Why Are Some Apps Free?

A Quick Guide to App Funding

Think of the apps you already use daily and consider how they’re paid for. There are predominately six main ways of funding apps, Replacement, Advert, Enabler, Miner, Purchase and Subscription.

Your banking app for example, isn’t free, but it is a Replacement cost, paid for by the bank themselves as part of their customer contact strategy. The more people using their apps for simple transactions and balance checking, the fewer people they need in their branches and contact centres. Think of the millions that would need to be spent on preventing unauthorised access and misuse. Despite the significant cost of building the app and creating the necessary security measures, it actually saves the bank a substantial amount of money.

Other apps like TV on demand are often Advert funded. Like their broadcast programmes, it’s just another way for the TV channel to reach their end viewers – you can’t skip the ads to get on with watching your favourite shows, the ads are there and have to be watched because they pay for both the app and the content.

Many of the free apps that you use will be funded by advertising within the app, clicking on the advert is often not required, advertisers sometimes pay for just displaying the app. Its a similar situation if you go onto any newspaper website, there are often funded links out to other “news” articles, often “fake news” or “not really news at all” sites, with titles like “20 Most Amazing Celebrity Fails”, “20 Most Unbelievable Car Crashes” or whatever.

The annoying part is that every photo is on a different page, and to read any of the articles you usually have to click all the way through 20 pages to get to the end. There’s a specific reason for this though; 20 pages with 20 adverts on each means that for every person that reads the article, the website owner gets paid for displaying 400 adverts, whether they were looked or not. If the website can promote itself and get 10,000 people to read their article, they will get paid for displaying 4 million adverts. This is one of the major ways that people make money on the Internet, and often one of the reasons why anyone with a popular blog or YouTube channel is looking to build a strong list of subscribers. The more people subscribed, the more valuable their channel to potential advertisers, and therefore the more lucrative for them.

Because advertisers use very specific ways of targeting their intended audience, they can most likely choose which adverts to run in which apps. There will be certain companies aiming to advertise to 17 year olds, for example. Whatever type of instructor you are, whether a franchisee with a large national brand to a small independent, our guess is that you would not want to see ads for your competitors appearing at the bottom of your lesson diagrams, or perhaps when your pupils log in to PassRight. In our scenario, advertising simply will not work.

Apps like eBay are Enablers, they simply allow their users to engage when they’re out and about, rather than having to be sat at home “using the Internet” which most people think of as being in front of a computer screen. As eBay make a profit from every transaction they perform, the mobile app allows eBay to create more sales. The easier it is to use eBay, the more transactions from which they can earn a profit. Also, by creating an app, not only can they control the look, feel and performance better (as for example, all the colours, layouts and eBay logos are already installed on the device), but it also locks people into their site; by using the app, they’re not going to do a Google search for a product and find it on Amazon or Gumtree (unless eBay are getting paid to advertise it).

Data Mining apps make money by collecting user information, and usually selling it on to other parties, or getting some benefit from it. Schemes like Tesco Clubcard are able to offer worthwhile incentives, because there is a huge value to Tesco in knowing more about their customers, how, when and what they buy, and therefore how they can increase their sales to them. Apps like Shotgun for young drivers collect information on driving style and in this case provide Direct Line with valuable statistics about young drivers, as well as a detailed list of potential future customers (as well as possibly those they’d rather avoid!)

With the Purchase system, it is the money received from the sale of the app that creates the revenue stream, either the original app, or additional purchases within the app, such as new levels or capabilities in a game, or perhaps additional content, such as songs in iTunes. Obviously, there’s a limit to the number of instructors in the UK, so Driving Instructor app sales alone would never provide the level of income needed. For us, PassRight was originally designed to be the tool that paid for the whole system.

Many new drivers would previously have spent £10 on a book or DVD anyway, or got one for their 17th birthday. As there are about 800,000 new 17 year olds each year, by asking for just under a fiver from a large number of pupils, our aim was to use the ongoing pupil income to keep the price of the Driving Instructor app low.

From an app price of £4.99 we’d get just under £3.50, as Apple keep a portion that pays for the App Store, distributing the software, collecting money, etc. We get the benefit of having a shop that’s open 24hrs a day and runs automatically, while for you, the App Store provides the convenience of easy access to your apps, as well as free upgrades automatically downloaded to your device.

The last way of app funding is to have some form of Subscription. Although we’d initially wanted to app to remain subscription free, events over the last few weeks have highlighted how important it is that the company has the resources to be able to maintain the software to the standard required as a vital business tool, as well as the technical support to resolve issues quickly if they occur, as well as be ready with new ready-tested software versions every time Apple releases new updates of iOS software for your device.

We’ve had feedback from many app users (predominantly those who’ve been in the software industry themselves) that the app was too cheap to start with and that, knowing the likely costs involved, they couldn’t see how we would be able to sustain it. We’ve also had a number of instructors asking if there’s a way they can contribute financially in a small way in order to guarantee that we’ll still be supporting the app in the future, for example as Apple launch iOS 11 this year, and presumably iOS 12 next year.

Our plan is to start a subscription service from 1st November at £9.99 per month, which will allow us to set up a full service contract with Amsys supporting the app in case of any issues, and allowing us to address any problems much more quickly.

App users that subscribe before 1st November will have the chance to receive a 50% discount, not once, but every month. Join before 1st November 2017 and you can get it all for just £4.99. Click here for more details.

Initially the subscription will be set up via our website, however we’ll be using a company called Stripe which will allow us to integrate the payment system into the app at a later date. By setting it up as a subscription payment it will just run and renew automatically with the least amount of effort on your side.

We’ve spent a lot of time looking to see how we turn both the app and the company from a successful start-up into a sustainable long term business, and as you can see from the list above, none of the other funding methods would apply. In deciding to choose the subscription model we were keen to look at driving instructor finances in detail.

Considering an average working week of 36 hours, and the UK average driving lesson price of £24 per hour. After allowing for 4 weeks holiday a year means a turnover over £3,400 per month. In the scheme of things, we felt that under £10 per month wouldn’t be an unreasonable amount to pay, especially for what many driving instructors say is the most valuable training tool after their car.

Most instructors wouldn’t expect their driving school car to last very long if they didn’t maintain it, and similarly any iOS software needs regular maintenance to keep it running.

Imagine having a Fiesta over 3 years at 30,000 miles per year. Apart from the cost of leasing it, lets say £250 a month, you’d also have to set aside a significant amount to cover the other costs involved. Ignoring the most obvious costs, fuel and insurance, think of the other money you’d have to pay out over a 12 month period. With servicing every 12,500 miles you’d be looking at 2-3 services a year, as well as perhaps a set of tyres and brake pads. With £600 perhaps for servicing, and at least £300 for tyres & pads, screenwash and car cleaning, that’s £900 a year, on top of the car cost, insurance and fuel. As an ADI you’re most likely already budgeting about £75 a month to keep your car working as it should, and in the same way, the software also needs maintenance.

With strict software requirements from Apple to comply with, as well as regular iOS updates and new cyber threats appearing all the time, the cost of maintaining the apps is at least £25-30,000 per year, before any feature updates or new functionality is introduced.

The last year has shown some of the issues that can occur when resources are limited. With proper funding though, the app can help you promote your business, make you more effective in teaching new concepts, develop greater understanding in your pupils, and save time and complexity in record keeping. Its an exciting time, we look forward to sharing it with you.