Study: Consumers Will Pay $5 for an App That Respects Their Privacy

Ever since the iPhone came out in 2007, the going rate for many of the most popular apps has been exactly $0.00. Consumers pay nothing.

But of course, nothing is free. Instead, consumers pay with their data, that's sold to marketers, or with screenspace, which is forked over to make room for ads. It's a trade consumers are happy to make.

But are they?

A new study from economists at the University of Colorado finds otherwise. It shows that the average consumer would prefer to pay small fees for their apps, in exchange for keeping their information private and their screens uncluttered.

In their study, Scott J. Savage and Donald M. Waldman surveyed 1,700 smartphone users, presenting them with a set of apps they could purchase. One of the apps was a real, free app, currently available in the iTunes and Google Play stores. Five other apps were also suggested, and were said to have exactly the same functionality as the free app. But these five came with varying levels of privacy and advertising protections (some protected location data, others address book contents, and so on), and all had a price tag. 

What Savage and Waldman found is that consumers were willing to spend a bit more to keep their data to themselves, and just how much depended on which data were at stake. For example, on average, consumers were willing to spend $2.28 for an app that would not read their browser history; $4.05 for an app that would not have access to their contacts; $1.19 for an app that did not track their location; $1.75 for an app that did not obtain their phone's ID number; $3.58 to prevent an app from having access to the contents of their text messages; and $2.12 for an app that had no advertising.

Because the "average" app (as determined from a sample of more than 15,000 Android apps) has both advertising and access to a person's location and their phone's ID, Savage and Waldman say that paid versions of such apps could rake in somewhere around $5 per download. That's way, way more than the pocket change that most free apps bring in per download.

What's more, Savage and Waldman use that $5 figure and to do some back-of-the-envelope figuring: Given that the average consumer in their study has 23 apps, and given how many smartphone users there are in the U.S., they calculated the total amount that consumers would spend, if only the apps were there for them to buy: $16 billion. And that's the conservative, lower-bound estimate.

Will that make it worth it for app developers to offer a paid alternative? There are many reasons why the math might not work out so neatly in reality. Will customers search both the free and paid app categories? Will they be aware of the paid option? Will download rates suffer, if companies more overtly signal how they are using consumer data in an effort to push paid versions?

But if those hurdles can be overcome, both developers and consumers stand to benefit.