Apps continue to move towards a world in which people play now and pay later.
The total number of mobile app downloads is set to cross 100 billion this year, according to new forecast data from Gartner. Apps that cost money have always made up a tiny proportion of overall downloads, and paid-app ranks are expected to make up an even smaller proportion in years ahead. By 2017, Gartner predicts, nearly 95 percent of downloads will be for free apps, up from almost 90 percent last year.
This doesn’t mean that there’s less money to be made—people will spend almost three times as much on apps in 2017 as they do now. But it’s going to come from in-app purchases, which will account for nearly half of the industry’s revenue four years from now, up from 11 percent in 2012. It’s worth noting that the Apple app store is already much further down this path. In-app purchases already account for 76 percent of all revenue for iOS apps, according to Distimo.
As app developers experiment with new revenue models, they’d do well to look at the gaming industry. Mobile games makes up nine of the 10 top-grossing apps in Apple’s app store (Pandora is the exception). Only one of those apps costs money to download: Infinity Blade 3, which costs $6.99.
The gold standard in this world is Candy Crush Saga. According to industry analyst Michael Pachter, the proportion of the game’s users who spend any money at all is in the “high-single digits”. Among people who spend, says Pachter, the yearly average is $40. That translated to $13.6 million in revenue in July alone, according to Superdata, a firm that tracks the gaming industry.
Getting that many people to spend money remains rare. A game can be sustainable on revenue raised from only two percent of its users, said Eric Goldberg of Crossover Technologies. Game developers call this the whale effect, where you’re relying on squeezing lots of cash from a few people and letting everyone else come along for the ride. (Casinos are also notorious whale-hunters.)
People who never pay directly to create increasing revenue through advertising, so game companies find themselves somewhat torn between trying to bring in free users and trying to get more money from the small percentage willing to pay. This raises some interesting ethical questions, as many developers acknowledge that designing free apps that entice people to pay money can get slimy very quickly.
“How do you resist the urge to be evil?” asks Goldberg.
