App Monetization in 2013: A Retrospective

2013 was a big year for the mobile app industry. According to Gartner, 102 billion apps were downloaded globally, up from 2012’s 64 billion and this number is expected to keep growing at similar rates in 2014 as well. More and more software engineers are turning into mobile development seeing this increasing trend and with mobile development related salaries skyrocketing.

Well, things might be looking very bright in terms of market growth but did 2013 manage to crack app monetization, one of the biggest problems the industry had since 2008 when Apple launched the App Store and began luring engineers to develop software for mobile promising generous payouts?

 Overview

Although 2013 brought about a number of changes in the industry, the main ways in which developers can choose from when considering how to monetize their apps still remain the same:

  1. Paid App

  2. Free App with Advertising

  3. Free App with In App Purchases (IAP) / Freemium

Although some combinations of these can also exist, these are not very common so we will just ignore them. Let’s go over them and see what impact each app monetization solution had in 2013.

App Monetization Figures 2013

Paid App

According to data collected in 2013, paid apps are steadily declining in number both in the App Store and Google Play.

This is happening for a very good reason. The number of free apps which are readily available to download across all major app stores has increased so much that there is almost always a free alternative version of a paid app. Out of the estimated 102 billion app downloads throughout the year, only about 9 billion where paid for. This accounts for a mere 9% and if this figure is compared with more historical data, then we can realise that this trend will continue in the years to come.

Nevertheless, in 2013, paid app downloads produced a massive $20.2B of revenue, most of it going to a few top tier game studios. The paid app business model which was adopted by many industry pioneers and giants like Lima Sky (creators of Doodle Jump) is slowly fading away and if projections hold, it will account for less than 5% of total downloads in 5 years from now. The reality for now is, though, that paid apps sum up to 75% of total revenue this year and although IAPs are catching up, they claim the undisputed prize of 2013 revenue champion!

Free App with Advertising

2013 was a very important year for mobile advertising with the “big players”, Google and Apple forcing new and more than ever strict advertising policies. 2013 also gave rise to native advertising on mobile which is very promising considering the vast success it has enjoyed on the web.

Ranking advertising revenues though against paid apps reveals a very big gap. Only $1.9B of revenue was generated from ads which accounts for 6.9% of the total app revenue for the year. Comparing this with the 75% share of paid apps, the gap seems huge. This lack of balance is the main reason for the discrimination that takes place in the industry and highly rewards the few top developers leaving smaller developers starving for more.

There is a clear trend that ad revenue will keep increasing in the coming years and with promising advancements like programmatic buying and native ads evolving, advertising has a very important role to play in the future of mobile apps.

Free App with In-App Purchases (IAP) / Freemium

Last but certainly not least, revenue generated through IAP continued increasing in 2013, consistent with previous years and confirming past predictions. For the past year, IAP accounted for $4.6B which translates to a 17.2% share of total generated revenue.

Only a small subset of all apps are powered by IAP but these are are usually enjoying an average revenue per download (ARPD) of over $1. The leading example in this category for 2013 has to be Supercell’s Clash of Clans which was reported by Forbes magazine to generate $2.4M per day in April 2013.

Gartner predicts that the percentage of total revenue generated by IAP will keep increasing and will eventually outperform revenue from paid apps in 3-4 years.

Sum Up

As previously stated, 2013 was a big year for the mobile apps industry with mobile app developers turning over an excess of $26B in revenue. Most of this (75.9%) still comes from paid app downloads but trends show that this will keep decreasing as IAP and Advertising revenue gradually increase.

The advertising industry is itself trying to adapt to the rapidly growing mobile market and with the increasing adoption of programmatic buying and the rise of native advertising, a concept which has produced billions for web publishers, tries to increase its share in the total generated revenue.

Finally, freemium apps are increasingly appearing in the various app stores and have come to account for 17.2% of total revenue generated.

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