Davide Di Cillo

Possible revenue streams for iPhone applications

After almost 3 months of experience in the iPhone application market I think it’s time to make some considerations.

First of all, you need a business plan. A lot of people think that just because iPhones and iPhone’s Apps are hot, then they will get rich overnight.
Wrong.
You need a business plan: an idea of the developing costs and have some sort of revenue projection. Most important, you need to take in count that if you think you app would sell between 10 and 50 copies per day you probably need to make your projections on a 5 sales/day.

In this post I’ll try to cover the revenue stream part.

Where the revenues come from?

• Sell your application. This is of course the most immediate solution. Buying applications on the iPhone (and iPod Touch of course) is just one password away. That’s a huge friction reduction during the sale process. When you buy some desktop software you need to look around for your credit card, fill up at least 2 or 3 forms, here you just need your iTunes password. It’s that easy. People spend tons of money in apps and they don’t even realize it.
  Pros: Once a user buys your app you are done. It’s up to you to keep providing support and keep working on the application. Also you don’t have to deal with nobody else than Apple.
  Cons: Once a user buys your app you are done. Meaning that you can’t make any more money from that user anymore (or hardly). Unless your app is really requested and successful, one single app won’t feed your family.
• Advertising. Many people give away their applications for free and makes money with advertising.
  We could divide ads on iPhone applications in three category: 3rd part managed, direct and self promotion. 3rd part managed you need to use services like AdMob. The good thing is that you don’t have to worry about looking for advertisers directly, but on the other hand you can’t negotiate the earnings and how much you sell your ads for. Direct advertising offer you more control on the ads you show, but you need to spend time in order to find advertisers. With self promotion you basically promote on your free application other application you made that are for sale and there is where you actually make money.
  Pros: Free applications are downloaded at least 10 times more than the same application for sale. Lots of people will download your application even if they are not really interested in it just cause it’s free.
  Cons: Still if you want to generate real money it might not be enough. With ads you don’t need just downloads, but you also need the users to keep using your application. Sure, making a fart with your iPhone is really cool, but the life span of that application is really short compared to an application that people would use daily. Also there is not an official analytic tool from Apple as far as applications usage, so unless you use a 3rd part SDK (like the AdMob one) you need to build your own analytic system.
• Freemium system. Actually there is not a real freemium system cause you can’t upgrade the very same application from free to paid. You need to have a free application as well as a paid one at the same time on iTunes. Basically you can offer the free one with some limitation or ads supported while the paid version is a full application ads free.
  Pros: You give a chance to your users to try your application before they spend money on it. If your free version has ads you can make money also from that big chunk of market that doesn’t like to spend money for iPhone applications.
  Cons: People can discover how much your application sucks before buying it, so make sure your application has some real value.

Of course there could be other ways to monetize an application, but these are for sure the 3 most common and Apple proof.

Related posts:
Go big or go free: how to price your iPhone application
iPhone applications: where to start?
How the iPhone 3G S will change the apps scenario
What can we learn from Tweetie 2?
Analytic tools for your iPhone application sales

Tags: iPhone application, Making money

This entry was posted on Monday, January 26th, 2009 at 4:56 pm and is filed under Developing, Marketing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.