An app ecosystem involves an app distribution platform through which app publishers and users transact with each other. These two sets of players’ decisions are interdependent on each other’s: users decide to download apps and publishers decide to offer the free, paid, or both versions of an app. App publishers should deepen their understanding of app demand dynamics and complex interrelationships between the free and paid versions to strategically manage app versioning decisions and improve their apps’ profitability over an app’s lifetime
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Lee, Seoungwoo, Jie Zhang, Michel Wedel (2021), “Managing the Versioning Decision over an App’s Lifetime,” Journal of Marketing.
The authors investigate app publisher’s decisions to offer the free, paid, or both versions of an app over an app’s lifetime, by taking into account the interplays between the demand for the free and paid versions and publishers’ consideration of future profit streams. Their empirical analyses are based on a comprehensive model of publishers’ versioning decisions calibrated on a dataset of 584 top-downloaded apps on Google Play. They find contemporaneous cannibalization but positive inter-temporal cross-effects on new users’ demand between the two versions. In addition, the free version’s active user base and in-app purchase and advertising revenues are reduced by the presence of a paid version, but not vice versa. Among the three options, offering the paid version first is the most common optimal launch strategy and applies to 40% of apps in the data. The evolutionary patterns of optimal versioning decisions vary by app category and are related to apps’ abilities to monetize different revenue sources. This study provides insights on how to strategically manage the versioning decision over an app’s lifetime and shows how publishers can make their free version apps more profitable via the deployment or elimination of the paid version.
Special thanks to Holly Howe (Ph.D. candidate at Duke University) and Demi Oba (Ph.D. candidate at Duke University), for their support in working with authors on submissions to this program.
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