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Mobile App Advertising and Monetization Trends 2012-2017: The Economics of Free March 2014
© 2014 App Annie & IDC | Do Not Distribute
1. The revenue opportunity for publishers 2. How do app publishers monetize their apps today? a. Freemium b. Paid c. Paidmium d. In-App Advertising 3. App Monetization by Country 4. Looking Ahead 5. Key Takeaways
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Mobile apps are outpacing both mobile and PC browser-‐based ads in revenue growth Worldwide Online AdverBsing and Mobile App Revenue: 2012 to 2013
Revenue (USD)
Browser-‐Based AdverDsing
50B
Mobile Apps
1.1x 1.1x
40B 1.1x
30B 20B
2012
2013
Source: App Annie & IDC
1.5x
1.6x
1.5x
2.3x
10B PC Online Search AdverDsing
Device:
PC Online Display AdverDsing
PC
Other PC Mobile Display Mobile Search Mobile In-‐App Mobile App AdverDsing* AdverDsing AdverDsing AdverDsing Store Revenue (iOS App Store & Google Play)
Mobile
* Other PC AdverDsing includes online rich media, video and classified adverDsing
• Mobile in-app advertising revenue is likely to continue taking share from PC advertising revenue as advertisers allocate their budgets for maximum return
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Worldwide Combined App Store and In-‐ App AdverBsing Revenue per Device* 150 Source: App Annie & IDC
Worldwide Combined iOS and Android Smartphone and Tablet Installed Base 2.0B Source: IDC 1.5B 1.0B
1.7x growth
0.5B 0
2012
2013
Indexed Revenue
Device Installed Base
Mobile app revenue growth is driven by gains in device adopBon and revenue per device
100 1.1x growth 50 0
2012
2013
*In-‐app adverDsing across all app stores; app store revenue across iOS App Store and Google Play
• Massive growth in smart mobile devices dramatically expands opportunity to reach consumers • As revenue per mobile device is also increasing, mobile devices represent an increasingly powerful avenue of monetization
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1. The revenue opportunity for publishers 2. How do app publishers monetize their apps today? a. Freemium b. Paid c. Paidmium d. In-App Advertising 3. App Monetization by Country 4. Looking Ahead 5. Key Takeaways
5
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App publishers use a variety of business models to generate revenue Business Model
How does it work?
Top 3 Apps by iOS and Google Play Revenue in 2013*
Freemium
Free download with in-‐app purchases
Puzzle & Dragons Candy Crush Saga Clash of Clans
Paid
Paid download with no in-‐app purchases
Minecra[ – Pocket EdiDon Pages WhatsApp Messenger**
Paidmium
Paid download with in-‐app purchases
FIFA 13 Grindr Xtra Bloons TD 5
In-‐App AdverDsing Contains ads (banner ads, video ads, etc.) Dynamic
Business model shi[s depending on certain factors (app shi[s to an ad-‐supported model if the user does not make in-‐app purchases, etc.)
