Apps generated an estimated $26 billion in worldwide revenue in 2013, up 44% over 2012, according to Gartner.
The most common way people spent money on those apps was through the “freemium” model — free downloads that sell items within the app. As of November 2013, the business model accounted for a whopping 92% of the revenue generated in Apple’s App Store and 98% of the Google Play app store, according to a year-end report from Distimo.
The overwhelming dominance of freemium, however, doesn’t extend to all types of apps. That’s the case with music apps, which derived 35% of their revenue in November from paid-for titles. Only 65% of the revenue generated by music apps came from freemium selections in 2013, according to Distimo.
One music app that uses the freemium model is Pandora, which is available for free but offers listeners the ability to upgrade within the app to an ad-free version for $3.99 per month. Smule’s Magic Piano is another example, but with more purchase options. Its free app comes with a handful of songs that users can play. It also sells packs of in-game currency, priced from 99 cents to $9.99, that players can use to buy additional songs, or they can pay $7.99 per month for access to the entire catalog. The paid category is largely occupied by music-creation apps like Traktor DJ ($4.99), iMaschine ($4.99) and KorgiMS-20 ($29.99).
It’s important to note that Spotify is seen as a “free app.” That’s because it technically doesn’t have any in-app purchases — there’s no way to hand over money to Spotify within its iOS or Android apps. Instead, customers have to go to the company’s website to pay for a premium subscription. Once they sign up, they can log on to their Spotify app and hit play. Spotify deliberately chose this design to avoid paying the 30% fee that Apple and Google charge as platform operators. The Distimo report also doesn’t include revenue generated by advertising shown within the apps, which drives the business models for a broad swathe of media and entertainment apps, including Vevo and YouTube.
Accounting quirks aside, the report shows that consumers are partial to freemium when it comes to mobile apps, which is rapidly growing while other models shrink. But music has been slower to adopt the model, instead relying on advertising within free services or subscriptions.