FREEMIUM - Macadamian

macadamian.com
FREEMIUM
How Awesome UX Boosts Revenue
in Four Mobile Business Models
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1.0 Freemium
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4-Part Series
1.0 Freemium
2.0 Data
3.0 Advertising
4.0 Premium
HOW AWESOME UX BOOSTS REVENUE
IN FOUR MOBILE BUSINESS MODELS
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Macadamian
In a Nutshell
Macadamian 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.
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About the Authors
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$Scott Plewes
VP, User Experience, Macadamian
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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.
Scott Plewes
VP, User Experience, Macadamian
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.
Rob Woodbridge
Founder, UNTETHER.tv
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HOW AWESOME UX BOOSTS REVENUE
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Creating a meaningful and compelling user experience is critical to the success
of any mobile software application.
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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.
Watch Macadamian’s
Scott Plewes
and UNTETHER.tv’s
Rob Woodbridge
In this first installment, we outline why free apps with incredible UX can be highly
effective at enticing customers to spend more.
dish more insights on the
When you’ve read this guide we encourage you to watch its companion video
for even more advice.
model along with the UX
Please feel free to connect with us if you have any questions, or if we can assist
you in achieving your desired business outcomes.
freemium app business
tips that boost its
revenue potential.
Regards,
Scott Plewes
VP, User Experience
Macadamian
Rob Woodbridge
Founder
UNTETHER.tv
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HOW AWESOME UX BOOSTS REVENUE
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The birth of free
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On 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 softwareas-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
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that lead to the user purchasing something
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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 works
Both 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.
http://www.avc.com/a_vc/2006/03/my_favorite_
bus.html
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2
http://www.avc.com/a_vc/2006/03/my_favorite_
bus.html
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HOW AWESOME UX BOOSTS REVENUE
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Choosing the right OS
ery successful freemium apps convert between
V
1- 5% of users3;
recent study by VisionMobile revealed the
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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 revenuegenerator for freemium apps.
% of Developers Creating Freemium
Apps Across Four Mobile Platforms
July 2013, VisionMobile
100
75
62%
50
41%
40%
39%
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iOS
Windows
Phone
Blackberry
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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
$ than
from all apps on Apple’s App Store is more
double the revenue generated by all apps on
Google Play.
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Choosing 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:
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Android
he same VisionMobile4 study showed that more
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than 80% of the apps found on Google Play are
freemium. The percentage of freemium apps
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iPhone: Revenue Breakdown
February 2013, United States
Paid premium apps
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
reemium iPad apps net an average revenue per
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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.
24%
5%
71%
Purchases within
free apps
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Purchases
within paid
premium apps
How the most successful apps monetize their
user base - Distimo, March 2013
http://www.visionmobile.com/blog/2013/07/
report-developer-economics-q3-2013-stateof-the-developer-nation/
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How the most successful apps monetize their
user base - Distimo, March 2013
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Flurry: http://blog.flurry.com/bid/99859/TheWho-What-and-When-of-iPhone-and-iPadUsage
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HOW AWESOME UX BOOSTS REVENUE
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Why users don’t convert
One 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.
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Create awesome user experiences
and revenue will follow
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The first truth is that the free piece of your freemium
app has to have a great user experience.$While this
seems obvious, it’s easy to get caught up in your
business interest and focus on the conversion rather
than the experience. The first interaction a user has
with your application must be your best offering.
In essence, you must give away your best work to
create a value relationship with your users in order
to turn them into paying customers. Holding back on
providing a robust experience limits the opportunity
to turn that exchange into revenue.
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We encourage you to learn
more about the freemium
app business model and the
UX best practices that boost
its revenue potential.
Watch our video now!
APP MAKES FILING TAXES FUN
TurboTax® SnapTax was a top 10 grossing iPhone app during the 2013
tax season. The app asks each user to take a picture of his or her tax
form, fill in minimal data, and then file the tax form. The app itself is free
right up to the point of filing, which is when it prompts users for payment.
The reason this works is that it gives away the smarts before asking
users to pay. There is also a very clear and effective payment trigger that
comes into play when users want to file their taxes. Instead of charging
for the app, the developers gave it away and charged for the premium
services to which it leads.
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HOW AWESOME UX BOOSTS REVENUE
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Sales & Information
You need to understand what value looks like for
your users, and then choose your triggers wisely
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and make it easy for them to decide to convert. The
balance you strike is important. You need to minimize
the interruptions during the free experience, but be
prompt when users are ready to convert.
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Freemium can be a slow process from download to
purchase. But, throughout the experience$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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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.
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http://blog.flurry.com/bid/67748/Consumers-Spend-Average-of-14-per-Transaction-in-iOS-and-Android-Freemium-Games
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