Many consumer surveys point to an obvious conclusion: most people hate seeing ads on smartphones and tablets. But the truth is, contrary to the desire for an ad-free experience, when faced with the choice between free apps with ads, or paying even $.99 for apps without ads, consumers overwhelmingly choose the free apps and tolerate the ads.
In this post we explore that revealed preference for free content over content free of ads by examining four years worth of pricing information for the nearly 350,000 apps that use Flurry Analytics.
Our Apps Tell A Story
Each time we download an app, we reveal a little bit about ourselves. A glance at the apps on your phone can indicate whether you are a fan of sports, gaming, or public radio, and whether you love to hike or cook or travel. But our choices of apps also reveal our individual tolerance for advertising, and how we feel about the trade-off between paying for content directly, or paying indirectly by (implicitly) agreeing to view ads.
In many cases, apps are available in two forms: free (with ads) and paid (no ads). If you truly can’t stand to see ads in apps, you can usually pay $.99 or $1.99 to eliminate the ads and possibly get some additional functionality too. Even when a specific app does not come in paid and free versions, there are often other apps to choose from, free and paid, that perform very similar tasks like calling a taxi or looking up recipes.
So what are consumers choosing? Let’s start by considering iOS apps since they have been available for longer than Android apps. Note that all of our measurements in this post are weighted by user numbers so the apps with more users contribute more to the total trend.
People Want Content To Be Free
The chart below shows how the proportion of free versus paid apps has changed over the years in the App Store. Between 2010 and 2012 the percentage of apps using Flurry Analytics that were free varied between 80% and 84%, but by 2013, 90% of apps in use were free.
Some might argue that this supports the idea that “content wants to be free”. We don’t see it quite that way. Instead, we simply see this as the outcome of consumer choice: people want free content more than they want to avoid ads or to have the absolute highest quality content possible. This is a collective choice that could have played out differently and could still in particular contexts (e.g., enterprise apps or highly specialized apps such as those tracking medical or financial information).
Android Users Are Even Less Willing to Pay For Apps
Up until now, we have focused on iOS apps because they have been around longer, but what about Android? Conventional wisdom (backed by a variety of non-Flurry surveys) is that Android users tend to be less affluent and less willing to pay for things than iOS users. Does the app pricing data support that theory? Resoundingly.
As of April 2013, the average price paid for Android apps (including those where the price was free) was significantly less than for iPhone and iPad apps as shown below. This suggests that Android owners want app content to be free even more than iOS device users, implying that Android users are more tolerant of in-app advertising to subsidize the cost of developing apps.
These results also support another belief derived from surveys and some transaction data: iPad users tend to be bigger spenders than owners of other devices, including iPhone. On average, the price of iPad apps in use in April of this year was more than 2.5 times that of iPhone apps and more than 8 times that of Android apps. This is likely to be at least partly attributable to the fact that on average iPad owners have higher incomes than owners of other devices.
Developers’ Pricing Decisions Were Data-Driven
On the surface, the rise of free apps could be seen as herding behavior: maybe app developers saw how much free competition there was and decided to make their apps free too. It’s certainly possible that may have happened in some instances, but by digging deeper into app pricing patterns over time, we were able to see that many developers took a much more thoughtful approach to pricing.
We looked at historical iOS app data (again because iOS apps have a longer history) to identify apps that have been the subjects of pricing experiments. That typically took the form of A/B testing, where an app was one price for a period of time then the price was raised or lowered for a period of time, then raised or lowered again. This lets developers assess users’ willingness to pay (i.e., price elasticity of demand) based on the number of downloads at different price points.
The chart below shows the percentage of tested and untested apps that were free (again, weighted by user numbers). The vast majority of untested apps in green were free all along, so it’s most interesting to look at the trend among apps that were subject to pricing experiments, in blue. As shown, there was an upward trend in the proportion of price-tested apps that went from paid to free. This implies that many of the developers who ran pricing experiments concluded that charging even $.99 significantly reduced demand for their apps.
The People Have Spoken; It’s Time To Change The Conversation.
While consumers may not like in-app advertising, their behavior makes it clear that they are willing to accept it in exchange for free content, just as we have in radio, TV and online for decades. In light of that, it seems that the conversation about whether apps should have ads is largely over. Developers of some specialized apps may be able to monetize through paid downloads, and game apps sometimes generate significant revenue through in-app purchases, but since consumers are unwilling to pay for most apps, and most app developers need to make money somehow, it seems clear that ads in apps are a sure thing for the foreseeable future. Given that, we believe it’s time to shift the conversation away from whether there should be ads in apps at all, and instead determine how to make ads in apps as interesting and relevant as possible for consumers, and as efficient and effective as possible for advertisers and developers.
