The title of this post says it like it is. Here is why.
The app stores today are very mature marketplaces – they have eliminated many inefficiencies and barriers to entry. Anyone anywhere in the world can easily develop an app and make it available to anyone anywhere else in the world. The outcome?
There are now nearly 1.2 Million apps in the iOS App Store, and 1.3 Million apps in the Google Play Store.
Searching for even something obscure as “pythagoras’ theorem” results in multiple pages of apps, quite a few of them free. Why would anyone pay a couple of dollars before at least trying out a few free apps?
Can you imagine a website charging you money to even view it? That is how ridiculous paid apps are.
Some apps get around this by creating a “Lite” version of the app – one that is free for a limited time, or has very limited functionality just to give you a look-and-feel. This is a very bad idea too.
Two different “Lite” and “Paid” versions of apps are a bad idea.
You went through a lot of trouble to get the user to install the free version. You will now have to go through the same amount of trouble to get them to install the paid version. More trouble perhaps, because this time there is a payment hurdle (both in the mind, and in a physical sense of more clicks) that you need to make the user cross. Although the user now knows more about your app, unless your app is so good that they simply cannot live without it, it is only a small factor.
You also do not have enough control or flexibility with Paid Apps.
As an example: Gifting digital content or virtual goods is a huge revenue source for developers. Apple does allow users to gift paid apps to other users. But as an app developer, how do you prompt the user to do that?
A Dark Room is a recent, very popular $1 games on the iPhone. They have a website that asks users to go to the app page in the App Store on their phones, locate the Share button, enter a friend’s email address, complete a purchase, and send the gift. Driving traffic to a webpage is hard enough. Add so many steps, including a potential change of device for the user, and you can guess what the conversion rate will be (hint: 0). So what should you do?
If you must charge for all or most of your functionality, DO NOT make it a Paid app. Model it as a Freemium app.
You can make it free for 2 days, after which the user must make an in-app purchase to continue using the app. Or you can lock up key functionality behind the In-App Purchase. For example, premium photo filters can put a watermark on the photos until the user pays for the filter, or a music streaming app can make a set of 5 songs available until the user pays the subscription fee.
How does that benefit you, the app developer?
1. You can give discounts to users who are not buying.
Pandora’s premium version is called Pandora One. See how their top two In-App Purchases are the same item, priced differently at $3.99 and $4.99. They are almost certainly giving discounts selectively to nudge users through the conversion funnel. Discounts are powerful incentives, as the retail industry (and Black Friday) has proved. And the best thing is, you can offer the discount right when the user is in the app.
2. Prompt users to gift IAPs to their friends
Remember the number of hoops A Dark Room is making users jump over? With a little bit of more code on your end, you can integrate gifting right into your app, and make it really easy for your users. The added advantage of this is that even users who have already purchased the primary functionality in your app have the chance to buy more. There is plenty of research showing that an existing buyer is more likely to make a repeat purchase, than for a free user to convert into a first-time buyer.
3. Experiment and Learn about your Freemium model
Every Freemium model is unique – because the app’s audience, the value of the premium feature, and the price points are different. By making the paid features into In-App Purchases, you have much more flexibility to tweak your app, experiment and learn what works best for your users. Increase prices and see if users continue buying as before. Unlock one or two small features for free, and see if that increases user engagement, or makes users more likely to upgrade. Instead of bundling all your functionality into one item at $0.99 or $1.99, tier the pricing: let the most valuable functionality be the most expensive. Because users who really need that functionality will pay much more. And users who don’t need it will not even pay the $0.99 for the app.
As you start experimenting and learning, you enter the land of Freemium mastery, where there are millions of dollars to be made. The app stores have made it easy to create something valuable and take that value to a billion users, and you now know how to monetize.