Mobile Apps – Paid or ad-supported? Which is more beneficial?


In 2007, iPhone was launched. It was beginning of an epic change in the way mobile impacted our life and more importantly, it paved way for a new generation of programmers. Ecosystems changed and so did the way money was earned.

Prior to iTunes store, apps were called softwares and they were costly piece of code that ran on your computers. Games were either free or very costly and indie games were not a profitable venture.

Cut to today where hardcore gaming industry is trying to fight games like Angry Birds which are hilariously simple to play and need a device costing below Rs. 10000. In comparison, any game that is played on computer needs a computer, of which a decent one costs around Rs. 40000.

At least a computer is useful in some other things. A gaming console on the other hand though cost about Rs. 20000 but is not as useful as a computer. Also, the games of a console are way costlier than any other medium.

Coming back to my point, the industry now is moving in a completely different direction where games cost as low as free and even the most good ones are less than Rs. 300.

All this started with Apple’s iPhone, but it did not stop there. Apple’s ecosystem while robust and varied is still based on paying for the apps. Android, with Google’s backing brought a method of payment that revolutionized the paying system of Apps.

It is not that the system is new. Softwares were there which were donation-ware or freemium kinds. These had limited functionality and one could buy the key for better or complete functionality. Google itself is ad-supported. Merging the two in a fashion that could turn into a huge money churner for not just Google but for a lot of small time developers, well that was unique. People downloading the app do not pay anything upfront and people creating the app get paid. An ecosystem was formed equally intimidating as the one created by Apple.

Currently, both the ecosystems are healthy and from the developers point of view equally lucrative. Both the ecosystems give all the options of payment to their customers and developers.

Still, we find that certain trends have sustained. Many apps are present that are paid apps in Apple’s appstore and ad-supported in Google Play. This shows that developers still expect the users of Apple to pay and believe that users of Android are not that inclined for it. It might be true as well.

Which is better? Paid or Ad-supported?

paid or ad supported-001

The question though arises which one is better? At first glance, it might seem that ad-supported is better as it means the person getting it is getting it for free and the person who sells still gets the money. Compared to in Apple’s appstore where the price itself might act as a deterrent to purchasing.

There is though a catch in the matter. Anything that is ad-supported needs volume. For example, if the payment is based on like $2 for a thousand ads shown then it means that either a person sees the ad for thousand times or thousand people seeing it once fetches the developer a measly $2. Now, if this app was only $1, then after 2 people have purchased it he is on the same platform as that of thousand people downloading the app and using it once.

Now, an argument can be made that as the app is free so more people will download it. Yes, but how many? Let’s say it is a fairly average app and gets around 10K downloads in Android market. It will earn the developer around $20 on one seeing. The fickle nature and the way apps (except for the most necessary ones) are deleted we can safely say that the maximum revenue that is generated by this mechanism is around $150. This means an average ad show of 7.5. Now, if the same app goes in Apple store and barely 500 people buy it, the revenue becomes $500.

On the other hand, if the app gets wildly famous and is downloaded a million times, the same revenue should become $150000 while in the same proportion the revenue from Appstore becomes $500000. Of course, because the app is such a hit it will stay on people’s phone for more time so it is safer to assume that the earned revenue in Google Play will be more than this estimate. Let’s say it’s around 30. This makes the revenue over $600000 and more than Apple’s.

Sorry to include so much maths but my point is that for small developers Apple’s way is smarter as they definitely get the money. Of course, success means Android can come to party as well. It is because of this reason that apps are sold on Appstore and gave away in Android. Once it has achieved a necessary threshold, Android can get them a lot more money than Apple but only after that relatively high threshold which few apps reach.

I need to add here that many developers now a days use a method where they keep ad-supported but free and if user wants to get rid of ads, then the user has to pay. This probably is a middle path and may work well with medium or large size developers. But for smaller developers, it is best to first launch a paid app and then explore ad-supported model.

Would love to hear your inputs on this!

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