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Building an indie business in the center of venture capital. I am Alex Edmonds, also known as supremerumham, on the internet. And this is the building an indie business podcast. Okay. So today we will be discussing how free apps make money. I split this up into, like, companies and businesses and in the games, just because it's a little different between the two. So I'm going to be discussing freemium all the different ways that a company can make money or like software. Um, games, revenue reducers, and then my opinion. All right, so let's get into it. Um, so freemium. This is when an app is free, but then you can also upgrade to premium, so you can pay for the upgrade. Right. And then with the upgrade, you'll get extra features. Some will give you the app, access to a team account where you get on instead of getting just one user on the account you can get multiple users on the account. The next thing you might get is like support. I've seen some apps that if you're a free user, you can contact support if you need help. And then also, um, with freemium apps you might get more access, like, so let's say you're using five gigs of data, a month. And that's the limit for free app. Well, when you pay. You might get 10 or 15. Right. So that's our freemium apps make money. And then there's advertisement right. No, there's. Um, pay for no ads. And so some apps. These are mostly consumer apps, not a not business apps. They have ads on their platform. And they allow users to get rid of those ads. If they pay for the service, so they might charge yearly. I've seen something like $10, a year. Or it could be $7, a month. Right. So it all depends on the app and how the app, the company, and like, how much people are using it. Right. Okay. Um. Now, for b2b. So, if an app wants to make money from other businesses on the partner with a business so let's say for open podcast. I partner with caproni. Right. And caproni becomes like the official. What do you call it official podcasts hosting company of open podcast. Bernie could pay me for that. Right. And then there's integration. So, I'm I integrate caproni, and open podcast. And then I get paid for that. Or I'm like every time someone uses that integration I paid for that. Okay. And then there's enterprise pricing. Right. So, um, these companies know that when a another company wants to use their product that they want more than one user to use your product, maybe even like five or 10 or 20. So they price that more appropriately, you'll see on some pricing pages, it'll be like a free for one user $10 for a starter, and then enterprising call us. They say call us because they want to, you know, They have to discuss it with that company because they don't know the size. Okay. And then there's also more ads like ads or b2b. And so how the ads are done. Are their pay per click. That means they pay. So they set it up like, Oh, you, you're gonna pay, $1,000 right. And then, um, once they get 1000 clicks. That's when the bill is due or they pay in advance. And then once it hits 1000 clicks. That's when like it ends. Right, right. So, for an app. There might be a banner ads banner ad, which is like at the top or bottom of the app. Sometimes, there might be an app after or know an ad. After some point. Like, when you're doing a podcast app. And the person finishes, listening, and that might pop up when they open up the app to change the podcast, I've seen that. Right. Um, so, for ads, the advertising dollars that come from small advertisers and not in giant companies. This is because small companies can move a little faster and giant companies have to evaluate things so they don't really, they're not used to advertising online. And so they don't really do it like they'll spend money with the big companies, big social media companies but at to go like with an app that like is really niche is not really their. Um, their idea, or like there's less likely to do that right. Okay. So, um, now games. Um, so, the first way, a free game might make money is like a convention, or an event. And that way, they get people to buy tickets, buy food or drinks or whatever, which is high margin. As we discussed in the movie theater episode, and buy merchandise. Yeah, so tickets concessions merchandise out of it. Okay. And then, in these games. They offer people the opportunity to buy things. So, let's say you want to level up your character, or like give them the ability to create lightning and strike people down. You can pay for that. Right. It depends what kind of game it is right. And then they might allow characters to be customized. And so, a user can pay to customize your character, like the user might be able to make their character look like a king or something like that so they would have a crown in a robe. Right. So, yeah. And then some games. Use gamification. And what this is and how they do that is they use timers, and they give you a certain amount of lives in the game. So, you are. You have like let's say five lives a day. But when those lives run out. You can pay like $2 and have those lives, come back and you can play more, and they give you the timer to show you how long you have to wait. And that creates anxiety in users, and gets them to pay money. Right. Okay, another way, a game would make money is extra content. So let's record downloadable content. And it's like, it might be extra. What do you call it like extra levels in the game that a user can play. And it's exclusive right. Okay. So, a another one which I found very interesting, is in game advertising. So you might be playing one game. And let's say it's like a deserted airport. And that airport might have like ads, right, those ads. Um, they might be real ads that a company paid for, to have in the game. Right. Um, so yeah, that's another way I don't really have much to say about in game advertising. It's there though, so yeah. And then there's merchandise which is merchandise that's separate from the convention, or event. Right. Okay. Um, so, selling data on a lot of companies make money from the data that users have and how they make data or not. Tell me, you know how to make data users make data not companies arm. So how they make money from data is, they use the data to get more relevant ads, and the more relevant ads, lead to a higher ROI for clients, which means they'll pay more for money, or for the ads. So let me give you an example, and examples, let's say, I start my own social Oh no, open podcast is the perfect thing for this. Okay, so, um, I create my own forum for open podcast. And, um, I use that data to put ads. And I realized that there's a lot of discussion around microphones, right. So caproni is my is my client right now. And I realized that there are a lot of discussions around microphones and the caproni. The pruney ROI is maybe let's say 2%. But there are a lot of discussions around microphones. And so, I seek out a microphone company, and their ROI turns to $10, right. So, or no, not $10 10%. So, um, I charge more for