To free, or not to free : the impact of free versions, average user raings, and App characteristics on the adoption speed of paid mobile Apps
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The mobile application (App) industry has grown tremendously over the past five years, primarily fueled by small App development businesses. Lacking advertising budgets, these relatively unknown, small businesses often offer free versions of their paid Apps to reduce customer uncertainty about App quality and get noticed in the crowded App industry. In this research I investigate the implications of offering free versions on the adoption speed of paid Apps by building on the existing marketing and information systems literature on sampling and versioning. Using a unique dataset of 2.82 million observations from 4,180 Apps and accounting for endogeneity, I find that while the strategy of offering free versions of paid Apps is popular, it impacts the adoption speed of paid Apps negatively. I also find that the presence of free versions has a larger negative impact on the adoption speed of Apps bought for fun and pleasure (hedonic Apps) and in the later life stages of paid Apps. I expect that the results of my study will enable App developers to make informed decisions about offering free versions of paid Apps and prompt academicians to produce more work focusing on this industry.