Apps are telling – they signal our personal tastes and interests. There are probably nearly as many unique combinations of apps as there are devices, and the apps we use reveal a lot about us. Based on Personas that Flurry has developed for its advertising clients, we are beginning a series of blog posts to shed light on different groups of smartphone and tablet users and their app usage patterns. Moms -- who often control household budgets and expenditures -- are considered the prime audience for many brands. So we thought, where better to start our Personas series than by examining what moms are doing with apps?
Our analysis for this post relies on iPhone, iPad, and Android app usage during May of this year for a large sample (24,985) of American-owned smartphones and tablets. Discussion of app usage is based on time those devices spent in the 300,000+ apps that use Flurry Analytics.
What Apps Do Moms Use?
Moms, like most other groups, spend a lot of smartphone and tablet time playing games. In fact, on Android, more than half of the time American Moms spent in apps was spent playing games. Similarly, on iPad moms spent about half their time in games, but on iPhone, that percentage drops to a little less than a third of their time. On iPhone, lifestyle apps capture a larger proportion of Moms' attention (12%) than on iPad and Android devices.
As shown below, the second most popular category among moms on iPhone and Android devices is social networking. On iPad, newsstand (24%) was the second most popular category, demonstrating its strength as a screen for displaying magazine type content.
Where Do Moms Over-Index?
Most mobile consumers spend a large proportion of their app time in gaming and social networking apps, so what makes moms different from the other American owners of smartphones and tablets? Across iPhone, iPad, and Android, American Moms spend more time in education apps than the general population. Also, moms who own an iPhone or an Android device spend a greater share of their app time in health and fitness apps. Unsurprisingly, moms are also heavy shoppers. Android moms over-index for time spent in shopping apps, and iPhone moms over-index for time spent in catalog and lifestyle apps. (For this post, we have honored The App Store and Google Play’s systems for classifying apps. In iOS, shopping apps can fall into either the catalog or lifestyle category, whereas Android has a dedicated “shopping” category.)
Moms Own More Tablets And Gravitate Toward iOS
Compared to other American device owners, moms are enthusiastic users of tablets. As shown below, among the general population 25% of connected mobile devices were tablets, but for moms that percentage is 35%. This could be driven by the fact that many parents use tablets for sharing games and stories with their children.
60% of the smartphones and tablets we looked at were iOS devices. (Note that this number is a function of the installed base of active devices, so does not reflect market shares from sales in recent quarters.) For American Moms, the numbers lean even further toward iOS devices. A whopping 77% of moms own iOS devices while just 23% own Android. There are at least two factors that may explain this. First, it could be a function of Moms’ greater tablet ownership since iPad dominates the tablet market. Second, surveys show that women in general skew toward iOS devices. The key takeaway is that moms are much more likely to be found using iOS devices than Android devices.
For Moms, Connected Devices Are More For Escape Than Utility
So what can we infer about American Moms based on their app usage? For one thing, it appears that they use smartphones and tablets as a refuge from their busy lives. On average, half or more of the time they spend in apps is spent on social networking and game apps. In this sense, they are not that different from other Americans, but it does show that even busy moms need to escape and socialize, and mobile devices provide a way to do that.
Apps where American Moms spend a disproportionate share of time relative to other Americans also tell us something about their more serious side. Those apps tend to be improvement-oriented: education and health and fitness, for example. Moms are using their devices to help them achieve personal goals and possibly to educate their children.
We hope this post gives brands and developers a better idea of where the coveted American Mom is most likely to be during mobile time, and what is capturing their attention. App developers can tap into this valuable group by building experiences that give moms an escape from their hectic day-to-day routine, keep them socially connected, and help them improve different aspects of their lives. Media planners who want to reach American Moms should continue to buy ad inventory in gaming, news / magazine, and social networking apps, and to weight their budgets toward iOS apps.
Over the past four years, Apple’s iOS and Google’s Android have been locked into a two horse race for mobile OS ownership. In the past year, there has been a lot of focus on the rise of Android and its lead in device market share. More recently, many analysts started questioning the true value of Android’s market share especially in the high-end smart phone and tablet markets. At Flurry, we felt that it was important to take a step back and look beyond straight device or activation numbers to simply understand what market or markets are being contested.
