Premium Freemium and Subscriptions - Games and Apps - A case study of differing App monitizations

I was developing a simple website in 2012 during my transition from old company to new company as part of problem definition and analysis I took the following notes, I were discussing the details with one of my friends and hence one might find his names as well

Problem: Many House owners in Banglore list houses for rent in Housing.com or Sulekha.com or any other websites but there's no mention about services near the house such as Restaurant, Laundry based on distances relative to house  

Solution: Portal similar to Airbnb.com but instead of the listings of the house we will be listing all the services associated with the Home

Company's Smart Application

Objective: To create smart internet or Mobile Application that helps the person to avail all the personal and household services associated with the house

The household or personal service may include several of the following which might be tough for a new person to find so we will list them all those in the map these are the following services which we might include

searching users which include the person searching for the desired service
Map based search engine where if an user select the House
Housing facility which can be categorized into several types like 1BHK,single room,2BHK,Paying Guest
Canteen facilities Listings: we will list all the canteens available near his/her/their locality(listings with the prices and phone no)
Maid facilities listing:These Include listing of all the maids that are available for the locality and the timings of those listed maids
Home delivery & House hold Shops Listing:-List of all the Household shops which deliver the goods to home
Cab facilities/Transport facilities: Includes all forms of transport listing ,public/private which are available for the home
Listings of Internet and other facilities available in the locality of the house
Laundry facilities: that are available for locality
Gym and fitness facilities listing:We will also register the Gym and other fitness facilities that are available near the selected locality
Hospital and other facilities listing:This includes all the hospitals that are available near the locality based 

Registered users
Once a person registers to services He will get early sms alert for paying the house rent, power bill and other bills for the house
If registered for the Canteen service sms alerts will go for the food timings of the canteen and the specialty of food for the day in the canteen
If registered for Maid facility:-SMS will go to the person if the maid is unable to come to house or if maid has made some new schedule
Cab/Transport:-If registered person chooses the CAB then cab arrival alert and the timings will be sent to the person, If public Transport then the timings of the public transport with best timings of departures are alerted to the user
Laundry facilities if registered include opening days and alert the user if it’s been too many days of not using the laundry facilities
Service user will be alerted of the Gym timings if he’s registered to the that
If sick is reported to registered hospital then the sms will go to the parents are dependents or any care of person who will know that I'm not feeling well 

Benefits: Increases the property value helps all the service industry to grow helps the new comer to explore things properly helps the service provider to retain the customers or helps him to get new customers
Business Plan : 1)Premium: Customers only: customers buy once get everything for a customer so company have to do the research hence it will be localized and business will be localized  -----OR--------
2)Freemium: Customers only: customers buy individual services as required and we unlock them free for certain time and users can subscribe to things they want and basic service is free for everyone ---OR------
3)Free for Customers:Advertisement based where we get money from advertisements and we get it as mixed model where the advertisement costs are split across the Home owner and service provider

So idea was great everything looks fine there are somethings I missed in the above pitch and before I go there I wanted to explain some concepts as follows

Apps in General 

For mobile apps or any apps in that matter, there are three dominant pricing strategies: Premium, Subscription and Freemium.

According to a report by app-store analytics company, Distimo, freemium now accounts for 71% of Apple AppStore revenues in the US, up from somewhere around 50% last year, and rising. In Asia, freemium is 90% of App Store revenues.

which of my strategy above is most optimal? What factors should I consider when choosing a pricing strategy?

Here is what these different pricing models mean, as applied to mobile apps:

Premium apps (or Paid apps) have an upfront price before they can even be downloaded. Similar to licensed software, except that the App Store makes all future upgrades to the premium app free once purchased.

Contrast this with Freemium (a portmanteau of “free” and “premium”), where the app is free to download and use. However, some features inside the app are unavailable until I pay for them. App stores make it simple for developers to charge small amounts of money inside the app.

Subscriptions are a regular fixed fee the user is charged automatically via the App Store for using the app. Magazines in the iOS Newsstand are usually subscription-based. Subscriptions can actually1 overlap with either premium or freemium models. For example, Cloud services requires me to have a subscription to even use the app (premium).

