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In-App Purchases Become Major Mobile Revenue Stream

Revenue streams shift as app market matures

With smartphones in the hands of more than 60 million Americans, according to eMarketer estimates, app stores are growing quickly and the application market continues to evolve as it approaches maturity. According to research from app store analytics provider Distimo, many app developers are changing how they monetize their creations.

All major application stores are growing rapidly, with triple-digit increases across the board. Apple’s App Store, the best-established market, is moving slowest but still more than doubled in size between January and December 2010. For all app stores, growth in free apps outpaces that of the store as a whole.

According to the report, this rise in the popularity of free apps in turn may be causing more developers to make their apps free—but not necessarily without fees.

Within the realm of apps that are directly monetized, whether by paying for the app itself, paying for items within the app, or both, in-app purchases are becoming much more important to developers. They more than doubled their share of iPad app revenues, from 12% to 29%, between June and December 2010. Over the same period in-app purchases on iPhone applications increased from 36% to 49% of revenues—now taking half the market from traditionally paid-for apps. And within that share, free apps have gained at the expense of paid.

The combination of free apps with paid-for extras is a version of the “freemium” model many content publishers are experimenting with in hopes of finding an alternative to ad support alone. And that model’s rise within the Apple App Store suggests it may be working, at least for app developers.

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Check out today’s other article, “Facebook Drives US Social Network Ad Spending Past $3 Billion in 2011.”

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