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November 20, 2012
Methods for Monetizing a Mobile User Base (or Are Mobile Apps the New Internet?)

Mobile apps are a huge and rapidly growing business. Mobile developers have access to a greater number of users and more simple ways of monetizing their creations than any software developers before them. However, selling digital content and services directly, or advertising to users of those services are only two of many, many ways of generating revenue through mobile apps. Which methods are likely to dominate in the future?

Marc Andreessen famously pronounced that “software is eating the world” and the giants of the internet like Facebook and Google are telling us how rapidly their users are shifting to mobile, along with their own software efforts. So if software driven businesses are cannibalising major industries and the software is increasingly delivered via mobile devices, why do we get a forecast from Strategy Analytics telling us that global app revenue growth is about to slow significantly, almost stalling completely by 2017 (albeit at around double this year’s level)?

Considering all revenue sources for mobile developers

Well firstly, technology analysts are notoriously bad at forecasting 5 years out – it’s a really hard thing to do, so Strategy Analytics could simply be very wrong. Secondly, it really depends what you count as “global app revenue”. Paid app downloads, in-app purchase of virtual goods, subscriptions to mobile content and services and in-app advertising are all means of directly monetizing digital creations. If the transactions don’t happen in an app downloaded from an app store, are they counted? If the Financial Times web app drives an ever increasing proportion of usage (and therefore revenue) via smartphone and tablet readers then surely that should count as “app revenue”. What about a Spotify or a Netflix, where the content consumption increasingly shifts to mobile devices but is also consumed on PCs or TVs? Or for something that’s currently viewed as clearly not app revenue, how about the 7% of $3.4 billion ordered annually from Domino’s Pizza through mobile devices (web and native apps, just in the USA). Where mCommerce revenues are generated through apps for existing retailers like this it’s easy to dismiss the mobile element as “just another channel” but what if we see new mobile first (or even mobile only) retailers like Amazon in the eCommerce world? Or what if mobile first entertainment brands start selling real-world merchandise?

A broader picture of the app economy’s size

The Strategy Analytics forecast has global app revenues at about $18 billion this year rising to just above $35 billion in 2017. Games are currently the largest revenue generating category of app. The global video games market is worth $78.5 billion this year (with mobile $8.5 billion of that). It seems likely that mobile games will continue to increase their share of the total. By comparison the global enterprise software market is more than $200 billion a year – how many opportunities are there for mobile solutions to disrupt or extend that market? Those are just two examples of markets where software is monetized directly. If apps are considered as a way to engage with users to sell or enhance non-software products and services then it’s worth noting that global eCommerce sales are expected to exceed $1.25 trillion in 2013. Mobile apps can reach more people, more of the time, providing more context and convenience than their desktop equivalents. So far there are more than 50 revenue models in use on the web; it’s still early days for mobile apps and the focus has been on new revenue opportunities that are unique to the platforms (i.e. mostly via app stores). As the industry matures it’s likely we’ll see far more money made by businesses that involve more than just an app.

Are you considering revenue streams outside of your app? Are you a mobile developers Let us know your thoughts below.


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