In-Ad Apps Ad-based business models are always viable if I can align the right intent of the users/consumers to an advertising market who are seeking those users in our app with Google Maps API it might have been the best aligned with what google was offering and what our apps can do from our customer knowledge base

Comparing this with Games

Premium - Only for the Rich

Perception is a large factor in how high a price is acceptable, and going premium helps create that perception. With premium, every user pays upfront, but the amount each user pays is fixed, regardless of how much utility each gets. Also, users have come to expect apps in the $2 – $5 range (a few niche apps can charge $10-$20) and there is no way to get higher ARPU.

In general, premium works in the following situations:

1. There is a strong demand for my app – niche areas where I am not a good candidate here.
2. I've have a strong brand already and can establish trust with users where they are willing to pay before they download the app(Nope I don't have it either).
3. There is not a lot of competition that will almost certainly drive the price down.Or I don’t care much about reach – which will be much smaller because of the “pay gate” into my app(again not in my case).
4. There are no ongoing feature or content costs that can drive up the average cost of of supporting a user to levels higher than what the user paid for the app(which is false again).

Freemium made million dollar games Industry

Freemium was popularized by casual games in Japan and Korea and has quickly become the winning model in mobile apps. It works really well in the following situations:

1. There is enough competition that users invariably have other cheaper or free options (low barrier to entry). This has been partly the reason for most mobile apps today moving to freemium.
2. When reach is important. I need large amount of users quickly to create network effects. Fo1r example, to drive virality or gather significant data.
3. When there are a small % of power users willing to pay significantly more than the other light users. The pay-as-you-go model facilitates this. Hard core users can drive as much as 100 – 1000 times more revenue than the other users. This is why some free-to-play games are reaching a $1MM per day revenue runrate.

More users in freemium, but a small percentage of them drive astronomical amounts of revenue.
The mobile app economy has progressed to a point today where all of the above usually hold true. Freemium does require some operational effort in managing my free and paying users, converting the former to the latter, and driving repeat purchases. However, this helps create a sustainable business rather than a one-time hit.

Subscriptions: the better alternative?

A subscription provides a guarantee of repeat transactions and hence, businesses with subscription revenues tend to be valued far higher. The subscription price is usually smaller than the one-time price to incentivize the user into a longer term commitment. As the seller, my make up for the discount by being guaranteed future transactions.

A single issue of The New Yorker costs $6, but a year’s subscription of 52 issues is $70. That is a 77% discount and is still better, revenue-wise, than selling individual copies. Of course, they make a lot of money through advertising, so a guaranteed customer in the future is far more important to them. This may not be the case in all businesses. Amazon gives me a ~15% discount to “subscribe” to certain household items.

But the subscription model does have a few drawbacks:

1. Like premium, there is a single price for all users, regardless of how much they use. There is a lot of money left on the table because hardcore users willing to pay a lot more cap out at the fixed price. There is some more money left on the table where the subscription price and commitment is too high for a large number of light users who will not sign up.

2. Tiered subscriptions does lets me set different prices, but still creates ceilings on both price and consumption. Netflix has a 1 DVD plan for $8, 2 for $12, all the way up to 8 for $44. The lost opportunity? (a) A user can only do 8 DVDs. There may be a few subscribers who want much more. (b) A $44 price tag for DVD rental has a sticker shock. It is easier to charge $5.50 eight times than to charge $44 one time.

So when should I use subscriptions? Whenever I can – subscriptions are considered the holy grail of revenue models, BUT it is important to make sure I'm not leaving money on the table just to get a subscription commitment from a customer.
The ideal pricing strategy

At the risk of over-generalizing, a combination of freemium + subscription would be ideal for most apps.

Not everything being sold lends itself to subscriptions. Impulse purchases typically don’t. For example, a power-up that will help me cross this level in a game, or an Instagram filter that makes this photo of mine look exceptional. In such cases, it is best to start with a freemium model and then offer subscriptions to my regular customers to drive purchases further. Content (magazines, music streaming, movie streaming) has more commonly been a subscription business. For these, it is a good idea to start with the accepted subscription, but remove any ceiling on purchases and consumption by offering more content that can be purchased in-app in addition to the subscription.

The mobile app economy is already large and growing even bigger.

Conclusion:- So what doyouthink we went for?
answer is In-Ad Apps:-As it were better as long as it were meant as a free service and our main objective was to monetize from ads of house owners and service providers