Mobile app stores (iOS and Google Play combined) and mobile in-app ads each saw revenue increase 1.7 times from 2013 to 2014 compared to PC-based and mobile web-based ads, which grew revenue by about 1 to 1.5 times.
The emergence of wearables and the Internet of Things coupled with new applications across mobile will drive revenues even higher, the study predicts.
By 2018, spending on mobile in-app advertising in the ten key countries measured (US, Japan, UK, South Korea, Brazil, India, Canada, Russia, France, andGermany) will be greater than spending on online search advertising, today’s “digital advertising juggernaut”.
According to Bertrand Schmitt, CEO and co-founder, App Annie, “The continued innovation in mobile apps, monetisation models and mobile advertising have driven significant growth in freemium and in-app advertising revenues. The space has matured significantly and publishers have the required ‘know-how’ to monetise off the significant app usage they’re generating.”
The study recommends that publishers and developers need to evaluate potential business models, target markets and growth plans to set up their apps for success.
Business models identified in the report include freemium (free download with in-app purchases) such as Candy Crush; paid (paid download with no in-app purchases) such as Minecraft – Pocket edition; paidmium (paid download with in-app purchases) such as Card Wars; in-app advertising (contains ads like banners and videos); and dynamic (business model shifts according to usage).
Freemium and in-app advertising appeal “to a broader user base by eliminating up-front costs and create ongoing revenue streams for publishers,” the report says, while paid and paidmium revenue is declining, though they can still be successful for the right apps.
Freemium app revenues grew by over 70 per cent, while paid and paidmium app revenues declined by 19 per cent and 24 per cent, respectively.
The freemium model is very successful, even with a small proportion of users making in-app purchases, because “publishers can structure their apps to target the whales who make repeated purchases.”
However, less than 15 per cent of publishers surveyed make $10,000 per month or more from in-app advertising and the report says “a well-executed approach to app discovery, user acquisition and user engagement” is important.
The report also points out that geography matters and it’s not one-size-fits-all across countries: Revenue generated through app stores versus in-app ads varies widely across countries—India brings in 70 percent of its app revenues via in-app ads while Japan makes more money via app stores (81 percent).
The US and Japan are the largest markets for mobile app revenue, but emerging markets such as Brazil, India and Russia are projected to quickly grow through 2018.