This story was written by Keith Dawson for UBM DeusM’s community Web site Develop in the Cloud, sponsored by AT&T. It is archived here for informational purposes only because the Develop in the Cloud site is no more. This material is Copyright 2012 by UBM DeusM.

Free Apps Dominate Downloads

Developers looking to monetize mobile apps had better look beyond charging for them upfront.

Free apps account for almost all mobile app downloads, and this trend is not declining. Developers need to find another way to monetize besides charging for downloads.

As we discussed last month, the avenues available to monetize mobile apps are changing. My earlier blog post concentrated on the decline of pay-per-click advertising -- across the Web as well as in mobile -- as a viable path to making money from mobile apps. That post suggested concentrating monetization efforts on strategies such as subscriptions, in-app purchases, and/or freemium models.

Gartner has released a new study casting doubt on the ongoing viability of another tried-and-true means of getting paid for app development -- namely, charging upfront for downloads.

Across the major app stores, fully 89 percent of downloads in 2012 were for free apps; Gartner expects that number to rise to 96 percent by 2016.

What's more, of the apps that were paid for on download, 90 percent cost $2.99 or less. That rock-bottom price range will account for 96 percent of paid downloads by 1996, Gartner asserts.

The research firm looked at both the app stores from major OS vendors -- Apple's App Store, Google Play, and Microsoft's Windows Phone Marketplace -- and up-and coming marketplaces such as the Appstore for Amazon and Facebook's App Center. Apple's store is the largest today, accounting for over 46 percent of apps downloaded in 2012, but it is slowly losing share as the app market expands. Downloads from the Apple store increased 74 percent from 2011 to 2012, but total downloads expanded by 83 percent over that time. (Downloads per year should reach almost 310 billion by 2016.)

The increasing proportion of free downloads is exerting downward pressure on the prices that can be charged by those app developers who want to recoup their investments quickly. Those who see the handwriting on the wall and shift their monetization efforts away from paid downloads will see their investments being paid back more slowly and over a longer period of time.

Gartner sees a bright future for in-app purchases. The research firm "expects the number of downloads featuring in-app purchase will increase from 5 percent of total downloads in 2011 to 30 percent in 2016, and its contribution to the store revenue will increase from 10 to 41 percent in the same period."

Quality matters more
The shift away from paid downloads means that, in order to continue getting paid, developers are going to have to concentrate even more on quality, polish, and the overall user experience. When the user pays upfront to download an app, it could be a bit of a pig-in-a-poke experience. The app could prove to be of low quality, leaving disgruntled users and bad reviews in its wake. In-app purchases, on the other hand, set up a revenue stream that continues only as long as the user remains happy with the app and willing to participate in the experience it provides.

How have changing app marketplace conditions and user behavior influenced your plans for monetization? Please let us know in the comments.