The first and most basic approach to monetizing a mobile app is to just sell the application itself. But even a method this elementary is fraught with complexities. After all, how much will people be willing to pay for a given mobile app? Set the price too low and you can't cover development costs; set it too high and nobody will touch it.
One quick way to resolve that problem is to adopt an approach that's been used in the PC world for decades: Give away a minimally functional version of the application -- sometimes ad-supported, sometimes just outfitted with nag boxes -- and encourage the user to buy the full version. The missing feature or features don't have to be significant but should be worth paying for. Another way to put this would be: Give away the app, sell the functionality.
The word freemium has been coined to describe this approach, and it has quickly become an essential means of bringing a mobile app to market. Ferraro described the freemium model in his blog as "a classic marketing tool available to mobile app developers to maintain the perception of a free service, while attempting to lock-in customers into some type of charging mechanism."
The key word here is perception: As long as people feel as if they're getting something for free, they don't mind as much if they have to pay down the line -- even if they have to pay again and again. What matters is the sense that they're getting something for their investment.
Online games have developed this to the level of an art form. As subscription-based games lose favor and "freemium" gaming comes to the fore, the game makers have come up with any number of ways to scare up revenue that don't depend on selling the game itself. Ferraro concurred on this point in an e-mail interview: "App publishers can monetize free by capitalizing on the audience they obtained, and promoting upgrades. This is particularly visible in mobile games, where more advanced gaming levels are only available at a premium."