The Truth Behind How Free Apps Make Money

Several app widgets displayed on a smartphone

Apps displayed on an iPhone | Carl Court/Getty Images

How do free apps make money? We all use them, most of us even more than paid apps. It’s only natural to wonder how our favorite apps stay afloat, and no one wants to see Candy Crush to go out of business.

So, we’ve compiled a list of ways that free apps make money, whether to satisfy your curiosity or jumpstart your new career in the app industry.

1. Advertising

Banner ads, pop-ups, video ads, and even promotions built right into the content. If you’re an avid user of free apps, you’ve seen them all.

A shopper checks out an advertisement on her smartphone

A shopper checks out ads on her smartphone | George Frey/Getty Images

App designers can make steady revenue through ad sales if their following is large enough. Blue Cloud Solutions puts it at around $2 for every 100 downloads. Pay structures vary, but typically fall under either pay per impression or pay per click, although pay per installation is recently becoming more popular.

The downside for both designers and users is the effect on the usage experience. Banner ads limit screen space, pop-ups and videos require waiting, etc… Still, most users accept these inconveniences as a preferable “payment” for a free product.

2. Draw Traffic to Another Channel

App icons are displayed on an iPhone

App icons are displayed on an iPhone | Justin Sullivan/Getty Images

Sometimes the app is the advertisement. The app is only a vehicle to promote some greater purpose, so it becomes profitable just by being used. Typically, these apps fall into one of the following categories:

Affiliate Marketing – The app designers are paid for sending traffic to a particular site or receive commission on an assisted sale. Affiliate networks like ClickbankGlobalwide Media, and CommissionJunction make it easy for designers to pair their apps with similar ones.

Sponsorship – A variation of advertising where a larger company pays for an app’s expenses or perhaps offers a regular paycheck in exchange for some kind of promotion. This is usually a mention in the app’s content or title.

Selling Products These free apps actually sell their own products. For example, you can download and use the Kindle app for free to read books on your device, but you still have to pay for (most of) the books themselves.

Secondary App – Some sites are so powerful, they have multiple apps to funnel traffic to their main channel. Facebook, for example, has both a social media app and its Messenger communication app. Both are free and meant to generate traffic back to their original site –although how Facebook makes money is a completely different story.

3. Freemium Upsell

The classic “hook” business strategy: Give users a product they love so much, they won’t mind paying for more features. For those who wonder how free apps make money, this is a clear-cut answer.

Several free apps displayed on a smartphone

Free apps displayed on a smartphone | KAREN BLEIER/Getty Images

Also known as the “freemium” model, the free version of the app is often a bare-bones or simplified version of the complete app, meant to give a taste of what to expect with a paid membership while simultaneously enticing users with paid bonus features.

Subscription models fit into this category, with users paying a monthly fee for new or additional content. Dating apps like Tinder and OKCupid often use the freemium upsell. You can still meet people and take advantage of the app’s core services for free, but if you pay just a little extra you get even more features and advantages — or, at the very least, you pay to remove the ads.

4. In-app Purchases (IAP)

Common in gaming apps, in-app purchases allow users to buy individual features or extras (as opposed to the “freemium” model’s all-encompassing membership).

Advertisements, one of the ways how free apps make money, are displayed within an app on an iPad.

In-app purchases allow users to buy individual features or extras | Spencer Platt/Getty Images

Extraneous elements such as avatar clothing, bonus levels, and theme skins fall under this category, as do paid options like changing your initial username. The chatting app LINE, popular for its cutesy stickers, charges for its most popular sticker sets, including movie tie-ins.

Then there’s the notorious “pay-to-win” IAPs that give certain in-game bonuses that make it easier for paying players to compete and win against non-paying ones.

5. Collecting and Selling Personal Data

Although collecting and selling personal data is not as common (or as ethical) as the other items on this list, it’s still an avenue that free apps use to turn a profit. Users enter their email address, social media accounts, personal preferences, and other data when using the app, and the company then turns around and sells this information to third parties.

An information scientist presents a screen with 12 million pixels used for data mining

An information scientist presents a screen with 12 million pixels used for data mining | CHRISTOF STACHE/Getty Images

If it sounds creepy, it’s because it is. The worst of these apps even infiltrate your call history and contact lists — and sometimes even access your social media accounts or read your text messages. Luckily, there are ways to protect against these invasive apps, including anti-surveillance apps.

Takeaway

This article harkens on the old adage, “There’s no such thing as a free lunch.” No matter what the app store says, you’re going to be paying for the app one way or the other, whether with your attention, your time, or with money further down the road. But, hey, isn’t it worth it? After all, many people grew up watching 20 minutes of free TV in exchange for 10 minutes of commercials.

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