My thoughts on Freemium

For those that haven’t heard the term before freemium is a business model becoming popular in mobile apps, though it is also used extensively in web services.  The idea is that you give away the product or service for free and then charge for the extra things.  Dropbox is an example, you can sign up for free but if you want more space and a few extra features you can pay to upgrade your account.  I think it is a superior business model.

For UFO Invader I started the game as a paid app for $0.99.  With that low price I was only making one sale every other day.  Over the course of that first month it made just 32 sales, including sales to friends and family.  That simply wasn’t good enough for me so I decided to test a freemium model.

I added a few things to the game that could be bought in the game through in app purchases at various price points and released the update, while dropping the price to free.  The change to the number of installs was dramatic (5 paid apps one week up to 3500 free apps installed the next) and it wasn’t long before some of these new players were buying things in the game.  The same week I switched to freemium I made roughly 5x the revenue from the previous week.

Enough time has passed now that I can start to compare numbers:

  • During 8 weeks as a paid app it made 50 sales @ $0.99 price tier
  • During 8 weeks as a freemium app there has been 43 transactions at various price points
    • 27 @ $0.99 price tier
    • 14 @ $3.99 price tier
    • 2 @ $39.99 price tier
  • 50 paid installs vs. 5200 free installs in 8 weeks
  • Ignoring currency differences, roughly $50 in revenue as a paid app, vs $163 as a freemium app

Even for a game like UFO Invader that was my first attempt at an iPhone game and which has never made it up into the top 100 freemium has proven to be significantly better way to get paid for the weeks of work that went into it. Going freemium more than tripled my revenue directly, and increased my installed base by 100x.  The value of that installed base cannot be underestimated since several thousand players opted in for push notifications which I will use to help launch my next game.

My advice to App developers is to try freemium if it can work with your app.  It’s a bit more work to add IAP, but in my case it proved to be worthwhile for me, and beneficial to the thousands of people who got to play for free and otherwise never would have bought it.  Obviously this is just one case study, different things may happen in other apps, but I think it’s worth testing.