App Store Pricing Models

What has been left out of the discussion


Recently there has been a lot of talk in the iOS indie dev community about App Store Pricing models. Dan Counsell has a great write up here.

There is a lot of misinformation about freemium being the best business model for your app (Dan’s article correctly points new devs to paid apps). People see how much of the money in the App Store is going to freemium and they think that must mean that is the model for their app. Launching an app with a freemium model is hard. Doing it well is even harder, especially with non game or entertainment apps. I have worked with paid apps since the App Store launched in 2008 and freemium apps since in app purchases were introduced in iOS 3.0. While Dan does a good job in his post of laying the foundation for pricing models, there is much more you need to consider when deciding to go freemium versus paid and here is some of what I have learned over the last five years.

It is much harder to make money with freemium. Your app must have real tangible value for a user to make a purchase. Assuming that you are not doing some kind of bait and switch scam, it is much harder to get a user to make their first in app purchase in your app than it is for them to decide to purchase a paid app. It is actually easier to “scam” users with paid apps by providing misleading (but not entirely false) information in your screenshots and product description. Just think of how many apps you have bought that did not meet what you were expecting. How many of those apps would you have paid the same amount for as an in app purchase if you got to experience the app before buying? With freemium you must let the user really experience the value of your app for them to make a purchase. While this is incredible powerful, it is also very difficult since you must actually have a really good app and your must communicate its value well.

You will need to have a very high commitment to your app if you use freemium. This does not mean that developers who create paid apps are not committed to their apps. For freemium to work you must study your users, understand them, and think like them. You must learn everything you can about your users and how they use your app. You need to talk with them. You can’t expect to get it right when you launch your app. At launch you will be doing well if you can convert 2% of the downloads to making a purchase. Over time as you learn you can increase this. When my app Topo Maps+, it launched last July with a 2% conversion rate. Over the last seven month I have raised that conversion rate to 7.5%. To do this I have to continually learn and improve the app. I have had seven feature updates during that time and each of them does something to help my conversion rate. Many times, improving the conversion rate means make a feature in the app easier to use. If users can’t figure out how to use the core features of you app immediately they will not convert. I put my personal email in the app so users can talk to me. I study the app usage in Flurry and I listen to what users are telling me. From that I am constantly making changes and measuring their success. You can’t expect to create a freemium app, launch it, and then update it once or twice a year. You need to be continually evolving freemium apps. With paid apps it is very helpful if you do this as well, but you don’t have to.

Don’t force a freemium model where it does not naturally exist and don’t “scam”. That will not lead to long term success. As soon as you include an in app purchase in your app you will be falsely accused of being a scammer. Don’t let that scare you. When you do get that feedback think about your app from that users perspective and why did they feel like you were trying to scam them. How could you change your app, marketing, etc so that users don’t feel like you are doing a bait and switch. (This assumes you are not doing a bait and switch in your app which you should not be doing.) Be creative in thinking about how freemium could fit in your app, but don’t force it. If must feel natural to your users for it to work.

You can consider a different launch strategy for freemium versus paid apps. The most important thing with freemium apps is learning and so you will want to launch early without lots of fanfare and learn like crazy. Do whatever you can to learn. With paid apps, planning a big launch for a super polished app with lots of press and marketing is a much more viable option. With freemium you don’t want to launch junk, but just having a super polished awesome apps will probably not drive the sales you want. You must learn and deeply understand your user. If you wait to launch a freemium app you may be wasting your time polishing a feature that doesn’t drive engagement with your app.

Freemium gives you much better marketing. You can create a marketing funnel and work on optimizing each piece. First you must get people to see your app on the App Store (there is lots written about ASO so I will not go into that here). Then you need to convince them to install the app. With paid apps this is all you have. With freemium this is just the start. Even though your app is free, you need to do a good job marketing your app on the App Store. You are giving your users a free app in exchange for space on their device and their time of looking at your app. Once someone opens your app you want to keep them in your app. You only have a few seconds to do this. How will you convince them to try out your app and not just exit. At this point, asking them if it is ok to send them push notifications, or sign up for an account, or see their current location is probably not going to work. You want to show them something that makes them want to stick around a bit longer. (My app Topo Maps+ unfortunately needs to have a terms of service agreement at the start.) Next you want your users to experience the must have experience with your app. Sean Ellis has lots of great write ups on this. Now you need to decide at what point do you have the in app purchase. You don’t want to trick users with a bait and switch, so don’t wait to long with this. Ideally users will know that your app will cost them money within the first 30-60 seconds of using your app. If you wait much longer, users will feel like you lead them on thinking that everything was free and then when you tell them it is not. They will feel tricked and not pay for anything. This doesn’t mean you need to connivence a user to pay for something in the first 30-60 secs, just that they should know that using your app will cost them something.

It is also helpful if you can get permission to communicate with your users. At some point in your app can you give your users some real value in exchange for this permission? For example, you may let them sync their data if they sign up for an account. You don’t want account sign ups to be early on in the experience and you want to make sure you are giving the users something for it. Using this permission to spam your users will only drive them away. Use it in the way that they have given you permission to use it and that will hopefully bring them back to your app.

Don’t be scared of growth hacking. Growth hacking has been getting a bad rap lately, don’t let that scare you off. Good growth hacking will help you create an amazing product. Most developers that create amazing products that are also successful do some amount of growth hacking even if they do not know it. The foundation of growth hacking is finding product market fit. This is incredibly hard but well worth it.

You must fight for real engagement in you app. Your app must provide features that people really engage with so that it can drive sales. If people are not engaged with your app, you will sell nothing. You need to find ways to increase that engagement and bring people back into your app. You can’t expect your users to just blindly click on push notifications or email and come flocking back to your app. Everything you do a user must find real value in and that includes your notifications and email. Using external triggers to get your users back into your app is very powerful provided you are doing it in a way that really gives the user value and is not just spamming them.

You can charge more with freemium than you can for the same app as just a paid app. When you are selling an app on the App Store you have a product description and five screen shots to connivence someone to pay you a few dollars. At that point the app has provided no value to the user when they make the purchase. They only get the value after they have paid for it. With freemium you can ask the user to pay once they have experienced your apps true value and you can match the price to that value. This means that you must not only provide really good value, you also must communicate that value through experiences for the user to make a purchase. Keep in mind that the value you think you are providing is almost always between two and three times higher than what an actual user sees that value as. The problem is that you not only see the app, but you also see the blood and sweat that when into building the app. The user just sees the app.

If your goal is to create amazing apps and not to build a business, don’t expect to be able to indefinitely have those apps support you. If you want to build something that is lasting you need to have a great product and you need think about sustainability, durability, and defensibility. Sustainability is harder with paid apps since each time you sell your app you must convince a new user to pay you. It is much easier to convince someone who has been using your app for a year and loves it to pay you. If you are selling paid apps you can still get this through selling a new app to a users. This means you will have to build hit after hit. Pricing model don’t really affect the durability and defensibility of your business so I won’t go into that here.

Freemium is definitely worth it if you are ready for the commitment and huge challenges that it entails. For freemium to really work you can’t just be a developer, you must also be a marketer. Not a sleazy marketer, but one who really understands their users and knows how deliver amazing experiences that drive sales based on the experience and not just a screen shot.