The freemium model has been a popular one for app developers to date. But it doesn’t always work, and with so many apps on the market now, it’s worth reevaluating.
To learn more, I asked a panel of 10 entrepreneurs from the Young Entrepreneur Council (YEC) the following question:
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Freemium model for apps: Yay or Nay, and what is one key point entrepreneurs should consider when weighing their options?
Here’s what they liked about it… and what they didn’t:
Offering a free basic version of your app gets a quick buy-in with the least resistance. It lets customers buy additional features for a fixed price or a monthly subscription once they’re hooked.
Seventy-six percent of all revenue in the U.S. Apple App Store comes from in-app purchases. In Asian markets, in-app purchases make up more than 90 percent. The Buffer app and Jamie Oliver’s recipe apps are good examples.
– Rahul Varshneya, Arkenea LLC
The market is clearly moving to freemium, so love it or hate it, you soon will be too.
As the app ecosystem expands, no amount of content will explain to the user why your app is better than another one, and no amount of marketing will help them discover it. It’s best to just let users try before they buy, and engage them for recurring and long-lasting revenues.
– Ioannis Verdelis, Syntellia
There is a reason that freemium is a go-to model for apps: It is one of the most effective ways to show a potential customer the efficacy of your tool. Plus, providing a free version of a tool enables you to capture a user’s information and upsell them later on.
Freemium is definitely a model that’s here to stay, and in most cases, there’s always a way to pare down the full version of your app to a core functionality that can be provided easily for free to whet a user’s appetite.
– Doreen Bloch, Poshly Inc.
People are now programmed to think that software is free. Even the people who know better are unlikely to pay for an app, even if it’s only a dollar. The goal is to get people interested.
It’s more likely that the percent of conversion will be higher once people have used the app versus the initial percent of people who pay before viewing, and it’s easier to upsell within a free app. Companies should also consider a subscription service. Often, you can charge a subscription fee that surpasses the price to buy the app.
– Rameet Chawla, Fueled
A typical free user isn’t necessarily the same as a typical paid user. This can make targeting your marketing message a challenge. Sometimes, it’s better to focus your sales and marketing efforts on paid users. Free users are sometimes low-value leads.
I’m not saying freemium doesn’t work. People like free. It exposes your product to many more users. But converting from free to paid users is the challenge. It all depends on the industry.
– Henry Balanon, Protean Payment
Freemium is a good way to spend money on overhead, and it doesn’t validate whether the majority of your market is willing to pay for your product. Instead, try charging a dollar for what would have been your free plan.
Offering a free plan gives users a reason not to pay. You can also lower the cost for all of your users since those higher tiers aren’t covering the overhead of the free users. Since those plans are cheaper, you’ll hopefully have a higher percentage of users choose the higher tiers. But, most of all, you can focus your customer support on actual paying customers.
– Jared Brown, Hubstaff
7. It depends
When debating between a paid app or a freemium model, I believe the question you must ask yourselves is: Do I have a clearly defined target audience? If so, I recommend a paid app that people will love and gladly pay for.
If you know your user and market to them, go paid. If you’re for massive adoption and casting a wide net, then I recommend going for a free app. This will increase your downloads, and a lot of people will try it. Whether or not they keep using it will be another story.
– John Meyer, Lemon.ly
Freemium isn’t about giving something away for “free.” Freemium is about understanding that in today’s software-as-a-service environment, being able to actually use software and see how it works is part of your pricing model. To offer something to potential customers for free is a much better balance of the supply/demand equation when the integration costs for the customer are low.
Much like the samples at a grocery store, the taste is easily consumed. And when done well, it shows the value and sells to potential customers better than any sales representative could.
– Robi Ganguly, Apptentive
9. It depends
Some of the best apps charge, and people are paying. The question is: Who is your user, and what pain point are you remedying? Consumer-focused apps naturally have a harder time charging at the outset but have the opportunity to integrate in-app charges.
For consumer apps that require scale, freemium or free with in-app charges are typically the way to go. For specialty or business-focused apps, it’s not so simple. How much time, trouble or money is your app realistically saving people? Are there alternatives, and how much do they cost? In the case that freemium isn’t ideal, a free trial is.
– Chris Mirabile, Healthy Hand
The rest of the industry is doing it, and people don’t like commitment. Try to let people use the app for free, but make your money on in-app advertising or from upgrades within the application. If the application is truly worth it, people will pay for the upgrades.
– Russ Oja, Seattle Windows and Construction, LLC
This post is part of our contributor series. The views expressed are the author's own and not necessarily shared by TNW.