid ads.

In-app purchase based freemium model provides app marketer with more leads (that is, more downloads. More the downloads, the more conversions). And once you have leads, and the users are actively using your app, all you have to do is convert them.

This strategy work best when:

  • User experience is your only priority and it is sufficient enough to encourage repeat visits even without a single purchase
  • The in-app purchases add real value to users
  • Your business deals in retail, shopping, services or gaming app such as Candy Crush, Tinder, Magisto, etc

Premium features of apps earn money in freemium model

As mentioned above, freemium is simply an amalgam of free and premium.

In this revenue model, first the app is offered for free and later the user needs to pay for certain features to unlock.

In simple words, basic functionality is free but there is charge for premium features. The basic idea of this model is to keep the user engaged so much so that some of the user go for the premium experience of the app by paying it to the publisher.

Some of the most popular games in app history have used this model. Angry Birds, Clash of Clan, and even Kim Kardashian’s Hollywood Game are some of the best examples. All of the them gave away their basic version to users for free.

Later, user can pay certain price to enjoy other premium features of the app.

Also Read: 9 Questions to Ask When Thinking About Mobile App Ideas

Customer acquisition in freemium model

In freemium model the cost of acquiring a customer is lesser when compared to a paid app.

The simple concept that your app is free is itself a great marketing strategy. $0 is the favorite price of every customer, isn’t it? Everyone like free product. And giving a free app is surely to entice a new user.

Plus, if your app is good and users seem to like it, they will promote it among their friends. They will do pep talk about your product among their friends. And I guess you know how viral marketing works!

In freemium model, the marginal cost of acquiring new users is low due to internet economics. It is a perfect business model.

freemium-a-perfect-business-model

Common misconception of freemium model

1. It is a free trial period

One of the common misconception developers have in their mind that they think freemium model consist of free trial period but it is not.

The difference between freemium and free trail is that free trial allows user to test a product or service for a limited period of time before buying the actual period whereas freemium model provide that is always free.

The premium part comes from offering the free platform of user’s additional products or services that for a fee can expand or improve their experience.

So just because a free product appears in a business model does not make it freemium.

2. Freemium model has one business model that is free product.

If you think these then you need to know this that freemium model has three other business models centered on a free product which are.

  1. Direct cross-subsidy
  2. Ad supported
  3. Gift economy

In what areas a freemium model can help you

1. Marketing

The freemium model is one of the good marketing strategy to get new free user because everyone like free product, giving free product can entice new user for your app.

Free user can be a good marketing strategy because they will do pep talk of your product which will motivate other user to use your product.

In this freemium model, the marginal cost of acquiring new user is low due to internet economics.

2. Network effects

According to Wikipedia:

A network effect is the effect that one user of a good or service has on the value of that product to other people.

For example what is the use of the phone when you can’t call anyone else with it? but once everyone has a phone then it become pretty valuable things to have.

By using freemium, model you can create your market which will lend you to create network effect for your product.

Remember if you don’t use now, someone else will and will use the network effect to crush you.

Pros of a freemium model

1. Motivation for customer to try without anything at stake

There is always a pool of user for a free service because everyone loves free product. A free offering helps you to target those users which are on that pool.

Providing free product is one of the marketing tool which attract free new user, this free user will refer other user who could turn out to be paying user.

2. Low marketing cost

Freemium model is based on Word of mouth marketing and it doesn’t require money; you just need to develop a product based on the need and want of your user because people will only talk about your product when they find it use full.

3. Increase download and generate good review for your app

Freemium model is a great way to do this because it allow user to test your app and decide for their own how great your app is.

If they like what they see they will be more likely to buy the better, paid version of the app and they will recommend to other people which directly increase your download.

Cons of a freemium model

1. Needs a lot of free trials users to make substantial sales happen

Yeah, you heard that right.

You will need lot of user because freemium model will only work if your idea or product has the potential to reach million of active users.

If it’s more niche, then we recommend you to take the route of premium.

2. Needs returning users

What is the use of attracting ton of user if your product doesn’t hold your user? it’s better that you should drop the idea of freemium model.

Freemium works if your users stick around and start to love the product.

Tips for creating a successful freemium business model

Create a product that users love

Make your product shine, even if your user are not paying for the product because Word-of-mouth is your best marketing strategy, and when people enjoy a complimentary product or service, they’re likely to share it with their friends.

Although you’re not earning a profit, you can enjoy substantial savings on marketing expenses when users do your advertising for you — and some of these free users will become paying customers in the future.

Limit the app usage in some way

The most successful freemium companies offer people a natural reason to upgrade by setting usage or capacity limits for unpaid members.

For example, Dropbox allows users to store up to 2GB of data for free and charges a monthly subscription fee only for users who need more storage space.

Similarly, Evernote provides added storage space, bonus features, and priority customer support for a fee.

How MailChimp nailed it with freemium model

mailchimp

Well, Mailchimp has a long story. They were established way back in 2001.

However, it would take 8 years before Mailchimp decided to deploy freemium model. In September 2009, Mailchimp made its email marketing tool available for people at no cost, while maintaining paid versions beside it.

Just when they launched it, Mailchimp had 85,000 users. But within 12 months, this number grew to five times to 450,000 users. Moreover, within that 12-month period, MailChimp increased its number of paying customers by 150% and the profits increased to a whopping 650%.

Within a few months, Mailchimp was adding 30,000 new users each month of which more than 13% are paying customers.

According to the company, the primary reason for increased profit is due to a sharp decline in the customer acquisition cost driven by the freemium model. In the last quarter alone, the cost fell by 8%.

From April 2010 through August 2010, the company saw an increase on their largest pricing plan from 12% to 20% of paying customers.

These 20% account for 65% of MailChimp’s total revenue, up from 48% in April. Thus, a crucial growth factor during the 12 months of freemium was on their most expensive plan — a growth that was considerably cheaper to achieve with freemium.

Increase App Downloads