App Developers Embracing Subscription Model

Earlier this year we wrote about how Android users are not buying apps. Earlier reports also stated that iPhone users buy more apps than Android users. Well, a Gigaom article suggests that those numbers are changing, but with a twist. According to the article, which cites data from Distimo, in-app purchases account for 72% of the revenue from the App Store, and a significant number of in-app purchases are being made with free apps.

I think it shows that iOS developers are moving towards a model of increasing revenues by selling content and features within their apps. You might install a free game in the App Store on your iPhone and be able to play the first ten levels, but pay a few dollars to play additional levels. It is possible that in the future we might only be able to buy only a few apps, with most the apps available for free with in-app purchases.

It is ironic that this subscription model of software sales is being embraced now with smartphones because desktop computer software companies have been trying to move to a subcription model for years. The difference is rather than charging a yearly fee for a new version of an app like Microsoft Word, smartphone developers are charging fees for additional functionality.

The important thing, however, is that the cost of in-app purchases is much lower than the yearly renewal fees some software companies charge. I wonder, given that the newest version of desktop OSes from Apple and Microsoft have taken on features introduced on smartphones, if in the future we’ll be able to buy a base version of an app like Microsoft Word for $20 or less and then pay nominal fees to add functionality when it is needed?