Mobile app monetization: a moving target

A study released by Gartner this week revealed a few somewhat discouraging predictions for the future of mobile app monetization:

  • Less than .01 percent of apps will be considered a financial success by the end of 2018
  • Paid apps – 90% are downloaded less than 500 times a day and earn less than $1250 a day
  • There are more than 200 companies creating mobile apps, and literally millions of developers creating mobile apps
  • 2013 growth of app downloads was  115 percent over 2012
  • Customers spent more than 10 billion on apps in 2013, 1 billion in December alone
  • By 2016, Gartner predicts that 94.5 % of all mobile apps will be free

More about mobile development and monetization:

"The vast number of mobile apps may imply that mobile is a new revenue stream that will bring riches to many," said Ken Dulaney, vice president and distinguished analyst at Gartner. "However, our analysis shows that most mobile applications are not generating profits and that many mobile apps are not designed to generate revenue, but rather are used to build brand recognition and product awareness or are just for fun. Application designers who do not recognize this may find profits elusive….There are so many applications that are free and that will never directly generate revenue. Gartner is forecasting that, by 2017, 94.5 percent of downloads will be for free apps," said Mr. Dulaney. "Furthermore, of paid applications, about 90 percent are downloaded less than 500 times per day and make less than $1,250 a day. This is only going to get worse in the future when there will be even greater competition, especially in successful markets."

The study also talked about how people are actually finding apps; most people use their friends in real life and on social networking platforms to find apps that work for them, along with ads and “recommendation engines”. Consumers are growing increasingly weary of sorting through all the vast array of available apps; while they appreciate the variety in general, it’s becoming more and more difficult to find the wheat as opposed to the chaff.  Discoverability continues to be the biggest problem facing developers when getting their apps to market. There are so many apps, and there’s not a really intuitive structure in place to help users find the apps that aren’t on curated lists:

“Discoverability is a particular issue in the Apple App Store and in Google Play given the huge inventories they boast,” Canalys senior analyst Tim Shepherd said in the report. “With top game developers’ content so prevalent in the stores, it can be hard for other good quality apps to get the attention they deserve. Developers of other kinds of apps need to consider how to promote them. Depending on the type of app, they should consider how best they can exploit social media and social recommendations, tactical sales promotions and discounts, branding tie-ups, and targeted in-app advertising.” –

Different app stores monetize differently

It seems to hold true across the board that Mac users spend more money, not only on their devices, but also on their apps. The average price of an iOS app ranges from .99 all the way up to 7.99, with few users blinking an eye when it comes to checkout. Apple’s announcement that customers spent over $10 billion on the App Store in 2013, including over $1 billion in December alone when customers downloaded nearly three billion apps, makes iOS development a very enticing prospect indeed.  However, competition in the Apple Store is downright fierce: according to a study completed last year by research firm Canalys, of the more than 1 million apps in Apple’s App Store, a scant one-third chalk up more than 1000 downloads in their first year. This premise does not necessarily hold true for Android users, who tend to go more for the free apps and then spend their app monies for in-app purchases.

In-app purchases vs. free apps

Talk to the average app user and they most likely will tell you that they go for the free apps first. Customers are generally wary of buying something if they can find the same thing for cheaper, and that definitely goes for apps. Gartner’s estimate of 94.5% app downloads being free by 2017 seems to hold true with current trends, as many apps are going for an in-app purchase or ads monetization model; as both of these typically generate more revenue than charging for the initial download.

A previous study from Gartner on app monetization, specifically in-app monetization, predicts that these kinds of purchases will increase up to 48 percent in 2017, with strong growth in 2014. These kinds of spends are set to become a major monetization method for developers, and in fact, has become a major revenue driver for Apple’s App store. More from the analysis:

"We see that users are not put off by the fact that they have already paid for an app, and are willing to spend more if they are happy with the experience, said Mr. Blau. "As a result, we believe that IAP is a promising and sustainable monetization method because it encourages performance-based purchasing; that is, users only pay when they are happy with the experience, and developers have to work hard to earn the revenue through good design and performance." 

Another report from Distimo delves more into the in-app purchase model, specifically with business models and revenues per download in the Apple App Store for the period from January 2012 through March 2013:

More from the report:

“In-app purchases (IAP) now generate the majority of the revenue in the app stores. This has been the case for some time now, and it continues to rise as displayed in the graph below. In-app purchases generated only 53% of revenue in the Apple App Store for iPhone in January 2012 in the U.S., but generated a record 76% in February 2013 clearly demonstrating the success of this monetization method.”

Will monetization become more difficult? Hard to say

Finding good apps is somewhat like finding the fabled needle in the haystack; you can simply go off the curated lists that app stores generate, or, like most consumers, you can take app recommendations from friends and family. There are more apps in the app stores than ever before in history and this number is only set to grow larger; this seems like a good problem to have, but it’s not necessarily great for users or for developers. Users get tired of weeding through the endless sea of apps, and developers can’t all afford the marketing dollars to set themselves apart from the rest of the crowd.

Success for an app isn’t just about building something; it takes luck, time, and money spent on marketing the product – just like any other product – to the target market.  The core principle of successful app monetization is the same and will always stay the same: you need a superior idea, a superior product, and superior marketing in order to make money.  People are apprehensive about spending money on apps because of tangibility: for example, I buy a cup of coffee; I get a cup of coffee. I buy an app, and it’s there, but what if my phone breaks? The average consumer has no idea how to get their apps back if something happens, and that can give cause for pause at the checkout button.

Customer discomfort is an interesting emerging issue coming out of the app market. People aren’t necessarily used to buying apps, so the free ones get first dibs, getting much needed traction in consumer confidence levels and working their way up to in-app purchasability. With the app market being still very much in its infancy, consumer confidence is not as high as it could be and this affects what developers can do to monetize their product offerings.

Predictions are not facts

The app market is still just getting started, and the mobile app development ecosystem is very much in the ground floor of growth. While these predictions might seem a little bit dour, it’s smart to keep in mind that they are only predictions, and can change (and probably will). What do you think of these predictions – right on the money, or way off base? Let us know your thoughts in the comments.


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