As an idea, premium add-ons are nothing new in software. But the in-app purchase model has accrued many more devotees this year; in fact, freemium revenue growth has far outstripped subscription and paid models in Apple’s App Store and the Google Play store over the past year, now contributing the majority of all direct revenues on both platforms. A full 71 percent of Apple App Store revenue for 2012 came from In-App Purchases, up from 53 percent over last year.
It’s not just at critical mass—it’s where the growth is. In-App Purchases (IAP) accounted for nearly all of the 51% growth in iOS-platform direct revenues from January to November 2012. For the same 11-month period, IAP revenues were up 96%, while one-off sales for paid downloads remained flat. In total, freemium apps made up 89% of all downloads in 2012.
According to our data, users are unlikely to "upgrade" to a paid version of your app before they have used the free version at least 10 times. Create your app using a well-thought-out design and experience so that it embraces your users. This will build engagement and establish loyalty. Executed correctly, IAP conversions can drive hundreds of thousands of downloads and tens of thousands of paying users. Here are four things you can do to optimize for IAPs:
- Don’t make your free version too limited, or slam users into a paywall after a certain period of time. If you build an app that people love and use, they’re more likely to pay for upgrades, additional features, or more capabilities over time.
- Invest in design: Visually appealing design and a thoughtful user experience carefully realized will improve overall user retention, which will heavily impact your core monetization metrics.
- Make it sticky: Hook your users so that they feel they MUST spend a few cents on an in-app purchase to keep going. Remember, there’s a direct correlation between the amount of time users spend inside an app and the amount of money they’re willing to spend for IAPs.
- Use incentives: Create your app with incentives (virtual goods, multiple skill-levels, multi-user play). Incentives give users additional reasons to come back, to use your app more, and ultimately spend more time with the app, which make them more likely to want to upgrade to a paid version.
Successful app developers create a synergy between app category, usage patterns, and monetization types. Each monetization class makes money from a different group of users, which is generated at different times during the app lifecycle.
- Consolidation is key: An app in the Top 10 of its category will make more than 10 apps in the Top 100. It requires better apps to top the charts, which means developers need to have a quality-over-quantity approach.
- Target development investments: Apptopia says they are seeing experienced developers sell off entire portfolios to reinvest in one or just a few really good new apps.
- It’s okay to hedge: Creating multiple apps can still be a good strategy, but aim to hit high rather than consistently at a medium or lower point.
- Do your homework: Success in an ever more-crowded market requires research. Developers must make their own analyses of what works in a given category and what doesn’t.
- Learn business savvy: To be competitive, generate healthy revenues, and maintain growth, developers need to understand the monetization lifecycle of their apps.
[Image: Flickr user PhotoAtelier]