How Do Free Apps Make Money in 2018?

We use smartphones for essentially everything. The number of apps with rich functionality is growing every year which leads to harsh app market competition among developers.
As of 2018, there are 3.8 million apps on Google Play and 2 million in the App Store. The market is huge and worldwide app revenue is expected to increase to almost $190 billion by 2020. According to Statista, the top grossing apps are all free of charge.
Nowadays, users have become picky and usually have only 4-9 daily active applications.
From 5 to 10% of users are willing to pay for an application with high quality and performance and specific functionality. That is why, the majority of downloads and profits (98%) come from free apps.
Developing a free app for your business is a wise action to do. The next decision is to choose your free app monetization strategy correctly.
Do you know how free apps make money?
In brief, free applications make money from one of the following 8 most well-known monetization strategies:

Advertising (banner ad | video ad | native ad | interstitial ad | incentivized ad)

Referral marketing

In-app purchase & freemium model

Subscription model

Sponsorship

Crowdfunding

Email marketing

App merchandise & e-commerce

App Monetization Strategies of 2018
Google Play and Apple App Store don't pay for app downloads, even there are millions of users who completed this action. Instead, they take some share from an app’s earnings (30% from in-app purchases).
That is why, to get money from a free app it is vital to set up revenue streams. The most effective monetization method in 2017 was the use of rewarded video ads. Because this is a win-win strategy for an app provider and customer, as once the user watches an add, they receive points and app bonuses.
So, let's take a look at how to make money from mobile apps:
1. Advertising
Nowadays, mobile ads are the easiest and most widely-spread way to receive money from a free app. 7 out of 10 apps have embedded commercials that generate payments per its display (per impression), per click, or per install.
There are 5 different ad variants to utilize in a mobile app:

App advertisement is the most popular app revenue stream, but this has begun to annoy and irritate customers. Thus, this massive use of ads has become ineffective, because less than 20% of users click on them. Besides, this monetization strategy can be effective only with apps that have a large pull of users, not for a startup project.
2. Referral Marketing
Referral marketing is connected with the previous model of in-app advertisement to monetize your app. There is even a separate direction in marketing - affiliate marketing. Informational content about an affiliate company is placed in the app and, based on clicks and installs, you receive rewards. These rewards are based on a cost-per-action (CPA) model or revenue share.
You can use the referral marketing model in the following ways:

promote another application

in-app advertisement

advertise products or services via in-app-store

You can find many affiliate network companies (AdMob, Flurry) which specialize in finding a suitable affiliate for your application. Different software programs and tools can help you to integrate this model.
Free apps can make money without ads. There are 6 more monetization tactics, which include:

In-app purchase & freemium model

Sponsorship model

Subscription model

Crowdfunding model

Email marketing

App merchandise & e-commerce

3. In-App Purchase & Freemium Model
A very popular strategy used in the freemium app model is in-app purchasing. You can sell virtual or physical items, offer premium functionality or bonuses, block ads, or open new app content. Such transactions are controlled by the app store and the owner gets a commission from every trade.
This model is only possible and profitable for top apps which have many users. Such system has complex payment system development and integrations which are harder to implement. Besides, a disadvantage of this model is the high commision fee (30%) taken by app stores. A freemium app model has two app variants - light and full, and a user may only use the free version.
4. Subscription Model
This model sets up revenue streams from the weekly, monthly, or annual fees for a specific service provided by the free app. It is mostly used in cloud services, audio and video content providers (Spotify, Google Music), and digital news portals. According to the chosen subscription plan consumers receive access to the content.
It is vital to have resources and detailed content strategies to give fresh, up-to-date materials to keep up with competitors and guarantee a high level of subscriber services.
5. Sponsorship Model
It is a profitable model to make money from a free app by getting a sponsorship. This type of model is usually available for developed apps that already have regular users. Applications with a specific market niche get the most benefits. In such a way, you may contact sponsors in the same industry to match their brand with ads, information in the app, or adapt the app design to the brand.
Two primary sponsorship deals:

Equally divide revenue from the app

Set a monthly sponsorship fee

Only if you have a specific niche and unique app idea this model works well. Although, even with the right app and niche, it is hard to find a proper sponsor.
In this article you can get full information on how free apps make money