In-app purchases make far more money than app sales
Want to make money from an app? Don't try selling it.
Recent data from Gartner confirms one of the stranger truths about developing smartphone and tablet apps: the best way to make money is to give away the app for free and sell in-app extras.
Building an app is an expensive business, so it's understandable that someone who has poured countless hours into doing that might want to see an immediate return. But consumer psychology doesn't work like that. With so many free apps already out there, you'd have to produce something very unusual indeed to stand a chance of persuading customers to cough up. Get them hooked on your app, on the other hand, and they're often quite willing to cough up money for in-game bonuses or extra functionality.
On average, consumers spend 24% more on in-app purchases than on upfront payments, according to a recent Gartner survey of 1,536 consumers. The figures aren't enormous in either case: $7.40 on paid apps every three months, versus $9.20 on in-app purchases over the same time period (all figures are in US dollars). As usual, there are also significant age differences in that behaviour, with younger consumers more likely to spend on in-app purchases (perhaps reflecting the general enthusiasm for technology evident elsewhere in that demographic).
The average figures are also skewed by a smaller group of customers who are much more willing to spend large amounts of money in both categories. As you can see in the chart below, close to half of all consumers spend $5 or less on apps and in-app purchases each month.
For developers, the lesson is clear: your best bet is to concentrate on your most enthusiastic customers, and keep developing options they want to download. A handful of big spenders is likely to prove more profitable than a large pool of free downloaders. (Remember also that tablet sales are flattening, so concentrating solely on tablets apps will be more challenging.)
And for savvy consumers, there's also an equally clear lesson: you don't need to spend a lot of money on apps to make your smartphone both productive and enjoyable. Just resist the lure of buying those in-app upgrades.
Side note: the Ultimate Opal Hack kicks off today! Watch out this evening for the first write-up.
Angus Kidman's Findings column looks at new developments and research that help you save money, make wise decisions and enjoy your life more. It appears Monday through Friday on finder.com.au.