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Number of free apps grows at expense of paid apps: study

With an average of 88 percent of the top-ranked 250 iOS applications now free to download, ABI Research predicts it is possible all relevant iOS apps in certain categories will be free in a year. 

With mobile application usage rising in tandem with smartphone penetration growth, app developers are struggling with how to build a sustainable revenue flow from apps. As consumers increasingly get used to being able to download apps for free, developers need to figure out how derive advertising revenue from their apps as well as how and when to charge users for content and other features.

"What many observers misunderstand about freemium is that it isn't only about monetizing, but also about marketing,? said Aapo Markkanen, London-based senior analyst for consumer mobility at ABI Research.

?The threshold for consumers to download free apps is really low, so more people end up using and recommending them, which then also gives those apps a bump in distributors' ranking systems,? he said. ?This means that paid apps fail to draw attention in the first place."

Free to be
Freemium apps played a big role in 2011 as developers increasingly looked to monetize their apps with advertising and in-app purchases instead of asking consumers to pay for the apps.

ABI?s Mobile Application Tracker Database report found that while the number of paid versus free apps can differ significantly by country, free apps are becoming the norm in many categories. 

Consumers are more likely to download and recommend free apps because they are so easy to download and paid apps fail to draw much attention as a result.

Apple first enabled in-app purchasing for free apps in October 2009.

The trend toward free apps is expected to continue in 2012 and ABI suggests that it is possible that at this time next year in certain categories all relevant iOS apps will be free.

The research shows that 17 percent of the top iOS apps are paid apps in Germany while in countries such as India and South Africa, paid apps account for only 5 percent of the market.

However, in the United States, which is the leading app market, only 10 percent of the top apps are free.

The report also points to the way that revenue models differ by category.

In categories such as navigation and weather, paid apps continue to play an important role, with one-fourth of the top apps in these categories paid.

However, paid apps play a smaller role in other categories such as lifestyle, where only 3 percent of apps are paid, entertainment with just 5 percent of apps being paid and games, with 6 percent paid apps.

"Apple has always had an edge against other app platforms in convincing users to pay, and if anything, the shift toward freemium is amplifying the dynamic,? said Dan Shey, practice director of mobile services for ABI Research, New York.

?In-app purchases are often impulse purchases, so the payment experience has to be very smooth and simple,? he said. ?For Google, finally sorting out Android Market's billing process will be one of the key issues of 2012."

Final Take
Chantal Tode is associate editor on Mobile Marketer, New York