In-app purchases will fuel tablet, smartphone app sales: report

Summary:Free mobile applications are actually more likely to turn a profit -- so long as they include a business model built around in-app purchases, according to new research.

Just because an app is free doesn't mean it won't cost you later.

That's because most mobile app developers and businesses are realizing that the better (and maybe best) way to monetize these programs is not through advertising but rather through in-app purchases, according to a new report from market intelligence firm IHS iSuppli.

IHS senior analyst Jack Kent explained in the report just how free apps are really the ways into a customer's digital wallet:

Smartphone users overwhelmingly prefer free apps to paid apps, as we estimate 96 percent of all smartphone apps were downloaded for free in 2011.

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.

Basically, it's being dubbed as the "freemium" model, in which companies lure customers in by offering away the program for free with limited features and access. Gaming apps have really solidified this field. Just look at Zynga and Angry Birds-maker Rovio, which have essentially built their empires around this idea.

This approach can backfire with some customers who aren't impressed and/or interested in paying for additional features. (Have you seen the reviews for the "updated" version of The Oregon Trail?)

Nevertheless, the freemium model doesn't actually seem all that innovative when you get right down to it. Yet it does seem like a safer route for making money from mobile apps in the long run rather than relying on in-app advertising or revenue from the initial downloads themselves.

For more tips on how to make money with mobile apps, check out Ed Burnette's ideas now.

Related:

Topics: Hardware, Enterprise Software, Laptops, Mobility, Smartphones, Tablets

About

Rachel King is a staff writer for CBS Interactive based in San Francisco, covering business and enterprise technology for ZDNet, CNET and SmartPlanet. She has previously worked for The Business Insider, FastCompany.com, CNN's San Francisco bureau and the U.S. Department of State. Rachel has also written for MainStreet.com, Irish Americ... Full Bio

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