Have you checked out the list of Top Grossing apps in the Apple App Store recently?  Besides some flash-in-the-pan specialty app for ornithologists, 6 of the top 7 top grossing apps are free.

Apple App Store Top Grossing

For close followers of the mobile industry, that’s no surprise.  In a previous post last October, I pointed out the impact that free apps were having on the App Store.  The Facebook model of free apps with in-game transactions is now dominating mobile as well.  Why?  As counterintuitive as it may seem, it’s possible to make more money when you give your app away for free.  Possible, but certainly not guaranteed.

So, should you go free? It’s not an easy decision. Here at Mobile Deluxe, we’ve been making mobile apps since they were known as cell phone games. The advent of the open markets of Apple and Android has dictated that we change our business model from the old reliance on One-Time Downloads and Subscriptions to free apps with multiple monetization schemes. Capcom, ngmoco, Zynga and others have proven that there’s a ton of money to be made by free apps. And Kleiner Perkins is reporting that at least one of their app makers saw a 5X spike in revenue with introduction of virtual goods (5X spike is on Slide 40, but the whole presentation is awesome!). But that doesn’t mean free will necessarily work for you or your apps.

Here are 5 key factors to consider when choosing your path:

1. How much play time? If your app has 20 levels  and one game mode with little replay value, free is probably not a good way for you to go.  Once users blow through your content, they have no reason to keep playing your app.  The goal is to build up an audience of active users over time.  The more time users spend in your app, the better your chance to make money, regardless of how you do it.
2. Does your app rock? It takes more than a cool name or a brand to make money from a free app.  You can get great feature placement and generate a ton of downloads, but it doesn’t matter without a quality game experience.  Users will ditch as soon as they encounter any crapulousness.  Additionally, user ratings now play a huge role in how many downloads you get.  First, if you are running ads to acquire users, you can put together a killer ad and get a ton of clicks, but shoppers won’t download your app if the ratings are bad.  Second, a higher rating will generate higher organic downloads from any chart position.
3. Do you know your DAU from your k-Factor? It’s not good enough to attract an audience first, and then figure out how to monetize later.  You need to talk about how you will make money early on in the design process.  If you need some tips on monetizing, go someplace like insidesocialgames.com and read up on how the competition is doing it. In general, some apps lend themselves to a natural monetization strategy and others require you to design an artificial system. For example, Hold ‘Em poker has a natural monetization trigger. When a player loses all of their poker chips, they can either wait until tomorrow to play, or play right now and spend some money. Pretty much designs itself. FarmVille style apps require a more advanced system. Both types can be extremely successful; you just need to think about how your app monetizes at the outset.
4. Lots of similar products on deck? If your plan is to take an existing style of game and just do it better, you should strongly consider going free.  How are you going to convince shoppers that your Sudoku app is better than the other 700+ Sudoku apps in the App Store?  Why should they shell out $1.99 to buy yours?  If you can’t summarize it in the first line of the app description, you’re in trouble.  The barrier to entry for new users is lower on a free app, so it’s easier to convince them to give it a try.  That’s the first step.
5. Ready to handle customer support? User ratings reflect customer satisfaction.  That comes from a combination of your app quality and how you handle issues that come up.  We’ve released a few iterations of our apps where we missed some bugs.  It happens to everyone.  What’s more important is how you deal with it.  Users are happy if you are responsive to their inquiries and work hard to fix the issues.  Every support email you receive is an opportunity to create a satisfied customer.  Users who don’t care about your free app will just delete it.  They have little invested.  If someone cares enough to email you about an issue, they want to use your app.  Be responsive and forthright and you have the chance to create a fan.

So, now what do you think? Want to make a killer free app? Stay tuned for Part 2, the 7 Main Factors in Generating Revenue from Free Apps.