N/A N/A
*Based on App Annie Intelligence esDmates **WhatsApp Messenger ranked as the #3 paid app based on its iOS revenue up unDl early August 2013, when it went from paid to freemium on iOS
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The opportunity for apps also extends beyond direct moneBzaBon in the app stores App Name*
MoneBzaBon Strategy
eBay
Drive online shopping conversion
Nedlix
Allow current subscribers to stream content on the go
Walgreens
Drive shoppers to brick-‐and-‐mortar stores via coupons, inventory informaDon and pharmacy chat
Bandsintown Brings users to musical performances through local concert Concerts noDficaDons and recommendaDons Offers consumers the ability to test how IKEA products would look in IKEA Catalog their homes without traveling to the store through the use of 7 augmented reality *AddiDonal informaDon on these apps available on App Annie Store Stats
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Freemium and In-‐App AdverBsing tower over other app business models Mobile App Revenue in Key Countries* Indexed Revenue
200
+56%
+211%
2012
2013
150 Source: App Annie & IDC
100 50 0
In-‐App AdverDsing
Freemium
-‐29%
-‐23%
Paid
Paidmium
* Brazil, Canada, France, Germany, India, Japan, Russia, South Korea, United Kingdom & United States * In-‐app adverDsing across all app stores; app store revenue across iOS App Store and Google Play
iOS App Store & Google Play
• Freemium and In-App Advertising allow publishers the opportunity to cast a wider net and better monetize in the long-run through a potentially more consistent revenue stream • Paid and Paidmium revenue both shrank from 2012 to 2013
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Freemium is more prevalent and outperforms other app store moneBzaBon models App Store ComposiBon by Business Model Worldwide, December 2013* ComposiDon By Number of Apps
8% 9% Source: App Annie
ComposiDon By Revenue
4% 4% Freemium
Paid
Paidmium
* Business model percentages are based on the combinaDon of the Top 1,000 apps on the iOS App Store and the Top 1,000 apps on Google Play from App Annie Intelligence
• Freemium drives a disproportionate volume of app revenue across both stores • Freemium apps are even more common on Google Play than on iOS App Store
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It’s never too late to switch business models! App Name*
Change in MoneBzaBon Strategy
WhatsApp Messenger
In a Forbes arDcle**, the WhatsApp founders revealed that they would switch the app price "from free to paid so they wouldn't grow too fast" with a freemium business model in place since July 2013
Skype
Though app stores take a percentage of consumer spend, Skype began allowing users to purchase Skype credits through app stores in late 2012 to limit purchase fricDon
FIFA 14
FIFA 13 was the #1 paidmium app for 2013, and Electronic Arts sDll switched over to a freemium business model for the even more successful FIFA 14
Real Racing 3
Real Racing 2 uDlized a paidmium business model, but the success of the series skyrocketed with the release of freemium Real Racing 3
* AddiDonal informaDon on these apps available on App Annie Store Stats ** hop://www.forbes.com/sites/parmyolson/2014/02/19/exclusive-‐inside-‐story-‐how-‐jan-‐koum-‐built-‐whatsapp-‐into-‐facebooks-‐new-‐19-‐billion-‐baby/
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1. The revenue opportunity for publishers 2. How do app publishers monetize their apps today? a. Freemium (free download with in-app purchases) b. Paid c. Paidmium d. In-App Advertising 3. App Monetization by Country 4. Looking Ahead 5. Key Takeaways
11
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There are many freemium value proposiBons that can appeal to different types of users Freemium MoneBzaBon
Value ProposiBon
App Examples*
Usage
Free app offers limited usage, bandwidth, hours or storage space. Pay to raise or remove those limits.
Time
Free trial of full funcDonality for a limited WhatsApp Messenger amount of Dme. Pay to conDnue using a[er Swi[Key Keyboard Dme period is up.
FuncDonality
Pay for virtual items, speed-‐ups, content, add-‐ons, upgrades, services or capabiliDes.
User Experience
Free app is ad-‐supported. Remove ads by paying in-‐app or through a separate paid download.
CombinaDon
The app uses a combinaDon of the above.
* AddiDonal informaDon on these apps available on App Annie Store Stats
NYTimes Dropbox
Clash of Clans LINE Skype Say the Same Thing SoundHound Evernote (FuncDonality and Usage)
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FuncBonality is the most common value proposiBon used by freemium app publishers Among the apps you manage or publish, how do the freemium apps moneBze (select all that apply)? Usage
Source: App Annie Survey February 2014 (n = 1694)
Time FuncDonality User Experience CombinaDon
0%
10%
20% 30% 40% Percent of Respondents
50%
60%
• Publishers need to select the right freemium technique to match each app’s function and user base
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The freemium model is very successful, even with a small proporBon of users making in-‐app purchases If your apps offer in-‐app purchases, please esBmate the percentage of your apps’ monthly average users (MAUs) who make at least one in-‐app purchase: 0% to 1%
Source: App Annie Survey
2% to 5%
February 2014 (n = 1169)
6% to 10% 11% to 20% 21% to 100%
0%
10% 20% 30% Percent of Respondents
40%
• Publishers can structure their apps to target the whales who make repeated purchases • Are your in-app purchases structured in a way that caps revenue? Can your users purchase repeatedly?
