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Chapter I. Introduction
1.1. Research Background
Since Apple introduced iPhone in 2007 and HTC introduced several Android-based phones started from year 2008, smart devices have taken down the world steps by steps. In year 2013, worldwide sales of smartphones surpassed sales of feature phone devices for the first time, according to Gartner’s latest market estimates on February 13, 2014 – with 968 million smartphone device units sold to end users in 2013 out of a total of 1.8 billion mobiles sold.
The adoption of iPhone, Android-based smartphone, iPad and other smart devices are booming the development and usage of mobile applications (To be short, I will called it “Apps” in the following paragraphs). Furthermore, it is driving the App revenue. According to the report from App Annie, a mobile analytics company, and IDC (International Data Cooperation), the massive growth in smart handsets have dramatically expanded opportunity to reach consumers which also means the chances of gaining cash flows have also increased. In other words, App revenue growth is driven by gains in device adoption and revenue per device (See Figure 1).
Figure 1: App revenue growth (Source: App Annie and IDC)
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Although there are many players in the market, Apple’s iOS and Google’s Android system are the biggest players. Each player in the market runs its own digital distribution platform for Apps. For example, Apple runs “App Store” and Google held “Google Play” (Formerly, the “Android Market”). Other than Apps, these markets also include music, magazines, books, movies and television programs. In year 2013, both Apple and Google announced that the number of Apps in their stores has reached over 1 million Apps published and over 50 billion Apps have been downloaded according to The Verge and PhoneArena, websites for technology news and media networks. Table 1 shows comparison of these two markets.
Table 1: Comparison of App store and Google Play
App Store Google Play
Icon
Numbers of downloads Over 50 millions
Numbers of published Over 1 millions
Market share
Quarterly Revenue
(Source: TechRpublic)
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their products. Apps with this type of profit model are usually referred to as “Paid Apps” since the customer would need to make purchase if they want to use the App continuously after the trial. This type of business model has traditionally been used in PC software industry. Another business model is in-App purchasing which is a more innovative model nowadays. It allows users to acquire the App for free and then purchase bonus feature as they wish. These Apps are referred to as “Free Apps”, also called the “Freemium”. Purchases made in a freemium App are not a traditional one-time purchase. They are small but continuous purchases.Therefore, the model is potential in creating a more consistent revenue stream
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*Based on App Annie Intelligence estimates.
**WhatsApp Messenger ranked as the #3 paid app based on its iOS revenue up model are shrinking, but the revenue of freemium model and in-App advertising model is increasing. Clearly, free is working. The revenue of freemium model is especially notable since its growth rate between 2012 and 2013 is more than 200%. It is obvious that freemium is king. While a fairly strong majority — 83 percent of the top thousand apps on each of the iOS app store and Google Play — monetize via freemium, an even bigger proportion of revenue generated by those top 2,000 apps arrives via freemium: 92 percent.
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Figure 2: App Revenue in Key Countries (Source: App Annie & IDC, 2014)
1.3. Research Objective
According to previous research, we can see that freemium is growing fast and generating notable revenue, therefore, is it worthy to learn why it is working.
The goal of this study is to realize the acceptance of freemium apps. In other words, the objective is to figure out what factors influence users’ decision toward making purchases within.
Since each category of apps would include different variables, I would focus on one App which is outstanding and considered innovative comparing to other Apps belonging in the same category. I choose “LINE” from the category of “communication” in Google Play and “Social Networking” in App Store.
“LINE” is very popular in Taiwan. According to the statistics from App Annie, the App has been on the Top Chart for all time in both Google Play and App Store.
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Figure 3: LINE’s revenue by products (Source: Business Insider)
LINE shows the potential for chat apps as platforms, after generating $338 million USD in Revenue for 2013. Its income comes mostly from games and stickers (see figure 3). In games, LINE sells virtual currency and power-up property and so on (see figure 4). Stickers are emotion icons that can be sent in chat rooms. Some LINE stickers are free and others are not (see figure 5 and figure 6). The stickers are the reason why LINE can stick out among various communication Apps.
Figure 4: An example of game purchase
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Figure 5: An Example of free sticker
Figure 6: An example of paid sticker
In this study, I would take LINE as an example of freemium app and try to understand what factors influence users’ decision toward adopting Apps and making purchases in it.
1.4. Research Process
Figure 7 illustrated the research process. The process started with establishing research direction and scope. After collecting information and reviewing previous studies regarding the subject, I established the research framework. According to the operation definitions, I designed questionnaire to collect data and to testify my hypothesis. Finally, I came to conclusion and suggestions for future research.
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Figure 7: Research Process
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