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How Awesome UX Boosts Revenue in Four Mobile Business Models

1.0 Freemium

FREEMIUM4-Part Series1.0 Freemium 2.0 Data 3.0 Advertising 4.0 Premium

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HOW AWESOME UX BOOSTS REVENUE IN FOUR MOBILE BUSINESS MODELS FREEMIUM

Macadamian In a NutshellMacadamian is a full-service

software design and development

firm. We create meaningful and

compelling user experiences for

mobile, web and desktop. With

more than 750 completed projects

worldwide, we’ve partnered

with some of the biggest brands

including Avaya, BitTorrent,

BlackBerry, Cisco, GENBAND,

Juniper Networks, Logitech

and Microsoft. We care about

the user and, as a result, create

products that delight you and your

customers. We are inquisitive: we

ask questions beyond the scope of

the project and we listen intently to

your answers. Our team bolsters

your capabilities and drives your

success. Learn more at

www.macadamian.com.

About the Authors

Scott PlewesVP, User Experience, Macadamian

Scott worked for more than 20 years in user experience design

at BNR and Nortel, and Maskery and Associates, before joining

Macadamian in 2006. Since becoming Vice President of UX in

2010, Scott has been instrumental in matching the right design

and technology choices to clients’ business goals. He embodies

the Macadamian philosophy that successful products are built on

committed business relationships, passion for design, and a true

desire to create a useful and delightful user experience.

Rob Woodbridge Founder, UNTETHER.tv

For the last 14 years, Rob has been immersed in the mobile

revolution in roles ranging from strategic advisor, board member

and coach to VP Operations and President & CEO. In each of

the companies he’s been involved with, he’s shaped strategy,

marketing initiatives and product development to extend

existing business into the mobile world — or flat out create new

businesses leveraging mobile.

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Scott PlewesVP, User Experience, Macadamian

Rob WoodbridgeFounder, UNTETHER.tv

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HOW AWESOME UX BOOSTS REVENUE IN FOUR MOBILE BUSINESS MODELS FREEMIUM

Creating a meaningful and compelling user experience is critical to the success of any mobile software application.

No amount of tinkering with price or spending on promotion will matter if users do not value the experience your app provides. That’s why we’ve produced this four-part series.

It’s loaded with insights on four mobile business models and the UX best practices that can improve each model’s revenue potential.

In this first installment, we outline why free apps with incredible UX can be highly effective at enticing customers to spend more.

When you’ve read this guide we encourage you to watch its companion video for even more advice.

Please feel free to connect with us if you have any questions, or if we can assist you in achieving your desired business outcomes.

Regards,

Scott Plewes Rob Woodbridge VP, User Experience Founder Macadamian UNTETHER.tv

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Watch Macadamian’s

Scott Plewes

and UNTETHER.tv’s

Rob Woodbridge

dish more insights on the

freemium app business

model along with the UX

tips that boost its

revenue potential.

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HOW AWESOME UX BOOSTS REVENUE IN FOUR MOBILE BUSINESS MODELS FREEMIUM

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The birth of freeOn March 23, 2006, venture capitalist and blogger, Fred Wilson, described a business model1 that involved giving good, full-featured software away free. The strategy employed software products he’d been using at the time, including LinkedIn and Flickr. Wilson asked his legion of readers to help name the business model and, low and behold, the term “freemium” was crowned, with credit for it going to Jarid Lukin, former director of e-commerce at Alacra2.

Freemium is not a new software revenue model. Long before mobile, desktop software developers offered trial-ware and free-ware applications in order to attract as many customers as possible. These applications were limited versions of the software that would give the user a small taste of the application until it became disabled or timed out. This progressed very quickly into free trials of products and software services – even extending into the world of software-as-a-service (SaaS). Eventually, mobile software developers adopted the freemium model as a way to attract customers in a very competitive and highly contested ecosystem.

Freemium in practice follows a simple concept. First, you need to build a great product and give most of it away for free. Within the application are built-in hooks

that lead to the user purchasing something – a digital good, a locked feature, or a unique advancement, for example. The application is designed in such a way that a user can continue using it for free without hindering the experience. But, it reaches a point where the experience is much better and more effective with a purchase of some sort.

Why it worksBoth the user and the developer benefit from the freemium model in ways that are unique to each. The user receives a high-quality application that has little to no friction to use—no up-front payments, gates, or product limitations—and the developer’s product ends up on more devices as a result.

Without an upfront cost, the user is able to test the application the way it was meant to be used, and is given an option at an opportune time to purchase access to additional features or functions. The goal of the software vendor is simply to have the application installed and in use on as many devices as possible. It then becomes a question of developing a balance between usability, functionality and revenue generation as well as creating the hooks that turn non-paying customers into paying customers.