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Indexed Revenue"
Freemium model now dominates games, while growing steadily outside of games 250" 200" 150" 100"
Worldwide iOS App Store Revenue 2012 vs. 2013 Apps that use in-app purchases" Apps that do not use in-app purchases"
App Category
Top App by iOS and Google Play Revenue in 2013
Messaging LINE
SDckers
Music Streaming
Pandora Radio No ads, unlimited listening
News
NYTimes
Unlimited arDcles
DaDng
Zoosk
SubscripDon, respond to suitors
50" 0"
Examples of In-‐App Purchases
2012" 2013" 2012" 2013" Apps Excluding Games Source: App Annie Intelligence Games • Although more prevalent in games, the freemium business model has successfully expanded into other categories such as messaging, music, news and dating • This is partially driven by “gamification” of apps, but may also reflect natural 15 limits to what consumers will pay for up front
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1. The revenue opportunity for publishers 2. How do app publishers monetize their apps today? a. Freemium b. Paid (paid download with no in-app purchases) c. Paidmium d. In-App Advertising 3. App Monetization by Country 4. Looking Ahead 5. Key Takeaways
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Paid apps appearing in the Top 1000 grossing apps on iOS and Google Play most commonly in the $2-‐$6 range
Percent of Top Apps
30%
Download Price* of Apps in the Top 1000 Grossing Apps on iOS App Store and Google Play, December 2013 Source: App Annie
20% 10% 0%
Under $2.00 $2 to $3.99 $4 to $5.99 $6 to $7.99 $8 to $9.99 $10 & Over
Download Price * Download price as of December 31, 2013 from App Annie Intelligence
• App store revenue is not directly correlated to app price, and publishers must select an appropriate price for their app and category
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1. The revenue opportunity for publishers 2. How do app publishers monetize their apps today? a. Freemium b. Paid c. Paidmium (paid download with in-app purchases) d. In-App Advertising 3. App Monetization by Country 4. Looking Ahead 18 5. Key Takeaways
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There is sBll opportunity for moneBzaBon of users following a paid download Source of Paidmium App Revenue in 2013 for Key Countries* In-‐App Purchases 39% 61%
Paid Downloads
* Brazil, Canada, France, Germany, India, Japan, Russia, South Korea, United Kingdom & United States * App store revenue across iOS App Store and Google Play
Source: App Annie Intelligence
• Paidmium apps primarily generated revenue from their downloads, but users were still willing to spend a sizeable amount on in-app purchases
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1. The revenue opportunity for publishers 2. How do app publishers monetize their apps today? a. Freemium b. Paid c. Paidmium d. In-App Advertising (contains ads) 3. App Monetization by Country 4. Looking Ahead 5. Key Takeaways
20
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Over 40% of surveyed publishers used paid adverBsing within their apps Do you display paid adverBsing with any of your apps?
Yes
No
0%
Source: App Annie Survey
42%
February 2014 (n = 2039)
58% 20% 40% 60% Percent of Respondents
80%
• Publishers must strike the right balance between monetizing through app stores and monetizing through in-app advertising
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In-‐app adverBsing revenue rides on the back of popular hits with desirable ad-‐placements CumulaBve Percent of Respondents
If you display paid adverBsing, how much revenue do you earn from in-‐app adverBsing per month across all of your apps? 100% Source: App Annie Survey
80%
February 2014 (n = 658)
60% 40% 20% 0% 0
20K
40K 60K 80K Ad Revenue (USD)
100K +
• Breakout apps can make over $100K per month • Developers in the 75th to 90th percentile can make up to $10K per month • This illustrates the uniqueness of Flappy Bird reportedly making over $50K per day in in-app advertising
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Hit apps also drive in-‐app ad impressions
CumulaBve Percent of Respondents
If you display paid adverBsing within your app, how many in-‐app ad impressions do you fill each month across all apps? 100% Source: App Annie Survey
80%
February 2014 (n = 678)
60% 40% 20% 0% 0
1MM 2MM 3MM 4MM In-‐App Ad Impressions
5MM +
