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Study: Freemium app model gaining traction with developers

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Mobile developers often struggle with the decision about how to monetize their mobile apps. Although paid apps are still the dominant model, a new study indicates that the freemium model is gaining popularity with mobile developers.

According to a new study of 2,400 developers in the U.S., U.K. and Germany by Simon-Kucher & Partners, about 40 percent of apps are paid--meaning that users have a pay a fee to download the app. However, one-third of mobile apps use the freemium model, which prompts users to download the app first, and pay later by offering in-app purchases. Kucher & Partners found the growth of the freemium app surprising given the newness of the model, and it was double what the consulting firm expected.

Interestingly, Simon-Kucher & Partners also said that developers are experimenting with hybrid models that incorporate both paid and freemium models. Simon-Kucher categorizes the two models as "Freemium I," in which developers offer apps for an upfront payment and then offer in-app purchases, and "Freemium II," in which developers offer an app for free to download and then charge for in-app purchases later. 

Simon-Kucher found that developers are experimenting with hybrid models that incorporate paid and freemium characteristics.

The consulting firm noted that the vast majority of freemium apps did not require an upfront payment. It also found that gaming apps tended to have the must success with the freemium model because they were able to turn users into paying customers. In contrast, only 20 percent to 30 percent of apps in other categories, such as productivity and social networking apps, used the freemium model. Annette Ehrhardt, senior director at Simon-Kucher said that while freemium models are on the rise, not all apps are suited for this model. "While it's perfect for game apps, it makes not much sense for an app such as flashlight. There's no added value to be gained there."

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