Will Ads Be Key to Free iPhone Apps?

Would mobile users pay for a new generation of mobile applications? That question was answered in spades by millions of iPhone users who’ve paid for software via Apple’s App Store for the iPhone.

But the majority of the over 500 million downloads at the App Store since its debut last year were for free applications. That creates something of a dilemma for commercial developers, whose programming efforts aren’t just a labor of love; can they charge money and be successful competing in a largely free marketplace?

It’s a question content providers have faced on the Internet for years and the same outcome could be taking shape on the iPhone; namely the rise of ad-supported alternatives to paid apps.

One such effort is the recently launched iVdopia, an ad network from Vdopia designed for iPhone developers. The idea is that developers publish lower cost or free applications and still realize revenue from ads. But this is tricky on a mobile device where extra screen real estate is virtually non-existent and attention span tends to be much shorter, particularly if the user is on the go.

Vdopia says its solution is relatively non-intrusive. Company founder Srikanth Kakani says developers will benefit from iVdopias caching algorithm that shaves about five seconds off the 10 seconds it can take for an iPhone to load.

Essentially, iVdopia uses that “saved” time to plug in an ad from its ad network of brand advertisers, which has included such names as eBay, GM, Virgin and Cadbury.

“A lot of applications can be just ad-supported by these non-obtrusive ads that come across in three to five seconds,” Kakani told InternetNews.com. “Free applications are downloaded ten times as much as paid. Our expectation is that we can help iPhone developers reduce their prices or go to a free model.”

A premium App Store?

Ironically, the iVdopia launch comes at time when Apple is rumored to be gearing up a new “premium” section to the App Store. The idea is to segment out higher priced titles, chiefly games, that aren’t necessarily getting enough exposure given the more than 25,000 titles available at the online store that are mainly free or priced at the low 99 cents mark. Apple plans to preview details of an update to its iPhone software tomorrow.

But analyst Ben Benjarin said the strongest trend on the iPhone is to free and low cost titles. He notes some developers are offering free or “lite” versions as a way to let consumers sample the application, be it a game or productivity tool, in hopes they will pay for a fully-featured version later.

“The stats show free apps generate the most volume,” Bajarin, analyst with Creative Strategies, told InternetNews.com. “Services like this [iVdopia] can help developers monetize those apps because they also provide analytics so they can see what’s effective and improve the ad experience over time.”

Kakani said iVdopia works with advertisers to help bring ads they’ve already created to the iPhone. For example, the iPhone currently doesn’t support Adobe’s Flash format, but iVdopia says it can convert those ads to video that can run on the device.

Mobile use takes off

Ad-supported or not, the latest figures from comScore (NASDAQ: SCOR) highlight the increasing popularity of mobile devices.

The number of people using their mobile device to access news and information on the Internet more than doubled from January 2008 to January 2009, according to figures released by the Web metrics firm today.

comScore said that of the 63.2 million people who accessed news and information on their mobile devices in January 2009, 22.4 million (35 percent) did so daily, more than double the size of the audience last year.

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