• Apps need usage to generate advertising impressions, which is where downloads, engagement and user retention play a critical role
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Publishers also have to find the in-‐app adverBsing format that best fits their users In 2014, how ocen will you use these in-‐app ad formats? IntersDDal Video Ads IntersDDal Non-‐Video NaDve Ads IncenDvized Ads Pre/Mid/Post-‐Roll Video Banner Ads
(n = 393) (n = 497) (n = 451) (n = 361) (n = 304) (n = 713)
0% Less Than in 2013
20%
40%
60%
About the Same as in 2013
80%
100%
More Than in 2013
Source: App Annie Survey, February 2014 (n = 807)
• Interstitial ads, incentivized ads and native ads appear set for the largest gains in 2014
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Ad networks are the primary channel for selling in-‐app ads Through which channels do you sell your in-‐app ads (select all that apply)? Ad Networks
Source: App Annie Survey
MediaDon Pladorms
February 2014 (n = 781)
Direct to AdverDsers Agencies Real-‐Time Bidding Exchanges
0%
20% 40% 60% 80% Percent of Respondents
100%
• Ad networks are still the most commonly used platform for publishers to fill ad inventory • Mediation platforms and real-time bidding exchanges are gaining traction
25
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1. The revenue opportunity for publishers 2. How do app publishers monetize their apps today? a. Freemium b. Paid c. Paidmium d. In-App Advertising 3. App Monetization by Country 4. Looking Ahead 5. Key Takeaways
26
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United States and Japan lead in mobile app revenue; revenue growth occurred across key countries Indexed Mobile App Revenue
200
Mobile App Revenue* by Country 1.7x
2012
150
2.3x
50 0
Source: App Annie & IDC
2.2x
100
United States
Japan
2013
1.7x
2.0x
1.7x
2.2x
South United Germany Canada Korea Kingdom
France
2.1x
2.2x
3.0x
Russia
Brazil
India
*In-‐app adverDsing across all app stores; app store revenue across iOS App Store and Google Play
• When developers’ target countries to enter, they should first analyze the monetization potential of the market • Japan and South Korea benefit from historically leading edge mobile technology and service environments
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SelecBng the mobile app business model that fits the target region is of paramount importance Mobile App* Revenue ComposiBon in 2013
App Revenue
100% 75%
32%
50%
42%
53% 60% 62% 64% 66% 72% 73% 77%
In-‐App AdverDsing
25% 0%
App Store
India
United United Germany Canada States Kingdom
South Korea
France
Japan
*In-‐app adverDsing across all app stores; app store revenue across iOS App Store and Google Play
Brazil
Russia
Source: App Annie & IDC
• India and the United States skew towards in-app advertising, while Japan, Brazil and Russia lean towards app store revenue
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1. The revenue opportunity for publishers 2. How do app publishers monetize their apps today? a. Freemium b. Paid c. Paidmium d. In-App Advertising 3. App Monetization by Country 4. Looking Ahead 5. Key Takeaways
29
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Mobile in-‐app adverBsing revenue to pass PC online display adverBsing revenue by 2017 for key countries Online AdverBsing and Mobile App Revenue in Key Countries*: 2013 to 2017 Indexed Revenue
Browser-‐Based AdverDsing
125
1.1x
2013
100 1.3x
75
1.1x
3.7x
Mobile Apps Source: IDC
2017
3.8x
3.1x
2.1x
50 25 0
Device:
PC Online Search AdverDsing
PC Online Display AdverDsing
PC
Other PC Mobile Display Mobile Search Mobile In-‐App Mobile App AdverDsng** AdverDsing AdverDsing AdverDsing Store Revenue (iOS App Store & Google Play)
Mobile
*Brazil, Canada, France, Germany, India, Japan, Russia, South Korea, United Kingdom & United States **Other PC AdverDsing includes online rich media, video and classified adverDsing
• Mobile in-app advertising revenue is likely to continue taking share from PC advertising revenue as advertisers allocate their budgets for maximum return
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Device Installed Base
Combined iOS and Android Smartphone and Tablet Device Installed Base in Key Countries* 2.0B Source: IDC 1.5B 1.0B 0.5B
2.3x growth
0 2013
2017
Indexed Revenue per Device
