Choosing the right pricing strategy for any new app is hard, but if you
choose the wrong pricing model, it can cost you thousands of dollars in lost
revenue. In this article I'm going to cover the three main revenue models on
the App Store and explain how to make sure you pick the one that's right for
your app.
Lets start by looking at paid apps and along the way I'll try to dispel
the myth that paid apps are dead and that this type of revenue model is no
longer worth considering.
Paid
Launching as a paid app is still one of the most straightforward and
safest ways to enter the App Store. Regardless of what you may have heard or
read, the paid app market is not dead. As long as you’re smart with your
marketing and price carefully you can make a great return on your initial
investment.
Paid apps work exceptionally well if you have an established brand or
large following of loyal customers ready to buy your app on day one. Not to
mention the fact that a paid app has the advantage of being able to generate
publicity when it goes on sale or switches to free for a limited time.
While the paid app market
is not dead, it has been in decline for the last 18 months. Paid apps now
account for 36% of apps on the App Store, and Distimo reports that they only generate 4% of total App Store revenue. You
shouldn’t let this put you off as you can still earn a decent level of income
with the right app. I asked Ken Yarmosh from savvy apps about
choosing between paid and freemium:
"Freemium is the general consumer expectation and proven model for
entertainment, games, lifestyle, and content-focused applications. The data shows that
paid apps—often complemented with in-app purchases—still dominate in business,
productivity, and utility apps. Despite what app developers have hoped for and
tried, unless you receive venture funding, I haven't seen freemium work for the
second grouping of apps." - Ken Yarmosh
As Ken rightly points out
freemium is probably best left for games and entertainment apps for the time
being. The good news is that paid apps still capture the largest portion of
revenue share in the Business, Education, Productivity and Navigation
categories of the App Store. If your apps fall into one of these then paid is
probably still the best option. I chatted with Ryan Cash from Snowman and asked him if he thought paid was still a viable option:
"I actually think Paid apps are going to make a big comeback.
That's not to say they'll ever generate more revenue than Freemium apps (they
won't), however people are slowly learning that "Free" often means
"this is going to get expensive" (a la Candy Crush). People are
proving with their wallets that they'll pay for Premium apps." - Ryan Cash
It's not just Ryan that
thinks paid apps are making a bit of a comeback, I also spoke with Kepa Auwae
from RocketCat Games. He also confirmed that he had the same feeling that we're possibly
about to see an uptick in premium paid titles:
"If anything paid apps seem to be getting stronger. It looks like
people are more willing to spend $5 for a game, which even a year ago seemed
like some sort of impossible dream for App Store developers. I'm not sure what
the cause of this is, maybe it's a small rising sentiment against games with
IAP." - Kepa Auwae
I really hope this is the case and that paid apps will regain a little
more of the revenue share in 2014. I can honestly say that some of the best
apps and games I've download on the App Store have been in the paid category.
I'd strongly recommend that you think twice before making your next app
freemium; in a lot of scenarios it will earn more revenue by being a paid app
instead.
Freemium
Time and time again I've seen developers go straight to freemium and
make pretty much nothing at launch because they give away too much or too
little. It's hard to tune your app or game perfectly for the freemium market.
Unless you have some experience or know exactly what you’re doing, you
shouldn't consider launching your next app as freemium. I define freemium as an
app that is provided for free, but revenue is generated by charging for extra
features, virtual goods, and most commonly, in-game currency.
92% of revenue on the App Store is generated by freemium apps, yet they
account for just 11% of the apps on the App Store. You'd be forgiven for
thinking the number of freemium titles would be much higher than this due to
the amount of press attention they receive.
I spoke with Kepa again
about his thought on going freemium as I knew RocketCat Games had to learn the hard way when they released the excellent Punch Quest back in 2013:
"With Free, you really need huge download numbers to make money
from it. It also needs constant updates and support to maintain interest, and I
still think many free+IAP methods are detrimental to game design." - Kepa
Auwae
Some of the most popular
freemium titles on the App Store are making well over
half a million dollars a day, but the companies behind these games have been pumping out freemium
titles and have had their own fair share of flops before stumbling upon a hit.
They have huge amounts of cash coming in monthly so they can afford to have
teams of dedicated people analysing in-game metrics, looking at retention rates
and working tirelessly on ways to attract new users.
As a smaller indie developer gaining any serious long lasting traction
with a freemium title is extremely hard. If you're going to try launching a
freemium title, you should proceed with extreme caution.
Paymium
Paymium is still relatively unknown and gets pretty much no press
coverage compared to freemium. Paymium is going to become increasingly more
widespread over the coming year, and incase you're wondering exactly what
paymium is, here's my definition:
Paymium: An app that is paid for up-front, with additional revenue being
generated by charging for extra features via In-App Purchase.
As with freemium this type of model can work perfectly well in place of
yearly paid upgrades as you can add new features overtime with IAP to continue
to earn revenue from your existing customers.
Paymium apps currently only
account for 2% of apps on the App Store, yet they generate the same amount of
revenue as paid apps. I believe now is a good time for developers to start
experimenting more with this revenue model, I know It's something we'll be
doing with a few of our apps at Realmac Software over the coming months.
What business model should you choose?
Whatever you do, make sure
you plan ahead for your pricing strategy. Do it as early as possible. Don't try
and switch from paid to freemium at the last minute. I spoke with David Barnard
from Contrast, and asked
him to share his thoughts on going freemium:
"Paper from FiftyThree is a great example of doing freemium well.
The app is functional without paying a dime, but users initially only get the
pen tool. Anyone who likes the app and wants to use it as intended is compelled
to purchase additional tools. Not all apps can accommodate that sort of
freemium strategy, and many potentially great apps have been ruined in trying
to contort the entire app around the monetization strategy rather than focusing
on just building a great app." - David Barnard
As David suggests, the best freemium titles are the ones that were
designed to take advantage of it or are a natural fit. Just don't try and force
a particular payment model into your app and you'll do just fine.
Most of the time I'd advise launching your app or game in the paid
category. By doing this it makes it much less risky and gives you a higher
chance of recouping your development costs up front. It also provides you with
a safe path to freemium (should that be your goal). You can add IAP to your
paid app, and continually tweak the experience until you're happy with your
conversion rates. Then it's just a matter of switching the price tier to free.
If you go the paid route, then you should release your app with introductory
pricing. If your target price is $4.99, then go with $2.99 or $1.99 at launch.
Don't feel like you have to start your introductory pricing at 99¢ (we made
this mistake with Analog Camera). If you think you have a lot of good press
coverage lined up and Apple have requested promotional artwork then you should
definitely price your app above 99¢ to maximise launch revenue.
Pricing is a huge topic and impossible to cover in just one article, but
I hope this goes some way in helping you price your next app and maximising its
potential revenue. The most important thing to remember is to stay focused and
work hard on producing a truly great app, choose your business model carefully
then market the hell out of it.
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