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THE MONEY SHOT
In Apps, Free Pays Off BigTuesday, July 12, 2011 While many magazine publishers continue to look for an up front premium fee on their smartphone and tablet apps, the games industry may provide the best direction for future revenue generation. The freemium model, which gives away the initial download but generates revenue from in-app paid upgrades and virtual good purchases, is proving a monstrously profitable hit with users. According to app metrics firm Flurry’s survey of top 100 grossing games in the Apple App Store, the share of revenue generated by freemium titles has gone from 39% in January to 65% in June. “The traction of the freemium model is undeniable and growing fast,” says Flurry GM of games, Jeferson Valadares in a blog post late last week. “It is the single most dominant business model in the mobile apps industry today.”  The economic advantages of the freemium model has been well known to social game makers like Zynga for several years. Unlike the pure and traditional fee-based model, the freemium model has no barrier to entry and almost always results in much higher download rates than a paid app. Flurry confirms a well-known metric to the social gaming world – that only about .5% to 6% of freemium app users will even spend money upgrading an app. But that sub-10% share of users can be extremely lucrative. While the traditional fee-based model caps the amount a publisher can get from a customer with the up front price of the app, the in-app model lets the user spend as much as he or she wants upgrading or buying virtual goods within a brand. In most cases the most loyal user of a brand will spend considerably more than the up front price a publisher sets. While magazines generally do not traffic in the kinds of virtual goods and limitless in-app purchases of games, the success of this model for games suggests a path for a broader range of media publishers. By offering a greater range of modules and incremental upgrades, publishers of all kinds could give their most loyal users a path to spending as much as they like.
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