In this report we do just that, arguing that there is more than one race for mobile market share occurring simultaneously. We analyzed four years worth of Flurry’s data to understand who is ahead in which contests, discuss the apparent strengths and weaknesses of the competitors, and consider the implications for the overall mobile ecosystem.
Android Leads In Device Market Share
It is clear from announcements from device manufacturers such as Apple and Samsung that Android is winning the race for device market share. Flurry’s own data supports this. The number of Android devices we are tracking worldwide doubled in the past year, reaching 564 million as of April of 2013. While the installed base of iOS devices that we track has also grown over that time, Android pulled ahead in active device share in late 2012 and has maintained that position ever since. This is shown in the chart below. This lead followed a period of just over a year in which the number one spot was changing hands. Prior to that Apple dominated the connected device market following the launch of first iPhone and then iPad. Approximate launch dates of some of the major iOS and Android devices are also shown on the chart as points of reference.
iOS Leads In App Market Share
In spite of Android’s rapid rise and current lead in device market share, iOS continues to lead in terms of time spent in apps. Total time in Android apps nearly equaled that in iOS apps in March of 2012, but it has declined somewhat since then, after the launch of the 3rd generation iPad.
Considering that there are more active Android devices than iOS devices but iOS users collectively spend more time in apps, it’s not surprising that more time per device is spent in iOS apps than in Android apps. The exact proportion of time spent in apps per Android device relative to iOS devices is shown below.
Why Doesn't App Share Follow Device Share?
An obvious question that arises when looking at the charts above is why app usage shares don’t follow device shares. We think there are at least three possible explanations.
One is that at least up until now the two dominant operating systems have tended to attract different types of users. Once Apple established the app ecosystem many of the consumers who purchased iOS devices were doing so to be able to run apps on those devices. They were buying a computer that fit in their pocket or purse. In contrast, many Android devices were provided free by carriers to contract customers upgrading feature phones. To the extent that those customers were just buying replacement phones, apps may be a nice add-on, but not a central feature of the device.
A second possible reason for why Android’s share of the app market lags its share in the device market is that the fragmented nature of the Android ecosystem creates greater obstacles to app development and therefore limits availability of app content. Hundreds of different device models produced by many manufacturers run the Android operating system. App developers not only need to ensure that their apps display and function well on all of those devices, but they also need to contend with the fact that most devices are running an old version of Android because the processes for pushing Android updates out to the installed base of Android devices are not nearly as efficient as those for pushing iOS updates to iOS device owners.
The final possible explanation for the differences in device and app usage shares relates to the first two. It is that the arguably larger and richer ecosystem of apps that exists for iOS feeds on itself. iOS device owners use apps so developers create apps for iOS users and that in turn generates positive experiences, word-of-mouth, and further increases in app use.
While app share and device share are two key races in the competition for mobile supremacy, they are not the only races. Another that has been in the news recently is the race for profits, in which Apple is the clear leader. Apple also currently appears to be winning the race for developer attention – probably both because of its share of app usage as described above and because both surveys and anecdotal evidence indicate that iOS device owners tend to generate greater advertising and in app purchase revenue.
A side race that Android appears to be winning is that for the emerging world, where its lower prices and open architecture give it an advantage. Apple has taken notice of that and is fighting back with incentives, monthly payment plans and cash backs in several emerging countries. In India, for example, a Times of India article suggests that these programs have given the iPhone a 400% boost in sales in the past few months.
As we’ve shown, there are multiple contests for mobile market share occurring simultaneously. That raises a question about whether that is a temporary state that will eventually give way to a clear overall winner or if there can be multiple long-term winners. For the moment it seems as though the consumer is winning in that they are able to choose devices from two dominant ecosystems as well as several smaller ecosystems.
Marshall McLuhan popularized the idea of the “global village” in the 1960s through his books The Gutenberg Galaxy: The Making of the Typographic Man and Understanding Media. McLuhan, who is credited with predicting the concept of the Internet decades before it actually existed, described the instantaneous movement of information from every quarter to every point at the same time, enabled by electric technology. The result is that the globe contracts into a village.
