What’s the best way to make money in the smartphone apps market? According to analyst IHS Screen Digest, the answer is to give away apps for free and to generate revenue on subsequent sales of in-app purchases. “Smartphone users overwhelmingly prefer free apps to paid apps, as we estimate 96% of all smartphone apps were downloaded for free in 2011,” said Jack Kent, senior analyst, mobile media for IHS.
In-app purchases will rise to account for 64% of total market revenue in 2015, up from 39% in 2011. Revenue from in-app purchases will increase to $5.6 billion in 2015, up from $970 million in 2011.
“In 2012, it will become increasingly difficult for app stores and developers to justify charging an upfront fee for their products when faced with competition from a plethora of free content,” added Kent. “Instead, the apps industry must fully embrace the freemium model and monetize content through in-app purchases.”
The ‘freemium’ business model of offering apps for free, then charging for in-app content, represents the fastest-growing segment of the global smartphone apps business, and will soon dominate the market. By the end of the third quarter of 2011, free-to-download applications already represented 45% of the top-grossing US iPhone applications as well as 31% of the highest-earning US Android market applications.
IHS Screen Digest calculates that 68% of the top-grossing US applications featured some form of additional content or functionality available via an in-app purchase. “Games pioneered the in-app business model,” Kent observed. “Now the approach has proven so successful, companies building other types of smartphone app must adopt this strategy if they are to maximize their mobile app revenues.”