1 http://www.avc.com/a_vc/2006/03/my_favorite_bus.html

2 http://www.avc.com/a_vc/2006/03/my_favorite_bus.html

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4 http://www.visionmobile.com/blog/2013/07/report-developer-economics-q3-2013-state-of-the-developer-nation/

5 How the most successful apps monetize their user base - Distimo, March 2013

6 Flurry: http://blog.flurry.com/bid/99859/The-Who-What-and-When-of-iPhone-and-iPad-Usage

Choosing the right OSChoosing the right operating system for your app is critical to the success of any mobile business model. To help guide your decisions, we’ve highlighted findings from several key research reports:

Very successful freemium apps convert between 1- 5% of users3;

A recent study by VisionMobile revealed the following percentage breakdown of developers using the freemium revenue model across four platforms: iOS (62%), Windows Phone (41%), BlackBerry (40%) and Android (39%). The study also indicated iOS is still the dominant revenue-generator for freemium apps.

% of Developers Creating Freemium Apps Across Four Mobile Platforms July 2013, VisionMobile

The same VisionMobile4 study showed that more than 80% of the apps found on Google Play are freemium. The percentage of freemium apps

available through the Apple iTunes App Store is not available as of the publishing date of this guide. However, it’s worth noting the revenue generated from all apps on Apple’s App Store is more than double the revenue generated by all apps on Google Play.

In February 2013, 71% of all revenue generated from iPhone was derived from in-app purchasing within a freemium purchasing model. The remaining 29% of revenue generated from iPhone was split between paid premium apps (24%) and in-app purchase revenue within paid premium apps (5%).5

Freemium iPad apps net an average revenue per download of $2.26 – much higher than iPhone apps, which yields an average revenue per download of $0.93. The most obvious reason for this variance in revenue is that the average price of iPad apps is more than double that of iPhone apps. Another consideration is that tablet apps typically offer a more immersive experience. In fact, iPad apps keep users engaged 42% longer than iPhone apps6.

While much of the current research on app economics seems to reference iOS as a preferred platform for a freemium business model, we strongly recommend you research all the platforms most aligned with your business goals. You might discover other OSs strengthen your chances of gaining competitive advantage.

iPhone: Revenue Breakdown February 2013, United States

100

75

50

25

0

62%

iOS Windows Phone

Blackberry Android

41% 40% 39%

Purchases within free apps

24%

5%71%

Purchases within paid

premium apps

Paid premium apps

3 How the most successful apps monetize their user base - Distimo, March 2013

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Why users don’t convertOne of the top reasons users don’t convert from free to paid is an ill-timed ask within the app experience. It’s critical not to interrupt users while they’re in the middle of a task. For example, inserting a pop-up ad in the middle of a game is sure to annoy even the most tolerant people. Users also don’t convert when the real value of an application is hidden behind a paywall. Your freemium app must be built to be an integral part of a user’s day. Finally, be clear on the use-case for your app. Offering a generic app will bore users. One with too many features will confuse them. Either way, you’ll likely lose potential paying customers.

Create awesome user experiences and revenue will followThe first truth is that the free piece of your freemium app has to have a great user experience. While this seems obvious, it’s easy to get caught up in your business interest and focus on the conversion rather than the experience. The first interaction a user has with your application must be your best offering. In essence, you must give away your best work to create a value relationship with your users in order to turn them into paying customers. Holding back on providing a robust experience limits the opportunity to turn that exchange into revenue.

We encourage you to learn

more about the freemium

app business model and the

UX best practices that boost

its revenue potential.

Watch our video now!

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APP MAKES FILING TAXES FUNTurboTax® SnapTax was a top 10 grossing iPhone app during the 2013 tax season. The app asks each user to take a picture of his or her tax form, fill in minimal data, and then file the tax form. The app itself is free right up to the point of filing, which is when it prompts users for payment. The reason this works is that it gives away the smarts before asking users to pay. There is also a very clear and effective payment trigger that comes into play when users want to file their taxes. Instead of charging for the app, the developers gave it away and charged for the premium services to which it leads.

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You need to understand what value looks like for your users, and then choose your triggers wisely and make it easy for them to decide to convert. The balance you strike is important. You need to minimize the interruptions during the free experience, but be prompt when users are ready to convert.

There are natural revenue points inside mobile applications – sooner for games and entertainment applications than for utility apps. For example, the best freemium gaming apps instill a sense of urgency to purchase. Games such as Angry Birds offer small in-app purchases that help move the game forward much faster if you are stuck. On the other hand, utility apps such as Evernote need to prove their worth. Users may require more time to weigh productivity benefits against possible higher subscription costs. For instance, 71% of in-app purchases for games are under $10.007 while Evernote’s subscriptions are $45.00 per year.

Once the decision to convert has been made, it’s critical to enable payment in order to close this loop. Most of the app stores have a one-click purchase option connected to a billing and payment system. This is a crucial step. Asking a user to do too much at this juncture would impact the conversion rate from free to paid.

Freemium can be a slow process from download to purchase. But, throughout the experience customers form a closer bond with the product, reducing the risk users will discard it. The effort put into this process can yield incredible results and set up your next app release for greater success with an eager and loyal user base. Put awesome UX to work for your next freemium app and, who knows, your product just might be the next app store sensation, turning free into tons of money!

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7 http://blog.flurry.com/bid/67748/Consumers-Spend-Average-of-14-per-Transaction-in-iOS-and-Android-Freemium-Games