The Art of the App Store: The Business of Apple Development

HOW TO SUCCEED WITH A FREEMIUM APP

Freemium apps represent one of the most profitable new business models in the App Store. The freemium model (via microtransactions) caught fire in Asia several years ago, and has since been the East's number one source of revenue for interactive games and media. The numbers speak for themselves.

In July 2011, the company Flurry (blog.flurry.com) reported that of the top 100 games, 61 percent of all revenue in January 2011 came from premium games, and 39 percent from freemium games. In just six months, this shifted to 65 percent freemium, and only 35 percent premium.

Another report the same month (again from a study by Flurry) revealed that games accounted for 75 percent of the revenue of the top 100 iOS apps across all categories, and that 65 percent of these were freemium. The overall number (as of this writing, and likely expected to get higher, perhaps even much higher) is that nearly 50 percent of the revenue of the top 100 iOS apps come from freemium games.

One of the most poignant insights in the article was centered on the average price point for a transaction. At the time, this was $14 spent per transaction by consumers, on average, for every freemium transaction. At first, this seems very high, but further evidence was provided. In the under $10 category, transactions clustered around $0.99, $4.99, and $9.99, which is no surprise. However, what was surprising was that less than 2 percent of all transactions were at $0.99. Furthermore, ...