It’s no secret there’s a lot of money to be made from mobile apps — it’s a lucrative market. According to Statista, in 2018 alone, revenues made by software development companies are estimated to be around $365 billion and are expected to balloon to $935 billion by 2023.
Judging by the statistics, you would think that paid and premium apps get the lion’s share of the revenues, right? After all, people pay to use these apps. But Statista reports that, contrary to popular belief, free apps dominate the market with a staggering 96.2% and 90.8% share of downloads on Android and iOS, respectively.
But how do free mobile apps make money if they cost nothing? Let’s find out.
The Global App Market
The landscape of the app market has changed considerably since its first iteration a decade ago. App marketplace giants, Apple App Store and Google Play, weren’t as big as they are today, with each containing just 500 apps in 2008. Today, App Store has over 2.2 million apps while Google Play has over 2.7 million apps available, both receiving downloads of over 25 billion and 75 billion per year respectively, according to a report by App Annie.
In 2018, GSMA Intelligence estimated the global mobile app economy to be worth an estimated value of $3.9 trillion but could balloon to $6.3 trillion by 2021. The entire user base could also see a significant rise as the number of app users is expected to grow from 4.68 billion in 2019 to 6.3 billion in 2021, Statista predicts.
According to a report by App Annie, about 98% of worldwide app revenue comes from free apps. With those staggering numbers, it’s no surprise then that 90% of apps available on the market today are free.
Methods for App Monetization
For paid apps, the source of income comes directly from the sale of the app. Meanwhile, software development companies and app developers alike use a plethora of methods to monetize their free apps.
Advertising
Mobile advertising remains the most popular choice by many to monetize their free apps. Statista estimates worldwide in-app advertising spending at around $190 billion in 2019 and is expected to balloon to $280 billion in 2022.
In this model, ads are displayed over the app using a third-party ad network. Revenue is generated for every impression, click, or install.
Interstitial Ads. An interstitial ad is a popup that is displayed on breaks within a piece of content or using a specific trigger. Ads are displayed whenever the break or trigger is activated, such as a link click, after a duration of time, or in-between levels in games.
Banner Ads. Banners are perhaps the most popular method of display advertising. They typically use a small image and/or text displayed on the top or bottom of the screen. This form of advertising is generally more popular among users since it allows the app to remain functional while the ad is displayed. However, also has low click-through rates (CTRs).
Video Ads. Just like interstitials, video ads appear as popups on the screen as the user interacts with the app.
Native Ads. Native ads are created to be as unobtrusive as possible. They are added to the app to fit its aesthetics and are made to appear as a natural element but with the aim of promoting a product.
Affiliate Marketing
As an affiliate, developers can advertise other services or products within their app to generate revenue. They typically use display advertising to generate revenue but it is not their only tool.
In affiliate marketing, the developer becomes part of an affiliate network and promotes an affiliate’s product or service through their app. Revenue is then generated based on the affiliate’s terms, which can either be:
- Cost-per-Acquisition (CPA). Revenue is generated when the intended action is performed. When a sale is completed, for example, the affiliate shares part of the revenue made during the sale.
- Cost-per-Click (CPC). Payment is based on the number of clicks per ad.
- Cost-per-Mille (CPM). This revenue model gives payment based on the number of impressions; in this case, per 1,000 impressions.
- Cost-per-View (CPV). Payment is charged based on the number of views per video or interactions made on an ad.
- Cost-per-Install (CPI). Revenue is generated each time the advertised app or game is installed.
Transaction Fees
This is especially true for apps that provide a platform for other apps. Whenever a transaction is completed using the platform, you can then charge a small fee for facilitating the transaction. This is one of the available means of generating revenue.
In-App Purchases
In-app purchases allow developers to sell various virtual items within the app to generate revenue. These can be anything, from extra content to in-app goods that you can use for games. These goods typically fall under three major categories, namely:
Consumables – items that are purchased inside the app or game that are used up at once. For instance, virtual currency or in-game items.
Non-Consumables – these include items that don’t expire after activation such as a new level, premium equipment, or even a small purchase to remove ads.
Subscriptions – a subscription lets users unlock certain features or content for a limited time period.
Freemium App Model
Another popular method for generating revenue is freemium, wherein a premium app is released for free but with limited functionality. Its premium features can then be accessed through an in-app purchase or when the user upgrades to the premium app. This is one of the best ways to generate buzz around the app and gain new users faster.
How Much Can I Earn from an Android App and iOS App in 2020?
There are numerous opportunities available in the app market as the rise in mobile usage drives further growth in app revenues. If you plan on penetrating this market but have no idea where to begin, consulting a good software development company is a good start. Here’s a breakdown of the costs you can expect for software development services.
Are you wondering how much you can potentially make with an app? Here are some figures for you:
- The top 200 apps from the top software development companies typically earn around $82,500 a day, on average.
- Apps in the top 800 earn around $3,500 daily.
- Gaming apps typically generate $22,250 per day.
- Entertainment apps earn $3,090 a day, on average.
Now that you have an idea of how much it costs and how much you can potentially make, get started on that app idea and turn it into a reality.
