For Mobile App Monetization, Free(mium) Is Winning

According to a survey based study, jointly released by App Annie and IDC this week, the “freemium” model is the most popular way for developers and publishers to make money on their mobile apps. In-app advertising is another popular and successful method — though only 42 percent of developer survey respondents were using in-app ads.

The third most popular method (far behind the other two) is paid-app purchases. You can either consider WhatsApp a freemium model (free for the first year) or a paid app model (annual subscription). The same goes for apps such as the New York Times: the app itself is free but users must pay to read stories; there are also in-app ads.

The freemium model (using in-app purchases for monetization) dominates all other monetization scenarios according to the survey. Freemium has been used most successfully and heavily in the games category but is quickly moving beyond it. (In the chart below the awkward term “paidmium” means users buy the app and then there are in-app purchase opportunities as well.)

Despite being popular and effective in one sense, the study also appears to show that freemium/in-app purchases is an inefficient monetization model because only a minority of users actually buy things. The chart below shows that it’s generally 20 percent of monthly users or fewer who make in-app purchases. Accordingly the overwhelming majority of freemium app users are not being monetized — that is unless the model is complemented with ads.

Recall that only 42 percent of these developer survey respondents were using advertising. And for all the talk of programmatic, exchanges and RTB only a small fraction of these developer-publishers are using them. Most of the ad inventory is coming from regular, old ad networks.

To collect real revenue from advertising, however, you’ve got to have a lot of impressions. As we’ve seen elsewhere most mobile ad revenue is concentrated among a few large publishers and sites. Indeed, mobile ad revenue is much more concentrated in a few hands than it is online.

According to the report the US is and will continue to be the leading market for in-app monetization and advertising. Finally, the document forecasts that, on a global basis, “mobile in-app advertising revenue [will] pass PC online display advertising revenue by 2017.”