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The App Store hurtles toward a freemium-focused future

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If you’re looking for the key to making money on the App Store (s aapl) for Apple’s iOS devices, a new report from Distimo suggests that in-app purchases are what you should be paying the most attention to. In-app purchases now account for a massive 72 percent of revenue among App Store titles, growing from a mere 28 percent at the same time last year.

In-app purchases are on the rise as a revenue-getter for all apps, but the freemium model in particular is growing fast. Free app downloads have increased by 34 percent since 2010, while paid downloads grew at a much slower rate, climbing only 7 percent during the past year. Distimo’s research methodology only covers the top 200 downloads in each App Store category, but that’s a very strong representative selection of who’s actually making money through Apple’s mobile software marketplace.

Free apps with in-app purchases made up 48 percent of total App Store revenue according to Distimo, while paid apps with in-app purchases accounted for 24 percent and the remaining 28 percent came from paid-only apps. Freemium games make up a healthy portion of the top grossing apps on both the iPhone and iPad App Stores, and in July Flurry found that they accounted for 65 percent of the top 100 grossing games in the U.S. App Store.

Games aren’t the only apps that offer a free download backed by in-app purchases for a revenue model, however. Comics apps recently made waves, especially in the iPad App Store, thanks to DC’s decision to relaunch all of its titles starting at issue number one, and to make all its titles available on the same day in both print and via digital distribution. Magazine and periodical apps are another category that’s embracing the free initial download, pay for content later way of doing things.

This isn’t exactly the future I envisioned back in February when Apple took the lid off of in-app subscriptions, but it’s also not very far off. Essentially, it looks like more and more developers are embracing the idea that making recurring payments an attractive option for App Store shoppers is the key to coming up with a sustainable business model. Apple’s isn’t the only store where developers are figuring that out, either. In-app purchases are already in use by 68 percent of the 25 top grossing Android(s goog) apps, despite only being introduced in March of this year.

At this rate, there may come a day when we don’t see a single straight paid app in the top 300 grossing list anymore. Is that a good thing, or would you miss the ability to pay just once for an app instead of having to top up or pay again in order to unlock a richer experience?

3 Responses to “The App Store hurtles toward a freemium-focused future”

  1. David Schouten

    There’s a difference between “In-app purchases now account for 72 percent of revenue” and “72% of revenue comes from apps featuring in app-purchases””. There are loads of apps which feature in-app purchases but which also make revenue from being paid apps in the first place.

  2. James Moreau

    Good read. I’ve been thinking hard on this concept lately, especially based on a Gigaom Pro paper that I read last year while working at an app company that suggested that apps which cost $1-2 were more likely to be DL’d that free ones (with some obvious exceptions to the rule). It’s obviously true that even if you download say… 1-2 million downloads, at 1 or 2 dollars each, that’s not significant enough revenue to make a difference, especially since great apps can cost a lot of money to make.