Business Models: How Does Mobile App Makes Money?

One question that comes to our mind is why people develop mobile applications? Why do they invest so much time and money into it? Are they reaping any benefits from it? The answer to all the above questions is that they make mobile apps to earn money, it is a business. Let's see how money is made out of this.

There are three business models for mobile apps namely Freemium, Paid, and Transaction.

1- Freemium

This is the most widely adopted mean of earning revenue from mobile apps. The purpose of this model is to target as many people as possible. The application is free to install. Once installed, there are further several ways to earn revenue:

a) Advertisements 

Once a large user base is made for the app, the advertisements can be floated in the application. The money is made by selling the advertisements. The advertisements are sometimes very annoying for the end users so make sure to balance the risk between serving the ads and the potential of losing the users. 

To minimize the risk of losing users, try to serve the ads that are of somewhat similar nature as the app is, for e.g. a finance app with stock exchange information displaying the advertisements of company portfolios or top market movers would have a less chance of frustrating end-users.

b) Paid Version

The free version of the app offers limited functionalities or the base functionalities. If the end-users want to have a full set of functionalities, then they have to download the paid version of the app. This approach is like demoing the app first and then selling it in order to avail the rest of the functionalities.

c) In-App purchases

As the name suggests the end-users can purchase some items within the app for e.g. some of the news applications have in-app purchase capabilities to subscribe/purchase different premium stuffs like premium videos, premium shows, etc. Similarly, the gaming applications offer various in-app tools (like coins, goodies, weapons, etc) which helps users in clearing up the different levels. 

E.g. of one such freemium app is the CNBC news app which offers both Advertisements and In-App purchases. CNBC Pro offers premium content and is subscription-based.

2- Paid

In this type of business model, the end-users have to pay before they can download the application. These type of applications mostly serves a purpose that no other free app does thereby users are obliged to download these apps to get that particular job done.

3- Transaction

In this model, the end-user pays once the transaction is completed within the app. For e.g. the google wallet and other wallet providers charge a small percentage fee once a transaction is complete.