Can you fund app development by giving it away and just taking advertising revenue. The early indications are that you can but it is early days and the statistics don't quite add up...

It's a truism that there is no such thing as a free lunch but it seems that there are free apps.

With Apple's recent launch of iAds you can expect the number of free apps in the App Store to grow. According to 148Apps.biz the App Store has already broken the 250,000 barrier of apps listed - from over 50,000 unique publishers. What is also interesting is that the current average app price is $2.90 which sets the bar quite low for preferring an ad driven revenue model.

At the moment it looks as though ad supported apps might be working. Some blog posts are claiming high earnings for what you might call trivial apps. For example, Jason Ting claims to have earned $1,400 in one day from an app that turns the iPhone flash into a torch. It's staggering that anyone would write such an app, let alone get financial reward from it - but such is the strange world of mobile apps.

Two versions of the app were made available - a paid-for and a free, ad-supported version and it was the latter that brought in more revenue. However, the numbers quoted are very strange. The first thing is that on the day the app made $1,400 it also made the number 8 slot on free utilities. It also had 9,300 ad impressions with a fill rate of only 35% and nearly a 12% click-through rate. Compared to normal ad statistics these are incredibly good - even more so when you take into account that Apple has only secured two iAds, one from Nissan and one from Unilever.

Other developers are claiming lower rates of payment at around $10 per 1000 ads, which is still higher than the average for on-line advertising.However for another take on the situation consider the statistics offered by another developer Giles Chanot. In the first week of his app's release it scored 1,714 downloads and generated over 31,000 ad requests. So each user generated at least 20 ad requests. The problem was that Apple failed to fill all of these requests and with a fill rate of only 12% earnings were just $15 rather than the $900 for a 100% fill rate.

What is clear is that something very strange going on with iAds and whether or not it is sustainable is not clear. It could be that iAds have a novelty effect that will wear off. It could also be that the actual format of iAds which go well beyond the simple banner ad is just more attractive to users. Just as with apps Apple controls the ads that appear on iAds and this is something that many advertising agencies aren't happy about.

As far as other markets go the situation is not as clear and there is less data to go on. Arron La reports that his Advanced Task Manager for Android sold for 99 cents  and made over $18,000 from Feb to the end of 2009 and another $30,000 this year to date. A free, ad-supported version made over $6000 last month alone - with 3500 daily clicks. Sounds good - but this is a top-ranked application and revenue falls off rapidly as you go down the ranks.

The bottom line seems to be that ads can pay and users don't seem to find them objectionable - yet.

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