How Do Free Apps Make Money? Top 9 Monetary Models Explained

Do you know? The app market is growing exceptionally fast and is expected to reach $777.4 billion by 2032, with a CAGR of 14.4% between 2023 – 2032. 

Google Play and App Store are full of applications that have become integral to our busy lives. Especially the free-to-download and use ones!! But have you ever wondered how do free apps make money? 

It is not feasible for the developers to drop the app for people to use and not get a single penny in return. But if it is not the user who pays, how are developers compensated for their hard work?  

If you, too, are wondering about the same thing, then you are at the right place because today we will be discussing how do apps that are free make money. But first, here are the different categories of applications based on their monetization model: 

• Free Applications – These applications are free to download and offer complete access with ads or some functionalities with a paid subscription for additional services. Examples – Instagram, Pinterest, etc. 

• Paid Applications – These are premium applications that require money to download. Examples – Minecraft, Business Calendar, etc.  

• Freemium Applications – This subset of free apps offers some basic app functionalities while offering additional benefits with the premium subscription. Examples – Spotify, Dropbox, etc. 

• Free Trial Applications – These apps give complete access, including the premium features, but for a limited time, the user must pay to access the services. Examples – Amazon Prime, Hulu, etc. 

How Do Free Apps Make Money?

There are numerous ways apps can make money, even if they are free. But here are the top 9 methods: 

1. Advertising 
2. Subscription Models 
3. In-App Purchases
4. Sponsorships 
5. Referral Marketing 
6. Crowdfunding 
7. Transaction Fees
8. Email Marketing 
9. User Data 

Advertising Model 

What is the first thing that comes to mind when discussing how do free apps make money? Advertisements?

This is the most well-known and easiest method to make money out of free apps. The users who have downloaded the free-to-use applications must also be aware of this. The ads are run on the app in various forms.

Doing so, the creator gets the money every time the user clicks an ad, watches the video, or downloads the app directly from the ad. At the same time, the brand gets the exposure. 

There are various types of ads that they can run, like: 

• Interstitial Ads 

These are generally the full-screen ads that pop up when one goes from one app panel to another. It consists of a video or animation showcasing its function and a prompt for the user to act. These ads can also be the static banner-type app that pops up on the screen. 

For example, an ad for a gaming app will first show how the game works and then ask the user to play a level, partially or completely. This creates curiosity among users. Often, these ads redirect the users to the App or Play Store, prompting them to download the app. 

• Banner Ads

These are strategically placed static ads to grab users’ attention and take them to a pre-defined landing page or create brand awareness. One can find them at the bottom or the top of the screen. The ads are like bulletin boards but online and can be seen with the main app content.

Swiggy displays the top deal restaurants based on the user’s preference in a separate block, and that’s the classic example of a banner app. These restaurant ads are the first thing users see when they open the app, increasing their curiosity and clicks.  

• Video Ads

These are small clips promoting other products/apps or marketing campaigns. A successful video ad campaign rests on a hook or premise targeting the user’s emotional side. They find the content relatable and connect with it, which improves the brand’s standing in the market due to positive impressions.  

For example, Dove ran a “Reverse Selfie” ad campaign across social media platforms. The ad called out online toxicity and people’s insecurities against the actual perceptions. It garnered a lot of views and was overall a huge success. This generated colossal app revenue and established Dove as one of the top brands. 

• Native Ads 

Native ads merge like a puzzle in the app or interface’s content flow. These ads are designed to match the existing interface so that it organically comes as a part of an app. These can be due to brand collaborations or affiliate marketing(paid content). 

These ads generate ample brand value and awareness without feeling like an integrated ad. Some prominent examples include social media ads or brand collabs like Spotify X Stranger Things. 

Subscription Model 

Some apps give users an ad-free (mostly) experience, but how do free apps make money without ads? 

Well, that leads us to the second method, the subscription model. These can have multiple use cases, like signing up for an OTT platform, going ad-free, or getting a premium subscription. 

