I'm a student in CS, and I was assuming that all the apps which are delivered for free on appstore (or other markets for android, windows, blackberry) were made by enthusiasm programmers which put their ideas into small apps for free. The thing is that I found that some companies are investing money in free apps.
For example, now I just read an article in which was mentioned that an iphone application just got 10millions of users. Also, on their faq page, it says that they have 4 developers and 500.000$ budget from investors. What makes investors to put their money(big money) into free apps?
ps: The application from my example is instagr[dot]am. See their faq and blog sections.
Investors don’t buy free apps but their core purpose is always to acquire the users base of those applications/products. Using the credibility of a company/products/app that they acquire or invest in; It is an easier way to build a new brand and sell their other services and products to these users.
You would likely be pretty surprised about how much money a decent free application can make on advertising.
I have a friend that is making nearly six figures off of a set of 12 small android applications he has for free download on the Android market. Most of his applications are fairly simple, and only have 3,000-10,000 downloads, but he makes good advertising money.
It's the same concept as a successful website, or a blog essentially.