The examples Kopelman used in his original post weren’t just any old consumer businesses. Hall’s experiment highlights the real power of the Penny Gap. The switch led to a 300% increase in overall revenue, even though 97% of users didn’t pay anything to use the app.
WHATSAPP PRICE UPGRADE
When Hall switched the app to free, he added in-app purchases by way of a “pro” upgrade that provided workout tracking and customization. The app’s revenue was also impacted by the shift from paid to free. It became the #1 fitness iPad app in 68 countries and the #1 fitness iPhone app in 49 countries. Within three days, the app’s downloads had grown to an average of 72,000 per day, or around 2,500 times what they had been for the paid app.
WHATSAPP PRICE FREE
After letting the app run as paid for a few weeks (he sent out press releases with promo codes and added iPad support, with minimal effect on downloads), Hall decided to make the app free to see what would happen. Hall observed the power of free when he built a very basic 7 Minute Workout App. In what he refers to as An App Store Experiment, Stuart K.
WHATSAPP PRICE FOR ANDROID
The numbers are similar for Android apps, with just two pay upfront games out of the 120 highest grossing games on the Google Play store. Out of the 100 highest grossing, only five use pay upfront models. On Think Gaming’s list of the highest grossing games, out of the top 50 games, only one - Minecraft - is a pay upfront app. In the years since Kopelman coined the Penny Gap, this reality has been compounded and magnified in the mobile space thanks to App Store distribution and the massive number of users on platforms like iOS and Android.Ī quick look at revenue for top grossing iOS games highlights the effect of the Penny Gap. In the world of mobile, this lesson may be more important than ever. Acquiring customers for a paid product with a low conversion rate can be expensive, while monetizing free users through ads is relatively easy.
WHATSAPP PRICE FOR FREE
He went on to assert that sometimes offering your product or service for free is actually cheaper for consumer businesses. When compared to their legal, paid competitors, free music sharing services Napster and Kazaa weren’t just incrementally better - they were exponentially bigger, suggesting that the relationship between price and demand is more complicated. To support this claim, Kopelman pointed to breakout hits of the time. The truth is, scaling from $5 to $50 million is not the toughest part of a new venture - it's getting your users to pay you anything at all. The Penny Gap, according to Kopelman, can be understood as follows: But that doesn’t account for the massive gap between unpaid and paid products, or the power that dynamic holds for growing a consumer business. Most entrepreneurs assume that the cheaper a service is, the more people there will be who are willing to pay for it. Kopelman pointed out that while lower prices generally create higher demand, there is a unique phenomenon that occurs between free ($0.00) and paid ($0.01). In this article, we explain why, and how this knowledge can help your company and apps succeed.
And while WhatsApp built an incredible product that solved a real need, their understanding of the Penny Gap may have been their shrewdest product move of all. Years after the post was written, WhatsApp used a novel approach to solving the Penny Gap while creating one of the fastest growing mobile networks on the planet. Instead, he suggested that price affects demand to a point, but the relationship is far from linear - there is a gap between free and any other price. He argued that most entrepreneurs misunderstand how subscription pricing works and assume that as price goes down demand goes up in equal measure. Seven years ago, First Round Partner Josh Kopelman wrote a seminal blog post on the importance of free services in consumer-facing business models.
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