Some apps also offer a free trial where users can experience the feel of all the app features without paying any money. Upon completion of the free trial, the user can decide whether to go premium or quit. 

Some successful subscription-based free app ideas: 

• Video Streaming Apps 

If there is one thing that witnessed a drastic change in and after the COVID era, it is the entertainment industry. Due to this shift, many streaming platforms emerged, like Netflix, Discovery+, Amazon Prime, Hulu, etc. They offer different pricing models, free trial periods, and unique content for the audience to binge-watch. 

These apps earn money through subscriptions and revenue generated by people who are watching. The subscription fee is deducted monthly or yearly, and there are different models to choose from depending on the platform and user’s preferences.    

• Content Apps

Membership content has been in the market for a long time. Platforms, including Medium, Forbes, Insider, etc., charge a subscription fee for accessing unlimited articles/blogs. Those signing up for the premium package can read articles across the platform. 

Generally, the free tier with these apps is mainly restricted. Medium offers some articles to read, but not all. While Forbes allows four articles a month, a person can read any article as long as the limit isn’t exceeded. 

• Service Apps 

There are productivity management apps (like Todoist, Evernote, etc.), food delivery apps (like Swiggy and Zomato), and professional networking apps (like LinkedIn). These are examples of service apps that offer both free and “subscription-based” paid solutions. 

A paid productivity tool will improve management, especially for a professional team. The food delivery apps offer free deliveries, exclusive offers, and all to premium members, which is good for regular customers. The thing with these service apps is that a subscription is optional. 

• Immersive Gaming

Powered by advanced technology, immersive games are currently leading the gaming industry. The market is booming with free-to-download apps and a variety of games to choose from. It all started with the rise in the popularity of live streaming for gamers, which made viewers curious to try it themselves. 

These games offer a subscription plan that lets users access exclusive game items, collectibles, ads-free gaming, and more by paying a regular subscription fee. This ensures an amazing gaming experience for the user and a regular payment source for developers. 

Click Here For More App Ideas – 100+ Mobile App Ideas

In-App Purchases 

Another answer to “How do free apps make money without ads?” is in-app purchases. The concept is to provide some functions, features, or digital assets that users can own by purchasing within the app. 

This method offers certain functionalities that are limited to a few who make the purchase. The idea of in-app purchases is popular amongst, but not limited to, the gaming industry. 

Here are the top industries that use the in-app purchase model to monetize their free app: 

• Gaming 

First on the list has to be the most prominent one, i.e., gaming. The massive boom welcomed ideas, innovations, and an array of gaming options to choose from. There are games in almost every genre possible, like action, adventure, puzzles, RPG, casual, strategy, and whatnot. 

These in-app purchases can be consumable (that eventually run out), like Robux in the game Roblox, which players use to customize their avatar or complete challenging levels, or durable(remain in the game), like Fortnite’s limited-edition Iris pack that came with character skins and weapons and remain in the game. 

• Education 

EdTech, or digital transformation in education, became a buzzing topic during COVID-19. Even working professionals could devote themselves to their studies and professional lives thanks to remote work. Thus, remote learning apps like Coursera, Udemy, and Skillshare became famous. These apps also offer unique learning models.  

Coursera offers free access to all the courses, but getting a certificate requires a paid subscription. Skillshare offers a 1month free trial while Udemy has a mix of free and paid courses. These platforms offer skill-based learning, empowering people with knowledge in the domain they were interested in but couldn’t access. 

• Health and Fitness

“Do you know, according to a survey conducted by Deloitte, about 46% of GenZ and 39% of Millennials are under high levels of stress and anxiety most of the time?” 

Health has become a major concern with the rise in corporate culture and sedentary lifestyles. To mitigate that, some physically go to the gym while others get help from the wide range of healthcare apps available on the App Store and Play Store, like Calm for mental health or Fitbit for physical health. 

But how do free mobile apps make money in healthcare? Through tailored fitness & wellness plans available for customers with a paid account. Based on the demographics and target audience, different plans, offers, and services can be incorporated into the app to ensure that many people opt for paid services. 

