While often referred to as a “freemium” business model because the core application is generally offered for free to consumers, in-application micropayments, or in-app sales of virtual goods, allow consumers to purchase virtual goods from within the application.  These virtual goods can be in the form of reward points, avatar upgrades, access to hidden levels within a game or even premium content such as audio or video tracks.  While freemium applications can also be subsidized in part through advertising, the primary revenues to the application developer are usually derived from the sale of virtual goods.

Some good examples of how this works can be found within many popular social network-based games.  In my previous post I referred  to Mafia Wars by Zynga, a very popular RPG on Facebook.  Mafia Wars is free to play but users have the opportunity to purchase reward points to help them progress more quickly through the game.  Users can purchase anywhere from 21 to 700 reward points using their credit card or PayPal account, or they can complete one of the various partner offers in exchange for reward points.  The reward points can in turn be used within the game to refill their energy, stamina or health, or even to upgrade their skills.   

Microtransactions are also quite common in virtual worlds and even online multiplayer games outside of social networks.  Basic levels of access to these services are generally free but the user is presented with opportunities to customize their experience by upgrading their avatar through the purchase of new clothing, vehicles or even living accommodations.  In the case of online multiplayer games, users may be presented with the option to purchase an upgraded weapon, armor or other digital item to help them progress through the various levels within the game. 

Of key importance to the application developer when employing this particular pricing model is to make sure that they make it easy for consumers to purchase virtual goods from within their application.  Developers must keep the user within the application whenever possible or help them easily navigate back into the application if an external partner site is used and minimize the number of clicks or steps that the user must go through in order to complete the transaction.  Generally speaking the more difficult it is for consumers to buy virtual goods from within your application; the less likely they will be to complete the purchase or make additional purchases from you in the future.   

I should note that not all consumers like the idea of paying for digital content within applications.  In some instances, consumers may feel that they are being forced to pay for elements that should have been free or included in the original price of the application in the first place, and may perceive the developer as being greedy.  To help avoid situations like this, developers should ensure they are providing a complete, fully functional and gratifying core experience within their application and that any virtual goods being offered for sale represent an unexpected bonus and/or would have taken a long time to earn through typical use. 

I hope this has helped you to better understand this pricing model and how it can be used to help monetize your own application.  Stay tuned to the MOTODEV Blog for details on additional mobile app pricing models.  

If there are any other pricing models or app pricing topics that you would like us to cover, please comment on this blog post.