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In-App Purchase Revenue Growing as Developers Adopt “Freemium” Model

Many developers build iOS software hoping that their app will be the next Angry Birds, but they struggle at what price to sell it. A free app can bring downloads but your pockets are still empty. Maybe you should consider adding in-app purchases to your app, no matter the base price. Distimo has released a new report that suggests that in-app purchases are the way to go if you want to make money in the App Store. In-app purchases account for 72% of revenue, improving from 28% at this time last year. Here’s another stunning number, only 4% of apps in the App Store even offer in-app purchases.

Freemium apps (free to download, but require an in-app purchase to expand the app) are growing particularly faster in the in-app purchasing paradise. Free app downloads have increased by 34% since 2010 while paid downloads only grew 7% in the same time frame. Distimo’s research only covered the Top 200 in each category, but that’s a strong selection of the App Store’s money makers.

Freemium apps made up 48% of total App Store revenue while paid apps with in-app purchases accounted for 24%; the remaining 28% came from paid apps. If you look at the top grossing apps for the iPhone (iPod Touch) and iPad App Stores, freemium games take up several spots. Freemium apps also account for 65% of the Top 100 grossing games in the US App Store.

Besides games offering in-app purchases, comic apps are also making waves, especially in the iPad App Store. Magazines are one more category that is taking advantage of the freemium pricing model.

GigaOM didn’t envision this exactly back in February when Apple let in-app subscriptions into the stores. “Essentially, it looks like more and more developers are embracing the idea that making recurring payments an attractive option for App Store shoppers is the key to coming up with a sustainable business model. Apple’s isn’t the only store where developers are figuring that out, either. In-app purchases are already in use by 68 percent of the 25 top grossing Android apps, despite only being introduced in March of this year.”

Could we possibly see the day when there aren’t “regular” paid apps in the Top 300 grossing list? What do you prefer as a user – a one-time fee to buy the entire app, or having to keep putting quarters into your Apple arcade machine? [via GigaOM]

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