• Social Media Apps 

Being highly influencer-based platforms, social media apps like Facebook, Instagram, TikTok, etc., generate huge revenue through in-app purchases. This includes buying coin bundles or monetary rewards for the favorite creators. Not just that, the advertised products also make it to the revenue-generating lists for these social platforms. 

Furthermore, some platforms like Instagram and YouTube offer to ‘subscribe’ to the creator through an in-app purchase and enter the premium tier with early content access or exclusive content and other benefits. 

Sponsorships 

Sponsorship is not a commonly occurring model, but it can still be considered. Sponsorship can be beneficial, but a set niche must be defined before reaching out to the sponsors. These can be through promotions (by influencers), digital partnerships, or merchandise distributions. 

The influencers often work in association with the company’s marketing team. The app/brands sponsor the videos/content made by the influencers in return for them promoting their products. It is like a barter system in which brands offer monetary benefits, bonuses, exclusive offers, etc.

One such campaign would be Dior’s “67 Shades of Dior.” The brand partnered with Instagram’s influencers to show how their new 67 foundation shades could be matched with 67 different skin tones across the globe. The campaign was a huge success and strengthened Dior’s position as an inclusive brand. 

Some companies also work with these influencers long-term as digital partners. This is done to cater to a specific group/demographic. These are generally the popular macro influencers from a particular geographical area or a generation group. It helps them reach their target audience better.  

But if the brand doesn’t want to go to the influencer route, then? How do the free apps make money through the sponsorship method? 

It is through merchandise. Some apps like YouTube, Amazon, TikTok, etc. sell merch through their platforms and charge a portion of the total cost. By doing so, the platform remains free for everyone to use while the brands/sellers get a better reach. 

All in all, there are many ways that sponsorship can be beneficial for both the sponsors and the app. The best part is that it doesn’t get in the way of the user; rather, it is someone they love to watch talking about something that might pique their interest, which is a pretty efficient tactic. 

Affiliate Marketing 

Another answer to how do free apps make money is affiliated or referral marketing. It involves deriving revenue through third-party services. This can be done by promoting the app or selling their products on the platform. The best example of this would be Amazon’s affiliate marketing program – 

The program entailed a reward system where people who reviewed Amazon products could add them to their affiliated list and share the link with others. But why? Because whenever others purchase using that link, they earn a reward.  

There are various methods under the umbrella of referrals, which can be selected based on the business model.

• Cost Per Action (CPA)

This approach is also known as PPA (Pay Per Action), where the ads are run on different platforms, and the money is paid based on the number of actions (like conversion/sign up/downloads). 

It is highly beneficial for startups and emerging businesses as they do not have to pay for everything but just for all the conversions. However, the advertiser needs to ensure they don’t go overboard with ads as it can negatively impact the user’s experience.  

• Cost Per Click (CPC):

As the name suggests, it is a similar model to CPA, except it is for the clicks. Revenue is generated every time a user clicks on the ad and gets redirected to the advertiser’s site, app, etc.   

It is another cost-effective way for businesses to promote their products and brands, while the free apps can also easily get monetary benefits. One thing to consider is that sometimes, users accidentally click on the ad, leading to false positive results.

• Cost Per View (CPV):

This is a video ad pricing model where the advertiser pays the money for every interaction or view the ad gets. It is counted as a view whenever the user watches an ad for 30 seconds or less (for shorter ads). Interaction is clicking CTAs or companion banners. 

Whichever condition is fulfilled first determines the cost/revenue generated. Advertisers also place bets on how much they are willing to pay for the ads on the popular platforms. This allows advertisers to reach a broader audience and pay for the genuine ones, which is a win. 

• Cost Per Install (CPI):

How do free mobile apps makes money in this model is when users install the advertised app/software through the provided link. The conversion here is seen in app installs, which makes it highly preferred by advertisers, as it directly leads to the end goal. 

