19 Ways to Make "Free" Mobile Application Pricing Profitable

In terms of app pricing, one of the first questions to ask yourself is: are you going to charge users or give the app away for “free”? But can you give away your app and still make money? Here are 19 ways you can try.

When developing a new mobile application, you need to decide how you’re going to price it. This question is best answered early, while the application is still being designed. Wait too long and your choices regarding application monetization become limited.
In terms of app pricing, one of the first questions to ask yourself is: are you going to charge users or give the app away for “free”? Yes, you heard us right. Free. At least, free for the user to install. There are a number of ways you can give away an application and still make money. Don’t believe us? Here’s how: you don’t charge the consumer directly. Instead, you rely on other types of revenue. Get creative.
Let’s take a look at some of the ways “free” apps can fit into the mobile marketplace. Not all the methods discussed below are feasible on every mobile platform. In fact, many are not feasible on most platforms. However, Android is an open platform. If you don’t like how things are being distributed, develop a new way. (Take that, iPhone* developers! *Disclaimer #1: we also develop iPhone apps, so really, we're mocking ourselves).
#1: A free app can derive revenue from advertisers or brand sponsors
If you can find a way to cleverly integrate ad services (e.g. Google AdSense) or specific advertisers’ content in your application, you can give the app away for free and rely on ad revenue generated by users. You can also develop applications that are extensions of a single brand and in this case the brand company sponsors the application for users (this app is brought to you by….). Regardless, when working with advertising, it’s important to understand that you have two separate types of customers who want different (often opposing) things: the end user and the advertiser.
#2: A free app might drive users to spend money elsewhere
Here, the developer acts as a middleman or referrer. Users can install a free “shell” application, but they spend money to purchase things (widgets, thingies, thneeds, credits, tokens) within the app. An example of this sort of application would be a free auction, music or e-book client. The app collects revenue either through referral fees or the resulting transaction fees and sales (depending on if the developer owns the service or is referring users to it).
#3: A free app for a paid back-end service
Here, you might develop free clients on a number of different platforms, but charge the user for only membership to the underlying service. Here, the application is only useful when tied to the backend service available to members only. Geocaching.com’s geocaching application is a good example of this type of model (requires a geocaching.com account to work properly). You might also see this method used with online banking or stock brokerage apps or mobile news clients for premium newspaper content.
Note that the underlying service might have nothing to do with the application—for example, a phone carrier might give away certain apps that use streaming data so they can collect the resulting data charges (like a TV video streaming app or enterprise email app that is free, but requires a data plan).
#4: A free app for a trial period
Give users a chance to evaluate your application before paying for premium features. For example, a free client with a limited feature set, such as only the first few levels of a game or only work for 10 launches.
#5: A free app as a value-added service to connect with your existing customers
A retail store chain might offer a free app allowing users to search its inventory and find the nearest store location. No money is made directly by the app, but the app drives more customers to the store, hopefully resulting in increased sales.
#5: A free app as a BETA program to gather user feedback
App not ready for prime time? Consider a free version to get your app out there. This allows you to collect free feedback and user statistics as well as get the buzz out about your app. Use this time to iron out any issues without upsetting paid users who won’t tolerate bugs or rough features. Users of free apps (especially those clearly marked as BETAs) are much more forgiving and willing to help out.
#6: A free app for unsupported user segments and markets
Got an application that is already successful in another market or handset, but not quite ready for this new one? Give the existing paid application away for free while you gear up for the new market or handset. For example, offer the English language version of an application for free on non-English markets while working on those target locales. Or, release an app for a similar but not fully tested handset for free until it’s been verified (rather like a BETA).
#7: A free app for a limited time to build a user base
Users are a valuable commodity, especially for a new application. When building your brand, you could provide a free version of your application to hook users and lure them in. Build brand loyalty early on, then switch to a paid strategy later.
#8: A free app for a “lite” version of the app
Give users who don’t want to pay for all the shiny features another option: a stripped down version of the app. Perhaps you provide the app for free when the user limits their usage or bandwidth. Keep the juicy, tempting premium features for paid customers only. Users who want unlimited access or the full feature set must pay for it (the Flickr premium membership model).
#9: A free app with paid extras
All core features provided for free, but fun extras come at a cost. Facebook’s paid extras (like birthday presents) are an example of this. You might also have a free chat program, but charge for skins and icons to customize it (the MSN Instant Messenger emoticon fees).
#10: A free app made available for the greater good, to support non-profit service or government agency
An application might be provided for free for the greater good. This type of app might facilitate using a public service or prevent bad things from happening (emergency preparedness apps, free virus protection for the masses). This type of app makes no money directly, but is funded by the supporters of the non-profit or government agency. Costs are covered by grants, donations, etc.
#11: A free app as a vehicle to reach your customers or constituents, where profit is not the end goal, action is
Sometimes money isn’t what you value, but the ability to reach your customers or constituents. Think how political campaigns and causes have leveraged SMS in the past few elections to mobilize people. Why not write an app for that? :P
#12: A free app with the ability to take donations
Rely on loyal users to help keep your application afloat with donations.
Now let’s look at some of the “free” app strategies we see on the horizon (they are certainly feasible on the Android platform).
#13: A free app for users who contribute something of value (time, work, contacts, tweets, referrals)
An application provided for free to users who perform some kind of service, such as referring all their friends and giving away their names and email addresses (something of value to marketers), or tweeting about the app (word of mouth promotion), or doing some work like that of reCAPTCHA services (using CAPTCHA to digitize books). An example of this is Amazon’s Mechanical Turk service.
#14: A free app as a giveaway with the purchase of something else
An application bundled with something of more significant value. For example, a device pre-loaded with apps (free to purchasers of that device, where they would be paid for otherwise). You might also foster cross-brand alliances by promoting one app from another (a loyal user in one of your apps might receive a free version of another of your apps).
#15: A free app as a gift or goody
An app might be paid for by a third party as a gift membership or subscription. It might be a giveaway, like the Starbucks iTunes music cards (free music a business subsidizes for their customers).
#16: A free app as a market disrupter
An app might be given away for free to eat into the competition’s market share or break up a monopoly within a category. However, it’s important to note that pricing an app incorrectly hurts all developers (we’ve talked about this in previous posts).
#17: An app might be paid for using a different “currency” – such as a loyalty program or point system
An app might paid for using a different kind of currency, such as points from a hotel, airline or credit card loyalty program.
#18: An app could have a creative pricing scheme with free and paid users mixed together (early bird discounts, full price, and last minute pricing
App markets are getting more and more sophisticated. Developers can build new app markets or sell applications from their own websites, etc. This means that the sky’s the limit when it comes to payment models. There’s no reason why you couldn’t develop an application with a daily fee, where the first 1000 users get it for free, and the rest pay on a sliding scale. Early adopters on a given day pay less, but perhaps latecomers get some other incentive-a coupon for a free day later on in the week. You can get as creative as you need with your pricing.
You could also reward loyal users by making paid subscriptions cheaper (approaching free) the more a user plays (and therefore, the more money you’ve made from them). Veteran users are your best customers: they live and breathe within your app and they tell all their friends about it.
#19: A free app might have paid support
An app might be free, but if it users require configuration expertise or help, they might have to pay to get technical support. (Much like the Microsoft, Apple, and Dell Support programs).
Free application strategies are not suitable for all applications. However, in many cases, they can work very well. To determine if the free application route is the right one for your app and business, make sure your pricing strategy jives with your business plan, target market, and application cost analysis. These strategies work for more than just apps, too. You can apply these ideas to third party libraries, content and media, etc.
Got an idea for a different way to make "free" apps work for profit? Post a comment!