Ads Not Only Way to Monetize Free Apps

Gourmet Live

A new study by Piper Jaffray analyst Gene Munster shows free apps make up 81% of downloads across the iPhone, iPod touch and iPad. The average selling price among the top 50 paid apps for the iPhone and iPod touch is $1.49. Among the top 30 paid iPad apps, the average price triples to $4.66.

With paid apps accounting for less than 20% of downloads, advertising appears to be the best option for most developers to monetize apps, instead of charging an upfront fee. But that conclusion overlooks the fact that an app classified as "free" doesn't necessarily mean advertising is the only way developers can make money from it. Publishers are also applying the freemium model to apps, offering them as free downloads but charging for premium content.

The Wall Street Journal, for instance, offers free iPhone and iPad apps that provide some content at no charge but require users to pay $8 a month (and twice that on the iPad) for full versions of the newspaper. Condé Nast plans to take a similar upselling approach with its forthcoming app for the iPad and smartphones, reviving Gourmet in digital form after the foodie magazine was shut down last year.

The Gourmet Live app will be free to download but will monetize social media consumption with game-like features for earning virtual currency (modeled after apps on Facebook and other social platforms) by recruiting friends and sharing articles and recipes. Condé Nast will also try other revenue models with the app, including membership and some sponsorship, according to paidContent.

Condé CEO Chuck Townsend told the publication he expects Gourmet Live to bring in $20 million to $30 million in 36 to 40 months, propelled by interest from the magazine's passionate base of 5.5 million readers. At least for now, developers appear to have a better chance to charge for apps on the iPad rather than other devices because of the novelty factor and the enriched content some publishers like Condé have included in editions geared to the Apple tablet.

Wired, for instance, has had more than 90,000 downloads of its multimedia app priced at $4.99. But the multiple-revenue approach planned for Gourmet Live looks like a smart approach for most developers trying to monetize apps in ways other than charging to download.

One risk with the freemium model, though, is if users perceive it as a bait-and-switch model because of a limited amount of free content. It's up to publishers to figure out a balance of free and premium material that doesn't leave consumers feeling like they've been ripped off after they download an app. Checking the comments from users in the ratings section on app pages in the App Store is a good way to gauge feedback.

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