Increasing mobile devices and app-‐related revenue per device create a huge opportunity in mobile by 2017 Indexed App Store and In-‐App AdverBsing Revenue per Device in Key Countries* 150 Source: IDC 100 1.2x growth 50 0 2013
2017
* Brazil, Canada, France, Germany, India, Japan, Russia, South Korea, United Kingdom, & United States * In-‐app adverDsing across all app stores; app store revenue across iOS App Store and Google Play
• Growing device adoption and increasing revenue per device will grow the opportunity for mobile app publishers almost three-fold by 2017
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Indexed Mobile App Revenue
Key countries expected to show significant app revenue growth, creaBng a range of opportuniBes for publishers 400
Projected Mobile App Revenue* by Country 3.5x
2013
2017
300 Source: IDC
200
1.8x
100 0
3.2x
United States
Japan
3.5x
1.5x
United Germany South Kingdom Korea
3.0x
2.2x
8.7x
2.7x
3.2x
France
Canada
India
Russia
Brazil
*In-‐app adverDsing across all app stores; app store revenue across iOS App Store and Google Play
• While the United States is set for phenomenal growth, other markets such as India and Germany also offer key opportunities for app monetization growth in the future
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Most key countries expected to move even more toward in-‐app adverBsing by 2017 Percent of App Revenue from In-‐App AdverBsing
ProporBon of App-‐Related Revenue Contributed by In-‐App AdverBsing 100% Source: IDC
75% 2013
50%
2017 25% 0%
India
United United Germany Canada States Kingdom
South Korea
France
Japan
Brazil
Russia
*In-‐app adverDsing across all app stores; app store revenue across iOS App Store and Google Play
• Outliers are Japan and South Korea, where in-app purchases are expected to remain the main source of revenue
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Aside from business model, what are other key publisher consideraBon points for app moneBzaBon? RecommendaDons from app publishers: • Start Early – Determine how to moneDze up front, not a[er building your app • Value ProposiBon – Make sure your app provides value to users • App Discovery – Ensure people can find your app • User AcquisiBon – Need a large user base to bring in enough revenue • App Usage – Keep users engaged to drive moneDzaDon • Ad Sales Channel – Be sure to find the right ad network for your app • Ad Content – Show ads that are relevant to your users • User Experience – Do not let moneDzaDon strategy degrade user experience • Track, Analyze, Research, & OpBmize – Measure, iterate and improve (See your App Annie AnalyDcs, AdverDsing AnalyDcs, cSonstantly; tore Stats, & Intelligence) moneDzaDon strategy keep an eye on market trends
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1. The revenue opportunity for publishers 2. How do app publishers monetize their apps today? a. Freemium b. Paid c. Paidmium d. In-App Advertising 3. App Monetization by Country 4. Looking Ahead 5. Key Takeaways
35
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Key Themes & Takeaways • Mobile app stores (iOS and Google Play) and mobile in-‐app ads grew revenue by 2.3x and 1.6x, respecDvely, from 2012 to 2013 • The above channels outpaced mobile and PC browser-‐based ads, which grew revenue by 1.5x and 1.1x, respecDvely • Mobile apps moneDze especially well through freemium and in-‐ app adverDsing • Mobile in-‐app adverDsing revenue is projected to pass PC online display adverDsing revenue by 2017 when looking at combined revenue across key countries* * Brazil, Canada, France, Germany, India, Japan, Russia, South Korea, United Kingdom & United States
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Key Themes & Takeaways (ConBnued) • United States will remain the leading source of mobile app-‐related revenue, with 3.5x growth from 2013 to 2017 • Remarkable 8.7x revenue growth from 2013 to 2017 is expected for India’s mobile app-‐related revenue, driven largely by rapid smartphone adopDon • Publishers should consider different business model strategies depending on the geographic region; India skews toward in-‐app adverDsing, while Japan skews toward app store revenue • Ad networks are sDll the most commonly used pladorm for publishers to fill ad inventory; mediaDon pladorms and real-‐Dme bidding exchanges are gaining tracDon Report methodology and updates are available here
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