Free Or Paid? A Look At The Dark Underbelly Of Ad-Supported Apps
March 23, 2011
What's the difference between a paid iOS app and a free one? Some use the trial approach by reducing features, others use advertisements, and some rely on users to make in-app purchases. While ads may seem like a small way to make some additional revenue, they may be a bigger component to success than a consumer realizes. Last week, a couple of blogs took it upon themselves to investigate cross-selling and to find out exactly how deep the rabbit hole goes.
Horace Dediu of Asymco published an article last Thursday theorizing on purpose and success of free apps that presumably make little to no income. Horace begins with statistics from Gartner about current advertising percentages.
By one estimate (Gartner), about 81% of apps downloaded today are free. The way free apps are able to generate revenue is through advertising. 16 percent of application store markets’ $5.2 billion revenue was generated from advertising.The post goes on to point out a fact that slips by most of us; these ads are just advertising other apps and a developer's other free apps. Why would a developer want to waste time advertising other free apps or the competition? Advertising free apps is profitable because those apps use the same in-app purchase influence approach as the rest, plus they have ads. Advertising other apps, even the competition, is just as sneaky. Offer a developer a chance to add market share and they'll be willing to plunk down with little question, giving the free app developer guaranteed profit in his or her pocket. What makes this even crazier is the fact that this method of passing users around to gain money using click-throughs and first time installs just goes round and round. As Horace chose to put it, it's an "app bubble" that has the finances and users "churning around the ecosystem like a hot potato" with only small financial additions being added by consumers. In what made things more intriguing, All Things Digital's Liz Gannes posted an article that same day about this hidden app ecosystem, however, from a different perspective. Instead of looking at the situation from a bird's eye view, Liz focuses on how exactly it's done, revealing that it goes far beyond just putting a few extra pennies in the jar. The post goes into explaining how the scenes behind the App Store curtain, so to speak, are much closer to a drug neighborhood than a playground.
One VC called the services “crack for app developers,” with apps that stop paying and fall down the charts going through severe withdrawal.Advertising can bring in some welcome revenue, but the fact remains that its purpose is attempting to promote a product to the leader of the pack. Companies like Tapjoy and Flurry assist in distributing, promoting, and tracking apps, helping them climb to the top of app store charts. The problem is that this sort of tactic is short-term and requires developers to continuously contribute funds until finally sustaining themselves; which could be a very long time or never. Developers end up paying upwards of $.75 per free app install and up to 75% of paid app income. If that weren't crazy enough, just launching an app with Tapjoy's services will require $30,000 to $500,000. I can see this being an okay strategy for developers who are looking to push app success quickly, and have the money to do it, but poorly designed and gimmick apps will never maintain an audience and revenue on their own. Games such as Doodle Jump, Angry Birds, Cut the Rope, Fruit Ninja, and Tiny Wings appear to have the best plan of attack. These particular apps have gotten quick praise and sales due to simple and addictive gameplay with a price tag that very few are willing to be discouraged by, plus some occasional large promotional blasts. This concept creates a positive and strong word of mouth chain reaction and a longstanding customer base, typically willing to invest in related products. In my opinion, the 'quick buck' plan has never looked good from a successful business standpoint. I find the risk of having things backfire, and not simply fail, seems far too great. That brings us to the big question; is Horace correct that the "ad-supported app bubble" will eventually burst or will the fast cash ecosystem continue to thrive?
