This year marks the seventh anniversary of the iTunes App Store and essentially mobile app development as a business. For many indie developers, mid and big size companies it’s been a bumpy road with many ups and downs. There-is-an-app-for-that moment has gone several years ago, the focus from novelty has shifted to innovation and long-term profitability. The app business is matured and has become part and parcel of the economy itself.
Let’s look the numbers for how much revenue was generated by the app economy since 2011 and the forecast for the next two years.
Key App Revenue Statistics:
As you can see on the first graph below, the biggest increase was in 2012, when the annual revenue jumped from $8,32B to $18.56B. For the iOS platform this jump can be explained by Apple introducing iPhone 5, the first model with a bigger 4 inch screen. It was the first screen size increase since the original iPhone that debuted in 2007 with 3.5 inch screen. Bigger screen meant an opportunity to introduce new kind of apps and as a consequence it facilitated app revenues fast growth. For Android it was the year of a significant growth as well, in Q3 of 2012 Android got 75% of the global smartphone market. The growth was fueled by more and more OEM adopting Android to run their mobile devices with.
Worldwide mobile app revenues from 2011 to 2017 (in billion U.S. dollars)
During 2013 and 2014 we see a decline in growth and than another spike in 2015, $10.38B up from the previous year, as a result of Apple’s launch of iPhone 6, iPhone 6+ in 2014 and than this year iPhone 6S and iPhone 6S+. All these models have become extremely popular in Asia, particularly in China. The hardware popularity and adoption rate increase always lead to the software, it powered by, growth as well. On the Android side this spike was driven by its continuing leadership in daily activation rate. More device activation results in more downloads and ultimately higher app revenue.
This projection is based on a forecast for how much iOS and Android devices will be sold and the expectation for the iTunes App Store and Google Play store growth. There are high expectations for iOS Enterprise penetration increase in the coming years, which is currently low but Apple’s partnerships with IBM and Cisco do promise to change it in a future. On the Android side the app revenue growth is associated with its potential to growth in India, Europe and South America. And there is a potential for Android to growth in Africa as well, where mobile devices provide people an access to the Internet and Android is the leading platform to support it.
Global paid-for mobile app revenues from 2011 to 2017 (in million U.S. dollars)
Mobile app business is powered by three models – paid, in-app purchase and advertising. Originally the app ecosystem debuted with the paid model and, as we see during 2011-2012, the total revenue was doubled, from $7,1 billion in 2011 to $15,4 billion in 2012 but since the following year and on we see a rapid decline, the revenue leveled on $3,9 billion a year on average. The reason for revenue, driven by paid model, to decline was in-app purchase model introduction. With in-app purchase mobile app users could install an app for free, try it to see if it’s something they really need and later pay for additional functionality or to remove ads inside an app. Over the years this in-app purchase advantage allowed this model to outgrow the paid one. The forecast predicts even steeper decline for the next two years. The app revenue growth estimation for 2016 and 2017 is $973M on average.
Total worldwide in-app purchase revenues from 2011 to 2017 (in million U.S. dollars)
On the contrary, the in-app purchase model is being growing exponentially since it was introduced in 2011. By 2017 it’s expected to be almost triple, comparing to this year figure. Despite the fast and stable growth, it remains to be seen how mid-size and small indie developer companies will manage to sustain their app business, based on this model. Currently, according to the VisionMobile research paper, more than 60% of app developers make less than $500 / month and it’s considered to be an app developer poverty threshold. The in-app purchase revenue growth for 2016 is $9,77 billion up and $13,2 billion up in 2017.
Share of world mobile app revenues from 2011 to 2017, by channel
This graph demonstrates in what proportion all three models – advertising, paid and in-app purchase one contribute to the overall app revenue growth. As we observed earlier, in-app model is the one that outgrows the other models and by a great margin. Next year and on the video format wide adoption, that happened this year, will contribute to revenue, generated by advertising, growth but still it won’t grow significantly to compete with in-app purchase. In 2012, in-app purchases accounted for 11.4 percent of global mobile app revenues and are expected to grow to 48.2% in 2017.
Apps As The Major iTunes Growth Driver from 2013 to 2020
Source: Macquarie Group data
There are number of constituents that contribute to the Apple’s iTunes business growth. These contributing factors are presented by Apps, Content (presented as Non-App Gross Billings on the graph) and Services. Among these three, Apps has been the major contributor, starting from 2013, when it contributed about 6% of the total revenue growth, to 9% this year and it’s projected to contribute 20% in the year 2020. One of the factors that will influence the Apps contribution will be, launched this year, Apple TV fourth generation with its dedicated tvOS. tvOS features its own app store and SDK for app developers to create apps specifically for Apple TV.
Mobile Games Revenue 2013-2016
Games have been a staple for mobile apps ecosystem growth since the iTunes App Store inception back in 2008. This year the games share on the iTunes App Store is roughly 30% but, according to the eMarketer forecast, the total mobile games revenue to exceed $3 billion by the end of the year. If we take a look at the mobile games revenue growth over the years, we see a slow down. In the 2013 – 2014 period game in-app purchases revenue increased from $1,12B to $1,51B or $0.39B up and from $0.91B to $1.09B or $0.18B up for paid-for game downloads. In 2014-2015 period we see an increase from $1.82B to $1.99B or only $0.17B up and from $1.32B to $1.22B or only $0.10B up respectively.
In a big way the future level of app revenue will depend on how fast the Internet of Things technology (IoT) will be evolving and its adoption rate. IoT emerges as a natural progression for software to continue to lead humankind technological growth. Essentially the Internet of Things allows to capture more information to be used to optimize and improve many things in our life.
Because of the app consumer market segment saturation, the Enterprise segment will likely to be a driver behind the app revenue growth in the coming years. Currently, Smart Home, Retail and Industrial are the three leading areas, that see the highest adoption rate among app developers. All three, as well as Wearables, do have a big potential to fuel app revenue growth in a near future. Both Apple and Google heavily invest into R&D and popularization of IoT among app developers.