Ad supported, as it gives back to the developer.
I think that both models work but the value needs to be compelling. As a user, I pay for Box.net's premium service for extra storage. However, I do not pay for Evernote's premium service, even though there are a few features I'd like to have access to, it isn't enough to get me over the hump. However, I wouldn't want the service to go away, so I'd rather deal with ad-supported vs out-of-business. In mobile applications, there are some where I don't mind ad supported, others, like games/apps for my child, I'd rather pay to avoid her being exposed to and possibly inadvertently tapping on something that is an ad in confusion.
I believe the business model chosen needs to meet the needs of all stakeholders that could be impacted and also needs to be flexible to reflect external trends and circumstances.
Our business is developing applications for grassroots sporting organisations to help them manage their businesses more efficiently. When we began our business in 1999 our model was ad supported and our customers received applications for free. When the ad industry wasn’t mature enough to support this model, and we almost went out of business, it was our customers that told us they’d be happy to pay a licence fee.
7 years later when budgets for online advertising were growing and not for profit sporting organisations couldn’t really afford the commercial value of licence fees we’d need to charge to stay in business, we changed the business model again.
The circumstances we observed were that individual sporting organisations struggled to attract significant online advertising. By aggregating a fragmented online audience and managing the online advertising on their behalf we were able to attract marketing budgets.
By working with the national and international federations that oversee sports we came up with a business model that provides affiliated sporting organisations with free applications in return for us retaining the digital marketing rights. To make sure this business model worked we also return 50% of net revenue back to the sports.
Another key factor for us was that the digital marketing that sporting participants were exposed to should actually add value rather than just interrupt. We therefore work with brands to make sure that their marketing provides content, utilities and mobile apps that actually enhance the playing experience online.
Our business model works because it benefits all the stakeholders concerned. Sporting organisations like it because they don’t have to pay commercial value for applications and they share in the new sources of revenue. Players like it because their online experience is better and they receive content, utilities and apps that they value. Brands like it because they can reach an otherwise fragmented audience in ways that are meaningful to their customers. We like it because the partnership marketing budgets we can reach exceed the revenue we would have received under a software licence model.
This may not be the business model we have in the future if circumstances change or if we fail to meet the needs of one of the stakeholders in the grassroots sport value chain. For now, however, this is the business model that’s right for our business.