To Boost App Sales, Reconsider the Free Versions

Most mobile apps entice new users with free versions, hoping they’ll like them enough to buy paid versions. That strategy can backfire.

Based on the research of Vijay Mahajan

There’s no such thing as a free app — for app developers. That’s the conclusion of a new study from researchers at the McCombs School of Business, which finds that luring consumers to try free versions of mobile apps can be a marketing mistake.

With 7,000 new apps launched every day, it’s standard for developers of paid apps to offer free versions as well. In the Google Play store, an overwhelming 95 percent of the apps are free. The conventional wisdom is that if someone tries one and likes it, they’ll be willing to pay a few dollars for a version with more power and features.

The problem is that far too often, they don’t, the research shows. “If you think a free sample will cause more people to buy it, the reverse is true,” says Vijay Mahajan, marketing professor at Texas McCombs.

Instead of building sales, free apps are cannibalizing them, says Sandeep Arora, Ph.D. ’14, who’s now an assistant professor of marketing at the University of Manitoba.

“Our evidence shows that a free version actually has a negative impact on the growth of the paid app. Developers should look at other ways to monetize and promote their apps.” — Sandeep Arora

Not Like Chocolates

Giving away introductory samples has long been a tactic for packaged goods, from chocolate bars to laundry detergent. But information goods don’t work the same way, says Arora. They tend to be one-time buys rather than repeat purchases.

“I eat a sample of a chocolate,” he says. “If I want more, I have to buy it. But with a mobile device game, I can play the same levels again and again.”

As a student, Arora says he was an avid downloader of free apps. “I might have bought a $1 or $2 app if the free version was not available,” he says.

That got him wondering whether no-cost apps might be a business blunder. With Mahajan and another McCombs marketing professor, the late Frenkel ter Hofstede, he examined 12,315 paid apps in the Google Play store. They compared the popularity of apps that didn’t offer free versions with those that did.

Their key question was how quickly consumers adopted each app. Google did not offer a daily count. But other websites, which track Google’s app store, reported the dates on which the user base passed five different download thresholds, from 500 up to 50,000.

For paid apps, price didn’t affect adoption speed, the researchers found — presumably because the average cost was under $3.

But the option of a free version slowed the growth of the paid version. Those with free editions took 22 percent longer to get to 500 downloads than those without.

The effect got more pronounced the longer an app had been around. The ones with free versions took 28 percent longer to reach 10,000 than those that didn’t.

“The presence of a free version hurts the performance of a paid app even more in its later life stages,” Arora says. The longer an app is around, the more consumers are motivated by reviews to purchase it. There’s less need for a free version to induce them to buy.

Alternatives to Free Apps

“Offering free samples does not really help you,” Mahajan says, “The challenge is, what should these companies do? You need to think about what else you can do to monetize your app.”

The researchers offer some alternative strategies for building a user base and earning money along the way:

Retire the Free App. Provide a free edition early on, but eliminate it once an app has passed a certain threshold of users, Arora suggests. “When an app is already popular, why offer a free version any more?”

Introductory Price. If a developer already has had a successful app, the company could offer new ones at a low introductory price, like 5 or 10 cents, rather than for free. Says Arora, “Once you have developed a reputation, you could test whether people are willing to pay.”

In-App Income. If a developer is determined to market a free version, then the free version should contain other ways to earn revenue, including in-app purchases or ads, says Mahajan.

Cross-App Advertising. Letting another app advertise in yours, in exchange for placing your ad in theirs, can build user bases for both apps. “Someone who likes my app might consider trying your app,” Arora says.

The lesson is not that developers should never offer free apps, but that they can be more deliberate about how they deploy them.

“When we’ve spoken with developers, a large number of them offer free versions, but they have no idea of the effectiveness of the strategy,” says Arora. “What we’re telling them is not to jump on the bandwagon. Think about it before you do it.”

“The Implications of Offering Free Versions for the Performance of Paid Mobile Apps” was published in the Journal of Marketing.

Story by Steve Brooks