Does it pay to offer a free app?

That’s the question Stephen He, assistant professor of marketing, is exploring in “Speaking for Free: Word of Mouth in Free- and Paid- Products Settings,” recently published in the Journal of Marketing Research.

He, in collaboration with Wen Wen of the McCombs School of Business at the University of Texas at Austin and Samuel Bond of the Georgia Institute of Technology, examined two questions. First, are consumers more or less likely to share word-of-mouth for free products vs. paid products? Second, how and why do sharing motivations differ across the two settings?

“Nowadays, consumers are more empowered compared to 20 years ago when you’d say something bad about a product and no one would know. If you’d say something good only those in a close circle around you would know about it,” He said. “Now, you can easily blast a product online and it can easily go viral, and the companies worry about these things.”

To do so, He and his fellow researchers used more than 5,000 applications available via both Google Play and iTunes.

“We also tried to replicate our findings in the lab using a more controlled setting,” he said. “In the real world, people can purchase many different apps, but we were able to control what people would see and use in the lab setting so that everybody would see the same thing.”

Results show that consumers who download free mobile applications are more likely to give it a word-of-mouth boost than a product they purchase.

The reason, He said, is that consumers tend to feel that one good turn deserves another.

“If you make something free, people feel they were indebted so they need to pay back the developer in some way. If you pay for the app, you feel it’s a fair transaction, and if you have people watch ads, people also feel it’s fair because they’re watching ads.”

Offering apps and games for free has become increasingly evident in the markets for online service providers.
The vast majority of mobile apps are available at no cost.

However, free isn’t always free.

Oftentimes, “free” apps include advanced paid, premium features, which He refers to as “freemium.”

“The business model could be, like in many games, you have some very minimum gaming experience if you have the free version, and that gets you started into the game,” He said. “Then you can maybe buy a few more extra lives or extra equipment.”

In other cases, those free apps tend to include numerous advertisements in order to provide the content for free.

The developers need to be cautious how these free vs. paid features are set up and how ads are displayed.

“Having people pay for additional features is an economic burden, while having ads may cause a psychological burden," He said. “Salient exposure to these burdens might reduce people’s tendency to spread word of mouth.”

The good news for developers, however, is that consumers are sometimes insensitive to costs of additional features and non-monetary costs.

“The additional word of mouth triggered by free-pricing can attract a lot more people to adopt the product,” He said. “If you were to have 100 people adopting a paid product, word of mouth might increase the use base to 400. For a free product, you might end up with 700. If you make something free, although your profit may take an initial hit, the word of mouth you trigger can increase the user base dramatically such that you may have other ways to profit from the product later on.”

Of course, a free app also helps to lessen the disappointment if it doesn’t meet their expectations.

As app-based programs grow to be even more popular, He’s research will have plenty of room to grow.