Why offering free apps may be more profitable than charging users

Summary:Is the future of the App Economy an ad-supported model?

John Manoogian, co-founder and CTO at 140 Proof, makes an interesting observation about making money in the App Economy: free apps may deliver more returns than the micro-paid apps.

iPhone-2 CNET

Can this be?

Manoogian, writing in TechCrunch, suggests that advertising-supported apps may bring in the most revenues over the long run. Here's why:


Trying to wring payments out of Android and iOS users is a difficult undertaking, Manoogian states. On the other hand, advertisers are much more willing to pay developers than users are. Just like developers, advertisers need to market their product."

Advertising may be the path of least resistance to building sustainable app revenues.  Esepcially considering the slog to make just a few thousand dollars. Various estimates put the total revenue achievable by selling apps to be somewhere between $4,000 and $8,000.

As anyone who's been in the software business the past two decades can tell you, there's no such thing as simply writing code and expecting revenues to start pouring in, simply based on its greatness and elegance. To get software out to your users, it takes a lot of marketing and sales sweat -- first, to let them know it exists, then to explain to them why your code is better than anything else anyone has out there. Finally, you need to reassure them that you will stay around for as long as it takes to help with any installation or support problems.

Whether it's selling software to one user at a time, or selling it to advertisers, marketing is a key piece of the software business model. And, as Manoogian suggests, perhaps it may shorten the cycle to convince an advertiser to make some bigger payments to support an app, versus trying to convince 10,000 users to hand over their credit-card numbers. The beauty, as Manoogian also points out, is that app developers can also still maintain a chargeable, premium version of the app at the same time. 

A caveat: The ad-based model has had mixed results in the software space, however. Sarah Needleman of The Wall Street Journal spoke to startups and startup experts, and observes in a recent article that the freemium model -- in which many software vendors hope for sponsorship or buzz from giving away free software -- has not worked out too well. These include situations where there is a low volume of business, products with limited scope, or a base of enterprise customers.




Topics: Apps, IT Priorities, Tech Industry



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