How Do Free Apps Make Money? 7 Business Models Explained

You wake up and check WhatsApp. You pay a shopkeeper using PhonePe. You watch a funny video on Instagram and play a quick game of Ludo King on the bus. What do all these apps have in common? They are completely free to download.

This brings up a very important question: If these apps are free, how do the companies pay their employees, rent servers, and make millions of rupees in profit?

Many people think app developers just make apps for fun, but the truth is, “free” apps are some of the biggest money-making businesses in the world. In India, where people love free services, companies have found smart ways to earn without charging you a signup fee.

Here is a simple, expert breakdown of how free apps actually make money.

1. Advertising: The Biggest Money Maker

This is the most common way free apps earn revenue. Just like TV channels show commercials during a cricket match, apps show you ads while you use them.

When you see a banner at the bottom of the screen or a video that pops up between game levels, the app developer gets paid.

• Cost Per Click (CPC): The app earns money every time you click on an ad.
• Cost Per View (CPV): The app earns money just because you watched a video ad.

Indian Examples:

• Free Mobile Games: Apps like Ludo King or Subway Surfers show video ads to give you an “extra life” or “coins.”
• News Apps: Apps like Inshorts or Dailyhunt display sponsored posts or banner ads between news articles.
• YouTube: Before you pay for Premium, you “pay” with your time by watching ads.

2. The “Freemium” Model (Free + Premium)

This is a mix of “Free” and “Premium.” The app gives you the basic features for free forever, but if you want the “VIP” experience, you have to pay.

This strategy works very well in India because it lets users try the product first. Once users get used to the app, they often upgrade to remove restrictions.

Indian Examples:

• Truecaller: The basic caller ID is free. But if you want to see who viewed your profile or remove ads, you must buy the Premium plan.
• Spotify: You can listen to music for free with ads and limited skips. To listen offline and without ads, you need a subscription.
• LinkedIn: Making a profile is free, but messaging people outside your network requires a paid plan.

3. In-App Purchases (buying “Virtual Goods”)

Have you ever bought a special outfit (skin) for your character in a game? Or bought “gems” to speed up a process? This is called an In-App Purchase (IAP).

Even if only 5% of players spend money, the earnings can be huge. In fact, a recent report showed that 75% of Indian gamers now spend money on in-app purchases. This is becoming one of the biggest revenue sources for gaming companies.

Indian Examples:

• BGMI (Battlegrounds Mobile India): The game is free, but players spend crores of rupees buying “Royal Passes” and character outfits.
• Dating Apps: Apps like Tinder or Bumble are free to swipe, but you pay to “Boost” your profile so more people see you.

4. Transaction Fees and Commissions

This model is popular with service apps. The app acts as a middleman connecting you to a service. The app is free for you to use, but they take a cut (commission) from the business you are buying from.

Indian Examples:

• Zomato & Swiggy: You don’t pay to download the app. However, these companies charge a commission (roughly 20-30%) from the restaurant for every order you place. They also charge a “platform fee” to customers now.
• Ola & Uber: The app takes a percentage of the fare from the driver for connecting them with a passenger.
• BookMyShow: They charge a “convenience fee” when you book movie tickets.

5. Subscription Models

Unlike the “Freemium” model where you can use the app forever for free, some apps only give you a short “Free Trial” (like 7 or 30 days). After that, you must pay a monthly or yearly fee to keep using it.

This provides the company with a steady, recurring income every month.

Indian Examples:

• Netflix & Disney+ Hotstar: While Hotstar has a free ad-supported version for mobile, their premium content (like international HBO shows) is locked behind a subscription.
• Newspaper Apps: Top news sites often lock their best articles behind a “paywall.”

6. Selling Data (The Hidden Cost)

There is a popular saying in the tech world: “If you are not paying for the product, you are the product.”

Some free apps collect data on what you search for, your location, and your age. They don’t usually sell your name or phone number directly. Instead, they sell “anonymized” behavior patterns to advertisers. This helps brands show you ads for things you are actually interested in buying.

7. Affiliate Marketing

Sometimes, a free app will suggest another product or service. If you click that link and buy something, the app maker gets a referral bonus.

For example, a free “Budget Tracker” app might recommend a specific Credit Card. If you apply for that card through their link, the bank pays the app a commission.

Is UPI Free? How do Paytm and PhonePe earn?

This is a common question in India. Since UPI transactions are free for users (no charge for sending money to friends), how do these apps survive?

1. Merchant Devices: They sell “Soundboxes” and card machines to shopkeepers and charge a rental fee.
2. Loans & Insurance: They offer personal loans and insurance policies within the app and earn a commission.
3. Bill Payments: When you pay electricity or credit card bills, they may earn a small fee from the biller or charge a platform fee.

What Happens Next?

The “Free App” economy in India is shifting. As users become more mature, apps are moving away from annoying banner ads and toward In-App Purchases and Subscriptions.

Read More : Is Artificial Intelligence Really Smarter Than You? 

You will likely see more “Micro-transactions” (small payments of ₹10 or ₹20) for specific features rather than expensive monthly plans. Also, with stricter privacy laws, apps will have to be more careful about how they use your data to make money.

Frequently Asked Questions (FAQs)