Thursday, March 21, 2013

The Next App Business Model

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As I’m sitting at the gate of an airport of the city that has mastered paid app business model and then a freemium business model, and after talking to the teams at AppCampus about the models they plan to pursue, I can’t stop but wonder what’s next. And why there has to be something next? Well, because all these models are sooner or later destroyed by the app ecosystem itself.

Paid apps killed by the race to the bottom

It came down to users not willing to pay more than 99 cents for a paid app. This may still work for megahits like Angry Birds, but for “smaller” apps it means that your revenues are capped by the number of users you manage to attract and as non-app advertisers come to advertise on mobile it will become (if not already) economically impossible to use paid methods of promotion to attract those users. That leaves you with free methods only which is still great, but requires a lot of effort and the results are pretty much impossible to predict and plan.

Advertising is volatile and “hated” by developers and designers alike

Advertising is the easiest way to get recurring income from your apps and it can provide great returns… at times. But it’s very hard to predict these returns and plan your life accordingly. One month you are leasing a Ferrari and the next one you are broke. There’s also a vocal group of users hating the ads in apps the didn’t pay a cent for and there isn’t much you can do about it.

Freemium is crooked by design

While some of the freemium games are actually free to play and offer only real extras as in-app purchases, most often there’s nothing free about freemium apps. It may take you more than $500 to get all the stuff, or your soccer team may get sick after a couple of games and you’ll have to shell out real cash if you want to continue. The store price tag is misleading at best and I wonder when we see a lawsuit for false advertising or something.

The more apps move to the freemium model the more it destroys the meaning of the word “free”. Ask yourself what you think when you see a major game release listed as free in the app store? And as it goes mainstream regular users will develop blindness to the free price tag the same way they’ve developed ad blindness on the web. And then even the really free apps will suffer.

Is paid with trial with IAP for future upgrades an answer?

I’m pretty sure someone will come up with some clever model in the future, but from what we have now it feels like paid apps that users can try for free and that developers can continue to monetize once they release new features could be some sort of an answer.

In this model users would see a final price for the app as it is at the moment of the purchase, they can also try it for free before spending the money. The trial could be time limited or feature limited or can even be unrestricted but with ads. And developers would know that they are not done with this app and don’t have to support it for free. They will be able to add and sell new features and users can decide if they want these new upgrades or not.

I don’t think the market (at least on the Windows side) is ready for this yet. After all we only got IAPs not so long ago, but as freemium fatigue develops as described above, I think users may be attracted to a more clear and fair model.

What do you think?

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