Launching an app? Go 'freemium', says IHS iSuppli

Thinking of launching an app and generating revenue? Research firm IHS iSuppli said 'freemium', or the business model of offering apps for free, is the way to go.

IHS iSuppli's data shows that while consumers prefer free apps to paid apps, subsequent sales of in-app purchases are getting strong.

“Smartphone users overwhelmingly prefer free apps to paid apps, as we estimate 96 percent of all smartphone apps were downloaded for free in 2011,” noted Jack Kent, senior analyst, mobile media for IHS. “In 2012, it will become increasingly difficult for app stores and developers to justify charging an upfront fee for their products when faced with competition from a plethora of free content. Instead, the apps industry must fully embrace the 'freemium' model and monetize content through in-app purchases.”

IHS iSuppli predicts that in-app purchases will rise to account for 64 percent of total market revenue in 2015, up from 39 percent in 2011. Meanwhile, revenue from in-app purchases will increase to $5.6 billion in 2015, up from $970 million in 2011.

“Games pioneered the in-app business model,” Kent said. “Now the approach has proven so successful, companies building other types of smartphone app must adopt this strategy if they are to maximize their mobile app revenues.”

In the US and UK, IHS iSuppli noted strong sales of virtual currencies, and so far have been almost exclusively employed in games. Other popular in-app purchases include time-limited navigation services, dating and premium social network access, and specific functions or features for photo and video apps

"However, payments for additional media content did not make much of an impact even  on the top-performing apps in the third quarter of 2011, with just 2 percent of the top US in-app purchases offering additional television or video content, and none doing so in the United Kingdom," IHS iSuppli reported.

"Time-limited subscriptions or in-app purchases to newspaper/magazine content did make an impact, however, in the United Kingdom, accounting for 5 percent of the top iPhone in-app purchases during the third quarter," it added.