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  • Luisa Scherer

Freemium x Premium Apps: how apps earn money and how that affects kids

Updated: Jun 19, 2023

The mobile apps industry is constantly changing and growing, and one of its most important target audiences is children. Today we are going to talk about the differences between two app monetization models that can make all the difference in terms of content and kids’ lives: the Freemium and Premium (or paid) apps.

What is monetization?

Monetization is the strategy used by apps to earn money. There exists a number of app monetization methods:

  1. Paid apps: you pay for the apps and all of their content once. They are free of advertisements. 

  2. Subscription apps: you pay for the app periodically. It may be every month, every semester, or every year. Apps that use this strategy release new content and updates regularly for their subscribers to enjoy. Most of these subscription apps are also free of advertisements. 

  3. Freemium apps: the app is free, but there are in-app purchases. The items for sale can vary between game packages, extra lives, books, effects, workout programs, etc. They may contain ads. 

  4. Advergames/Big brands apps: many brands make their apps and content available, completely free. When this happens, the app is in itself the brand’s advertising, and therefore it makes no sense for this type of app to advertise other brands. 

  5. 100% free apps: apps that make all their content available for free. Monetization occurs through ads shown inside the app. In other words, advertisements appear at the end of each stage, each video, after a number of minutes, etc. It is common for the user to be able to skip the ad after a few seconds of having watched it. Sometimes the user receives app rewards for watching the ad (rewarded ads).

Remember: nothing is free on the internet. You may not have pulled out your wallet and spent money on any apps, but you always pay in some way.

Why are free apps not recommended for kids?

Free kids apps monetize through advertisements. Even though the apps themselves make an effort to ban certain types of advertising, mistakes happen. For instance, we have seen ads for alcoholic beverages being displayed on certain kids apps that we knew had this type of control.

Kids can only start to understand what is an advertisement around the age of 8, according to Common Sense Media. Before that, they consume it as normal entertainment content, that is, without any filter. 

Advertisers know that the earlier children learn about a brand, the bigger the chances are that they will buy the product later (or beg their parents to buy it). The exposure of kids to advertisements can stimulate the craving for excessive stimuli, non-balanced diets, and, mainly, consumerism. 

Freemium Apps

Free apps can also offer in-app purchases. This is a common practice and it is possible for this type of app to contain ads or not. They are called Freemium: a mixture of free and premium, the latter of which brings to mind the idea of quality. 

These apps sell extra lives, some type of help to level up, clothes and fashion accessories to customize characters, gifts to give to other players, and so on and so forth.

The problem is how this “trade” is made. In many apps, it is not clear that the purchase is real, that it requires real money, and that it is charged directly on the parents’ credit card. It is common for kids to think it is “make-believe money” and simply part of the game, and then they buy several items because most of them don’t require any type of parental control, password, or gates for the kids to ask their parents’ help. In this video, it is common for children to make in-app purchases unknowingly, especially kids who don’t know how to read yet. 

Another common practice of this type of app is the “impossible levels”, in which players who are already hooked by the game are not able to progress until after a certain amount of tries. This happens on purpose and it is manufactured, akin to some casino slot-machine practices. The only way to level up is to buy items that help. This purchase can also happen through ads, such as for instance: “Watch this ad and earn a power-up”. 

Loot Box

Loot boxes are one of the items sold inside these apps. Loot boxes are surprise boxes with items that can be used in the game. When you buy (or is gifted) a loot box, you don’t know what is inside. That is: many children buy loot boxes in the hopes of finding a rare item, but these chances are minimal, and most of the time the rewarded items are cheaper and more common than the loot box itself. 

This mechanic is the same as the one used in slot machines in casinos: they are addictive and present in many popular kids games. 

Even if many freemium apps don’t have advertising, they were designed for the player to spend as much time as possible inside the app. That is, the content it delivers is addictive.

Therefore, even though the player has no more lives or has reached an impossible level, the game uses mechanics and tricks that induce the user to buy extra life packages and hints or even to watch an ad in exchange for a life. 

Data usage

And if you don’t identify the free app that your child uses in any of the options above, it is because it is collecting data. All apps take data from their users, do not be fooled, and for two reasons: improving the app itself and its usability and using this data for marketing purposes. The second option is what practically every “100%” free app does to its users’ data.

But what is this data?

The data that apps collect is about how much time you spend on the app, where you click, how much time you spend on each step, which of the app’s content you consume, and during which time you use it. If there are ads inside the app, it is also possible to know which kind of ads you watch in its entirety, which ones you skip, and how much time you spend on each ad, etc. There is so much data it is hard to create an exhaustive list of all its possibilities.

After all this information is collected, algorithms can create a profile for you: your preferences and what you like to see; the times that you are on your phone, that you take your meals, that you study or work, and that you go to sleep; if you like football, which films and TV shows you watch on TV, etc.  

All of this is sold so that other companies use you as a consumer. Your profile is sold for companies to show you advertisements because your interests match the products they sell.

This can be quite troublesome since most people don’t know where or for what purpose their data is being collected. But the main point is: kids have no idea what that means. And, for that reason, kids apps are forbidden from using personally identifiable information (PII) from kids under the age of 13. 

In practice

In order to deceive this system, many apps don’t call themselves kids apps so they can use this data, even though they know most of its audience are kids. They wash their hands of their responsibility and affirm the app is not recommended for kids under 13 despite all the language, design and themes of the app being children-oriented.

These companies use this data to sell advertisements. What happens to children is that they are then bombarded with ads chosen for them based on their tastes, age, gender, toy preferences, colors, bedtimes, extracurricular activities, etc. And we know that kids don’t take in these ads the same way as adults — it’s a much more violent and dangerous content for them. Beyond that, there is practically no regulating body to supervise these advertisements, specially here in Brazil.

Why pay for an app for my kids?

Many kids apps are changing their monetization strategy so the user needs to purchase the app. There are currently two common methods: one that charges by the app itself (Premium apps) and another that charges by subscription. The former charges you only once when you download the app in the app store. Usually, you pay this one-time fee and are given access to all available content, but there is no new content after that, only updates to fix possible bugs. 

When the app is subscription-based, you download it for free and only inside the app are you going to purchase its content by subscribing to one of the offered plans. Plans can charge you once by month, semester or year. The purchase is made after you have entered a password and gone through parental gates and “adult” screens that don’t catch kids’ attention, that is, it is very difficult for children to subscribe by accident. 

Subscription-based apps usually offer a free trial period for the child to experiment with the app and for parents to decide whether it is worth the investment. Since it is a monthly investment, subscription-based apps are always updating the app and providing new content for their users.  

Other benefits

These two models are free of advertisements, that is, children’s data is not commercialized. Does that mean these apps don’t collect data from my kids? No, that is not what it means. These apps do collect some data from their users, but this data is not sold for monetization purposes, so that more “assertive” ads pop up for your kids. 

Paid apps use user data to improve the experience inside the app. For example: it is through this data that app developers can identify bugs, or when an important button is not communicating what is necessary because it is not being used. Since these apps do not contain advertisements, the data never leaves them. 

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