the ads like let's say I charge them. $10 for the ad the first month, but since the ROI was so high I charged $20 a month. Right. So that's how I'm free apps make money from selling data. It's not like they're actually selling the data. They're just creating information they're mining the data to make more money from their current clients or get new clients. Right. Um, okay. So, revenue reducers. Um, there's always things that will reduce a company's revenue. Um, okay. So, competition. This is one thing that will reduce revenue it's not like, it'll directly reduce your revenue, but it's a huge one for free apps. So, competition. It takes away people from using your app. Or maybe people might stop using your app altogether for a new one. And this is because there are hardly any switching costs. I can go from one game to another, or one form to another beat, and I could do it easily. And there's no sweat because I didn't really pay for anything right. Um, yeah. That happens all the time Look at all the social media apps. Okay. Um, transaction fees for monthly subscribers is another revenue producer. So, um, when someone makes a purchase on the app. They have to go through the store, and the B stores like on these apps like on iOS or Android. or, I guess. Microsoft Store. They, they charge a fee for the transaction, and that uh that will reduce the amount of money that they make. On the sale. Right. So yeah, that's the last revenue, producer, okay, opinions. So, um, that for like the past five years, cryptocurrency has grown in popularity. And there are a few cryptocurrencies that emphasize like micro payment. Like, felt give or know someone, someone could buy the crypto currency or mine it, and they can give that the cryptocurrency or that cryptocurrency is specialized in micro payments. So, a cryptocurrency, or a person holding that cryptocurrency could give us some other coins to a, a free app, because they appreciate using that using the app, right. So, I'm a micro parent now if free app can emphasize, like, they can promote a new cryptocurrency so that people would buy it or mine it, and then give it to them. So, free apps can benefit from the cryptocurrency and micro payments that are growing in value rate, or popularity. Okay. Um, and I think the value of data, is that the amount of data that is your is created every day, on a platform that. That's where they make their money in the growth of the data, because the more data there is, the more information, they'll have and the more they could use to better their ads right. Um, so that's the value in the data the fact that it's growing, and that more money can be made from it, not the actual data itself, that's just my opinion. Um, free games will continue to grow. So, there's been fortnight. And that has been very popular. But I think, for now it's just the start of it. Some companies will now decide to make their games for free. Instead of having users pay for it, because it creates a sense of psychology, like with the airlines. You're getting and a game for free, and it's usually 60 to $80. So, um, a kid, let's say, or someone who's used to paying six to $8 on will be more likely to spend money on customisations and other things because they got the game for free, and not paying 860 to $80 or subscription. And I think especially a subscription, because that's every month, and it's more you think about it more. Right. So, it might be like five or $10 but that's every month, and that five or $10 could maybe lead to the 60 to $80 or more. Right. So that's something to think about. Okay. I think the best way to advertise to users is in game advertising for games. And this is because it doesn't stop the consumer from playing the game. Right. Unlike with the pop up ads, or the banner ads. And so, you still get that data and make money from it. Right, so that's cool. Um. Um. Another thing about in game advertising is that when a user views an ad of any sort, like a banner ad or like a video at the end of their live or session or whatever, on your forehead forcing them to pay for that. Right, because they pay when the data is downloaded. So within game advertising, you don't arm, the user doesn't have to pay for that. It's already rendered in the game. Right, okay. But what the one interesting question that I have and I couldn't really find is that, um, how is the ROI measured. So like, let's say, I put an ad out in fortnight for open podcast. Um, how do I know that people are seeing the ad in fortnight. And they are coming to open podcasts after that. How is that measured. And then, yeah, how effective are the ads on free apps. Great. That's another question I had, I guess, they are effective and because people keep doing it. So, yeah. Okay. And then for social media just in general. I've never bought something after I see it on social media. Like I see a lot of alcohol ads. And I don't drink. So you're not getting me on that. Right. Um, and especially on social media are some ads there on the platform, right there they're integrated in the platform so like when you're scrolling, you're scrolling with ads to what you're paying for. Just saying. And they're hard to differentiate between content and ads. So that might reduce the amount of ROI that a company gets because it's um you know it, you don't notice it as much. Okay. Um, in the case of freemium. It has one problem, and that it's easy to work around having to pay more money to use the platform. And this is because if it's based on data, right, like let's say it's based on how much photos I have stored. I can just delete the, the photos that I don't really care to store right and then go back to the freemium model, or like it's. Let's say it's five gigs. And I have like 4.5, if I don't get a gig, then I can just keep using it for free, and I can keep doing that over and over. Right. So, um, so some apps might have customers that are more valuable. Or let's say, a game user for a game company, a free game company might find more value in the, the person that pays every month or every year for free ads, then a free player, because a free player might move on after a couple of weeks, and they might not even reach the lifetime value of a paid player. So I kind of did the math here. And if they get five cents a click on an ad. That means the arm 2020 clicks for $1 and 200 clicks for $10. Someone paying $10 a year will give a game more money than a free user clicking on ads, because it's more likely, or like, like the, the $10 is more guaranteed from the paid user, then the free user, because they might not even reach 200 clicks, because that might take a couple of weeks or months, and then the free user might have moved on. By that time, but since the person that pay for the game. Probably is more invested than the free user. So they might use it for more than one year they might use it for two. And that's more. It's a greater lifetime value for someone for the company right for the free game. So yeah, that's all I have for this episode. Thank you for listening. Have a nice day. Bye.