Notes About Mobile App Ecosystems

Some short notes on how I view the mobile app ecosystem situation.

What business models are working?

There are three business models for earning money on mobile apps.

1. Prepaid: The user pays upfront for the app.
2. In-app-purchase: The user pays inside the app for additional features.
3. Advertising: The advertiser pays for displaying or clicks on an ad shown inside the app.

There has recently been a lot of discussion on the success of the in-app-purchase model, and how the prepaid model is becoming less popular. In contrast, there has not been much discussion on how well the advertising models works.

In AppAnnie’s report, “The Future of Mobile & Portable Gaming” (you need to download the report for free), they clearly show that advertising does not generate much revenue. Prepaid is 44% of revenue while in-app-purchases are 51%. Advertising is only 5% of revenue.

The answer is, prepaid and in-app-purchase are working. Advertising is not.

In which countries are apps generating revenue?

AppAnnie has the answer for Q313.

What is immediately evident is that in the case of iOS, the rankings for “downloads” and “revenue” are similar. The countries listed are simply the countries with high GDP. This is totally expected.

The rankings for Google Play tell us a very different story. In downloads, the BRIC countries (countries with large, fast-growing economies) are making a strong showing with the exception of China which blocks Google sites. In revenue, the ranking is very different with Japan/South Korea dominating the scene. We also do not see the BRIC countries in revenue rankings.

My reasoning is as follows;

1. The number of downloads is strongly correlated to the number of devices which are sold in that region. Hence iOS App Store downloads are high in the countries where iOS is popular, which are the countries which have high GDP. On the other hand, due to the availability of low-cost devices, Android is very popular in BRIC countries. Hence Google Play downloads are high in these countries.
2. To rank high in revenue rankings, a country has to have high GDP-per-capita. This is because there is no such thing as low-end software. Software is the same everywhere and the prices are also the same. Most people in BRIC countries are hesitant to pay the same price as high GDP-per-capita countries for software.