“The demand you get at a price of zero is many times higher than the demand you get at a very low price” – Kartik Hosanagar, Wharton Professor

 

Try-before-you-buy

The intense competition between apps and the surge of the try-before-you-buy trend has resulted in a high number of apps to be free-to-download. The top two monetization strategies for most app publishers include in-app purchases and in-app advertising.

In-app purchases are based on the premise that if users like an app they may be willing to buy additional in-app purchases. In-App purchases are either upgrades, consumables or virtual currency or credits. In-app advertising is the second largest mobile revenue generator after In-app purchases and growing steadily with app usage. Examples include banner ads, full-screen ads, and video ads.

Free-to-download apps

The free-to-download apps potentially lessen app’s retention rate. Further, the app install-rate, uninstall-rate and competition is the highest in this category.

78% percent of the apps listed on the Apple app store are free-to-download, which compares to almost 10% of the apps listed for $0.99. The demand for free-to-download apps is quite high at slightly over 94% of all downloads, which compares to an estimated demand of 2.5% for $0.99 apps.

Pay-to-download apps

The gap between people willing to download a free app and willing to pay $0.99 — the minimum in US iOS App Store for paid apps — is a significant hurdle for most publishers. This gap is in line with what Josh Kopelman wrote in the penny gap a decade ago, about how hard it is to get customers to pay even a penny.

However, pricing your app at this price point may be a viable solution as some mobile users are willing to fork out for higher quality apps. 440,000 apps out of the 2 million on the Apple app store are listed as paid.

Premium and niche apps

App publishers can price paid apps between $0.99 and $999.99. The attractive price points are $0.99 with almost 10% of apps, $1.99 with 4.31%, $2.99 with 2.9% of the apps.

In the chart below, notice $9.99 and $19.99 are traditional sweet spots. One of our customers priced their niche market dictionary apps at $19.99 and $9.99 after considerable A|B testing focussed on maximizing revenue.

Niche apps are priced for consumers who need specific apps and are willing to pay. Over a 100 apps on the Apple app store are priced at $999.99, and over 700 apps are priced at $99.99. These are significantly small compared to 2 million apps on the Apple App store.

Are paid apps an option?

App publishers should consider charging for apps for some reasons.

• There is far less competition compared to free to download apps. Paid apps have been downloaded over 5 billion times.
• Every paid app download generates revenue. Paid apps can be returned but rarely.
• Paid apps are free from ads and have higher loyalty and retention.
• You are not ruling out In-app purchases or even in-app advertising.
• The perceived value of paid apps is higher that those of free or free-to-download apps.
• If you are not sure, consider offering a paid ad-free version of your app alongside a free or ad-supported version. You may be surprised.
• A|B test your app’s pricing to maximize revenue.