Post-Internet, the explosive adoption of iOS and Android smart devices best extends his theory. Enabled by this new computer-mediated platform is the distribution of apps, from every quarter to every point, at the same time. Consider that in the United States today, right now, teams from Finland, Japan, Israel and the UK share top grossing positions alongside U.S. teams in the iTunes App Store and Google Play. Today, in the top Chinese app stores, one can find American, French and Japanese companies alongside Chinese companies for a top share of revenue. And in the top UK app stores, companies from Serbia, Finland, Japan, China and the U.S. are counted among local UK companies as top revenue generators.
Welcome to the new global village built on a foundation, per Flurry’s count, of three quarters of a billion active iOS and Android smart devices, simultaneously running across more than 220 countries and territories that will generate revenue approaching $10 billion in 2012. This report focuses on the further shrinking of the global village, driven by the prolific spread of global smart devices over the last 12 months. We show which countries have the largest active smart device installed bases, are experiencing the fastest growth and how the distribution of app usage is shifting to become increasingly international. For its analysis, Flurry uses data from more than 250,000 applications that it tracks, running on more than 750 million devices worldwide. With its application coverage, Flurry estimates that it can reliably detect over 90% of all iOS and Android devices active in the world during a given month.
Let’s start by looking at which countries make up the world’s largest app markets.
The chart above shows the top markets by their active iOS and Android user bases during October 2012. The US and China tower over the next group of top markets by at least five times. And while the U.S. has added a whopping 55 million net active devices since October 2011, China has added a dizzying 125 million, a figure that totals the sum of the UK, Japan and South Korea’s combined, current active user base. Flurry predicts that China will surpass the U.S. in total installed base by the end of Q1 2013, delayed only by the upcoming massive holiday season that will spike the U.S. installed base.
The chart above shows the growth in active devices per country between October 2011 and October 2012. China leads the world with an impressive 293% year-over-year growth rate, spurred by the potent combination of its vast population and rapidly growing middle class. For this chart, Flurry selected countries that had a minimum of a half a million active devices as of October 2011. Compared to prior Flurry international growth studies, we note that a new set of fast-growers has now entered the top 10 including Colombia, Ukraine, Venezuela and the Philippines, further demonstrating the shrinking global village.
Lastly, we look at the volume of application usage across the globe tracked by Flurry, which we estimate comprise of approximately one fifth of all worldwide app sessions on iOS and Android, the world’s largest cross-platform sample. Year-over-year app sessions in the U.S. declined as a proportion of WW sessions between October 2011 and October 2012, from 48% to 29%. The balance of the top 10 (ranks 2 -9) grew from 27% in October 2011 to 39% in October 2012. The rest of the world also made gains from 25% in October 2011 to 32% in October 2012. In total, 71% of all app sessions now take place outside the U.S.
Over the last century, the distribution of the world’s information has migrated from print (e.g., books and newspapers) to mass media (e.g., radio and television) to computer-mediated media (i.e., the Internet). Over just the last five years, however, we’ve taken the most significant step forward in the evolution of media distribution with the unprecedented adoption of smartphones and tablets: portable, broadband-connected super computers connected to The Cloud. Applying McLuhan’s point of view that “the message is the media,” apps are the new message.
The iTunes App Store and Google Play now offer more than 600,000 apps each. And Apple’s most recent earnings call revealed that the company has paid out more than $5.5 billion to developers since the launch of the App Store. With unprecedented consumer adoption of iOS and Android devices, low barriers to entry for developers and throngs of paying customers, Apple and Google have created massive economic opportunities for developers.
In particular, iOS and Android have made it possible for independent developers and mobile app start-ups to thrive. As industries mature, however, we expect established players and brands to invade from other platforms, depressing opportunities for many early entrants. Along with this, we expect to see market revenue concentrate among fewer larger players. For this report, with these typical patterns in mind, Flurry modeled worldwide mobile app revenue, revenue sources and revenue concentration among top-ranked mobile apps on iOS and Android. For this report, we used data from over 200,000 mobile applications in the Flurry Analytics data set. Let’s start with market growth.
