How Do Free Apps Make Money?

I always wondered how free apps make money. I did some research on this and found a lot of different avenues to follow. Let's jump into the ins and outs of how to earn money with free apps

Background

I always encountered those exciting, sometimes annoying ads and pop-ups while browsing the web. YouTube has certainly made their ads unescapable, robbing me of two minutes of desired view time.

Have you thought about why they appear anyway? I certainly have. Those are some of the different monetization strategies for free apps. There are multiple other ways to monetize free apps.

Monetization defined

Monetization is the ability to earn from your creations. App monetization is the strategy of making money off an application.

Some monetization styles perform better than others. Let's learn the monetization method that works best in your situation.

How to make money from an app: Different monetization strategies

There are countless ways to profit from free apps. You can apply one or several monetization methods depending on your industry or the type of app. Let's get into the details:

In-app advertising

Do you know how YouTube makes money? Discover what is in-app advertising and how it occurs below:

Display ads

Apps like YouTube display banner ads via content uploaded on its platform. Despite being a popular monetization style, you may need high engagement rates to make good advertising income.

Video ads

You have most likely come across those ad videos that appear when viewing certain content. Video ads are more visually appealing and could attract the audience better than display ads. At the same time, you must ensure the ads do not ruin user experience and affect your monetization. There’s no way to tell where this line is but if YouTube is anything to go by then I can guess the line is far.

Native advertising

In-app advertising can also work by promoting other businesses, products, or services. Native advertising may also include sponsored content mixed into the app. This method may be popular if you do not want to distract your audience through other ads.

In-app purchases

How does Amazon make money? In-app purchases are one of them through the products or services listed on the platform. The benefits of in-app purchases are low costs, and you do not need to own the products or services. In-app purchasing is popular with e-commerce sites, dating apps, gaming platforms, and fitness apps. Monetization through this method can occur in the following ways:

Paid content

Paid content is information on your app, whether video, text, or downloadable that others must pay to access. Examples like e-books and courses can be offered as paid-for content despite your app being free for other services.

Subscriptions

Free apps may not be free forever. Free apps provide trial periods where users can use them at no cost. The aim is to lure them into paying a subscription fee once they are used to the product or service offered.

Freemium model

Freemium apps make money by charging users for premium features. Users have unrestricted access to the basic free version. They have to pay for advanced features. An example of this is ChatGPT, which you can access for free, but you will be charged $20 monthly for ChatGPT Plus.

Data monetization

Have you ever wondered why companies like Google and Facebook can provide relevant content tailored to your needs? It's because they have mastered the art of data monetization. Below are some valuable data monetization methods.

User data

Do you want to know how to monetize user data? If you hold a directory of people visiting your app, you can monetize it by licensing or selling it to third parties that need it. This monetization may require user approval; as unauthorized sharing can cause privacy violations. You may also use the user data to tailor your in-app products or services for maximum value creation.

Location data

Think of navigation apps like Waze. These apps collect crucial geo data. Businesses needing to place location-related ads rely on such apps for data collection. If your app is one of these categories, this could be a suitable monetization strategy, although you may need user consent.

Targeted advertising

Once you understand the type of data you hold, including age profiles, sex, preferences, and user traits, you can use it for targeted advertising. You can sell your own or a third-party product or service through targeted ads.

How to choose the best free app monetization strategy

There are numerous ways to monetize free apps. However, to succeed in-app monetization, you must apply the right strategy. There are plenty of tips to use when choosing the app monetization strategy.

What is your business goal?

It must be clear what you want in your app monetization. A monetization method like a subscription could work best if you already have a client base. If you are relatively new, you may consider an advertising revenue model.

What's your target audience?

Know your customers and what they want. Are they able and willing to pay for a product or service, and what functionality do they want with the app? It would be prudent to run a rewarded video ad for gamers since it addresses their needs. Knowing your audience and offering tailored ads ensures better response rates and engagements.

How about the competition?

Chances are that a rival app is using your considered monetization method. You may use the same strategy if you can cut a niche that suits your business. However, you may evaluate the competitors' strengths and weaknesses and use a unique monetization method.

Does it make economic sense?

As much as you may prefer a particular monetization, it must make sense regarding the potential number of users, signups, average spending, etc. The numbers must add up either now or in a predictive model. Your last wish is to select a monetization method that will make your business struggle to break even.

Summary

I don’t think there is a specific rule for monetization for your free app. Your choice method needs to make economic sense and not impact user experience. My rule of thumb is to choose a monetization method that aligns with the business goal and users and carries a unique value proposition.