This is the most time-consuming option and requires a reliable CPI partner to generate relevant leads. The method is also prone to attract low-quality leads if it is not done after thorough research and consideration. 

Crowdfunding 

Unless someone lives under a rock, they must have heard of SharkTank, Kickstarter, or something else in the same domain. 

The central premise of these shows is that startup owners or entrepreneurs share their unique ideas with investors. If they can impress these investors, they get the monetary benefit in exchange for equity, as a reward, or as a donation. This is called crowdfunding and can be done for your next app development project as well. 

Small businesses or entrepreneurs prefer this method as it broadens their horizons to attract opportunities and powers them financially. It is like an extra channel of income for them to utilize so they can easily upscale their business.

This is another successful business investment but requires a few considerations. The app developer needs to design a complete strategy about how & whom to approach, how to best represent the app, and the key thing – storytelling. 

The best thing is that it offers something for everyone. App developers can exchange their shares (as equity) for the funds, or startups can get a reward through crowdfunding platforms. There is also a donation method for free apps designed by non-profits or NGOs to receive funds. 

All in all, crowdfunding offers more than just the monetary benefit. From better brand visibility to creating a brand image, it is a comparatively less risky solution for getting the funds for your business. What’s more? It also gives the up-and-coming brands a better networking opportunity. 

Platform Fees 

There are many free-to-use platforms across a multitude of domains that connect vendors and customers. There’s an online platform for everything, whether food, travel, clothing, real estate, or anything. 

To quote Forbes, “20.1% of retail purchases are expected to take place online in 2024,” and “By 2027, 23% of retail purchases are expected to take place online.”

This shows how massive this market is and its continual impact on people’s day-to-day lives. These platforms make things convenient for everyone as the vendors get a broader customer base from another area or state, and the buyer enjoys an easy comparison among all the available options. 

To conveniently fulfill orders and demands, these apps charge a fee for every transaction. Be it convenience charges, delivery fees, platform fees, or something else. These are like intermediaries but in the form of apps. 

Some popular platforms on the list include Amazon, Swiggy, Flipkart, Etsy, etc., which charge minimal fees for every order. Platform fees are a huge contributor to generating revenue and meeting monetary demands while keeping the apps free for the public. 

Also, the model varies with the niche and target audience, so some might charge both vendor and buyer, while others will charge only one. So, that is one thing to consider before entering into online commerce. 

Mitigating the questions and confusion is also relatively simple. You can connect with professional developers and let them guide you through the app development process. Not only does it make the process simpler, but continual support further helps with the development journey. 

Looking for an in-depth mobile app development guide? Click Here

Email Marketing

No! This is not an “old method”; it is not time yet to bid it goodbye!!  Because the majority of the current generation loves this method. About 79% of millennials and 57% of GenZ like it when brands connect with them via email. [Statista]

How does Email marketing work? A pop-up is added to the app to help collect users’ email addresses. These emails are added to the system, and users receive automated mail. There are many purposes email marketing can resolve, including generating conversion and bringing traffic to the pages.  

Depending upon the business niche, these emails can be used to share the industry expertise as blogs and newsletters or promote new products, features, and offers. Any announcements regarding the application or information can be shared in bulk through a single channel. 

A survey conducted by Statista showed that 16% of businesses were choosing email marketing to create product awareness, while 14.6% were using it for customer retention and newsletters. In another study, newsletters were found to be the most popular email marketing campaigns among businesses, followed by promotional emails. 

Another thing that makes Email marketing a viable option is that it is very easy to implement. It is also a cost-effective solution. One needs to collect the user emails and schedule the emails every week to send them automatically. 

User Data 

Some free apps make money without ads, subscriptions, affiliate marketing, or any of the above methods. Then how do free mobile apps make money? Through user data. A lot of apps share user’s data with third parties. 

The practice is legitimate; no specifications are shared, just general information like demographics, age group, names, etc. The shared information is encrypted and is used to create basic statistics and design targeted marketing campaigns. 

