By Chantal Tode
August 2, 2012
In-app advertising revenue is growing the fastest
The findings show that generated revenue as percentage of the total is declining for the top ranked apps while it is growing significantly for the long tail of apps. This suggests that the opportunities in mobile app development are not just for big brands either.
What’s most surprising is that that mid and long tails are getting fatter not skinnier, said Peter Farago, vice president of marketing at Flurry Analytics, San Francisco. More apps are making more money.
The reason this is surprising is that most industries experience revenue concentration among fewer winners over time, he said.
It appears to be the opposite in mobile apps, which means brands are not able to dominate with the advantages they usually bring to bear including brand recognition, favorable access to the distribution channel, economies of scale in development and marketing e.g., larger advertising spends.
Challenging environment for some
The data shows that, in 2010, 28 percent of revenue premium sales and in-app revenue only was generated by the top 25 ranked titles on iOS and Android. However, by 2012, Flurry estimates that the top 25 titles will generate approximately only 15 percent of revenue.
Additionally, the rest of the top 100 apps are expected to drop from earning 27 percent of revenue in 2010 to 17 percent of revenue in 2012.
However, any apps ranked beyond the top 100, when taken together, will go from earning 45 percent of all premium and in-app purchase revenue in 2010 to 68 percent in 2012.
The results suggest that because brand recognition may not be as powerful in the app marketplace as it is elsewhere, market wealth will continue to shift to the long tail. This trend coupled with unguaranteed network connectivity and the control exerted by platform providers such as Apple and Google means that big names such as Facebook, Twitter and Zynga will face meaningful challenges entering the app space and trying to generate revenue here.
Advertising revenue grows quickly
While revenue is generated by a variety of means premium sales, in-app purchases and advertising sales the fastest growing revenue category is advertising, according to Flurry Analytics data.
In 2011, advertising made up 18 percent of app revenue and is expected to grow by more than 100 percent this year to reach approximately $2 billion, or 23 percent of total revenue.
Revenue from premium sales and in-app purchases is also growing but at a slightly more subdued rate of 50 percent. Flurry forecasts this revenue to reach $6.7 billion in 2012.
The numbers reveal the significant opportunity that the Apple App Store and Google Play have created for developers. In its most recent earnings call, Apple said it has paid out more than $5.5 billion developers since the launch of its app store.
The mobile app space is different, Mr. Farago said. This world is not built on browsers where acquisition and retention are understood, and economies of scale work to their advantage.
In this world, there is hyper competition with a lot of substitute for lots of different kinds of apps, and no easy way to control access to the consumer, he said.
Chantal Tode is associate editor on Mobile Marketer, New York
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