This methodology works best for social media platforms, games, audio/video streaming apps, and online shopping apps. This allows the developers to keep the app free to use and without any ads, subscriptions, or anything else. 

The data also provides personalized ads, services, and recommendations based on the user’s location, age, gender, etc. For example, WhatsApp, a free-to-use online messaging app, shares the data with Facebook. 

Some apps like Tinder combine this method with advertisements to further increase revenue and keep the application going. Sharing users’ data can be beneficial in a lot more ways than people think. It lets the developers keep the app free while ensuring the user experience is not hampered. 

However, one thing worth considering is that as unique as this method sounds, it also comes with potential risks. It is crucial to account for security practices so that no security regulations must be compromised. 

Also, the user should be well-informed about what information will be shared. Transparency is very important, especially with this model. 

Commonly Occurring Mistakes One Must Avoid 

Businesses that go into the process without proper planning and research can cost resources, time, business reputation, and much more. 

Now that we know how do free apps make money, the next thing that comes to the discussion table is the common mistakes to avoid. Like every digital advancement, designing free mobile apps can also become complicated if not done right. 

This is why we have listed some common mistakes that must be avoided. They are: 

• Not researching enough about the market trends and demands before beginning
• Targeting the wrong audience or misunderstanding the target audience
• Using the wrong metrics to test the campaign’s performance 
• Adding irrelevant and too many ads
• Not having a proper budget   
• Lack of adequate maintenance post deployment 
• Low user engagement due to poor experience 
• Not planning a proper (free to premium) transition process or packages 

Key To A Succesful App Development 

#1 Define The Goal And Unique App Value 

First and foremost, get a clear understanding of what the app is supposed to do, its primary function, and its category. Then, create an idea that sets your app apart from others in your market. 

One way to design a unique solution is by resolving the issues that users face with the existing solutions in the market. The unique features will determine the value of the in-app purchases and the willingness of the user to pay for them.  

#2 Understand Your Customers 

The target audience or customers are almost similar. Knowing and delivering what the audience seeks is the only way to make them your customers. The right knowledge helps design the perfect strategy based on customer behavior. 

Knowing the target audience helps determine the monetization methods, plans, and marketing campaigns. Like, Headspace used the data that the maximum users watched the video ads without voice and created one impactful silent video ad. This spoke a lot about the brand, which is about mental wellbeing. 

#3 Do A Thorough Competitor Research 

There are two reasons behind this: firstly, it will give an idea about how crowded the market is, and secondly, which monetization method is working for them. 

This is the easiest way to get these insights. It narrows down the paths and practices to integrate for desired results. Analyzing the existing products in the market can help determine what features to incorporate as the unique factor during app development. 

#4 Risk Evaluation 

Before starting the project, evaluate the potential revenue and strategy effectiveness against the cost. Calculate development costs, maintenance costs, resources, and time against the revenue generated. This will better reflect the monetization approach you should go for. 

Connect with the experts in the field and integrate the right metrics for accurate predictions. This is especially important for those entering the gaming market, which is already full of applications. Additionally, watch market trends, user behavior & engagement patterns for valuable data.   

Conclusion 

We hope you found answers to the question of how do free apps make money through this blog. The app market is growing at a much faster rate than imagined. Designing free apps is a way to earn long-term profits. 

While the market demands innovative solutions, the tech jargon and intricacies complicate navigating the process. It is also said that between a successful and not-so-successful plan is a fine line of lack of planning. 

So, going back and forth between what to implement, how to begin, and marking out possible roadmaps, challenges, etc., is important to understand the process entirely. Doing so will take time but will reduce the roadblocks in the development process. 

Or, you can simply hire professionals – share your ideas, consult, discuss, and let them do what they do best: robust and captivating app development. This will considerably reduce the development time, and you will get an end product beyond what you could have planned. 

OpenXcell’s professional team of app developers competently design top-notch solutions. Our transparent policies, client-focused development, and disciplined practices make us your ideal app development partner.