The chart above compares worldwide revenue generated by iOS and Android apps in 2011 vs. 2012. For 2012, we modeled the first half of the year based on actual data, and then applied growth rates to estimate the rest of the year based on the proportion of revenue observed in 2011 between the first and second half of that year. In 2011, Flurry calculates that iOS and Android applications generated a total of $5.4 billion across premium, in-app purchase and advertising revenue. Advertising made up 18% of the revenue. In 2012, Flurry forecasts that revenue will grow by 60% over the previous year, reaching $8.7 billion. Advertising is the fastest growing revenue category with growth forecasted at more than 100%, from $980 million in 2011 to $2 billion in 2012, delivering 23% of 2012 total revenue. Likewise, premium and in-app purchase revenue is also increasing at a rate of 50%, from $4.5 billion in 2011 to $6.7 billion in 2012.
Next, we look at the concentration of revenue among top ranked apps from 2010 to 2012. Please note that for this analysis, we focus on premium and in-app revenue only, excluding ad revenue. Comparing these two years shows how dramatically the distribution of revenue is shifting across the long tail. Starting on the left, in 2010, the green part of the column shows that 28% of revenue was generated by the Top 25 ranked titles on iOS and Android. In 2012, we estimate that the Top 25 will drop to commanding about half of total revenue, or 15%. Likewise, comparing the grey sections of each column, the rest of the Top 100 apps will drop from earning 27% of revenue in 2010 to 17% of revenue in 2012. Conversely, revenue generated by the long tail significantly grows from 2010 to 2012. Comparing the blue sections, any apps ranked beyond the top 100, we observe that long tail revenue explodes from earning under half of all premium and in-app purchase revenue in 2010 to over two-thirds in 2012.
Finally, we rank the revenue generated by each of the top 100 positions across the iTunes App Store and Google Play. For each year, we set the revenue generated by the top spot at 100%. Then, relative to the top spot, we take the percent each position generates from the 2nd rank all the way through the 100th. By normalizing each curve in this way, we can compare the relative revenue generated per ranked position in the top 100 per year. For example, we can see whether ranking number 50 generates more relative revenue in 2012 versus 2010. Most interestingly, this kind of analysis shows whether the developer “middle class” is better off today than its “parents’” generation.
Now that we have relative earning power mapped per ranked position, we can study the heights and shapes of the curves. Comparing 2010, the green curve, to 2012, the blue curve, we notice that two things are happening simultaneously. First, each position in the top 100 is more valuable now, which makes sense because the market has grown overall. Second, the blue 2012 curve is flatter. Unlike the green 2010 curve, which steeply drops during the top 10 ranked positions, indicating the wealth is more concentrated at the top, the blue 2012 curve stabilizes shortly after the top 5 positions and then maintains a high, gently sloping plateau all the way through the 80th position, where it then settles just above the green curve, ostensibly continuing to “fly” at an altitude higher than that of the green curve out across the long tail. In short, this means that the middle class has more earning power, taking a substantial share of total wealth in the economy.
With the app economy booming, companies like Facebook, Twitter and Zynga are under tremendous pressure from investors to seize the opportunity presented by this new platform. However, with software delivered in the form of downloadable applications, unguaranteed network connectivity, different consumer behavior and control exerted by platform providers such as Apple and Google, the mobile app landscape creates different, meaningful challenges for companies attempting to enter the app space from other platforms. Combined with a marketplace that reduces the power of brand recognition (e.g., apps are free for consumers to try risk free), market wealth unexpectedly continues to shift to the long tail, funding continued R&D, advertising budgets and other activities that increase their competitive strength. The age of middle-class app developer has arrived. In this economy not only are the rich getting richer, but so too are the poor, and gaining on the rich.
The economic boom created by Apple and Google through their iOS and Android platforms has precipitated a renaissance among entrepreneurial developers. With some of the lowest barriers to entry in the history of software development and distribution, apps are getting built and downloaded at breakneck speeds. Earlier this month, Apple crossed a record 25 billion downloads from more than 550,000 available apps. Google announced in December 2011 that it had crossed 10 billion downloads from 400,000 available apps.
As markets mature, rational economic behavior emerges. Even the most passionate, idealistic software start-ups focus increasingly on markets where revenue generation is highest. In this report, Flurry compares the ability for app developers to generate revenue per user across the major app stores. We examine a basket of top-ranked apps that have similar presence across iOS, Amazon and Android. Their primary business models are in-app purchase, which is the revenue type we compare for this analysis. Additionally, earlier research by Flurry found that the in-app purchase revenue model generates the majority of revenue for apps. Combined, these apps average 11 million daily active users (DAUs). We measured their revenue per user over a 45-day period, from mid-January through the end of February 2012.
The chart above compares revenue generated per user across iOS, Amazon and Android app stores. We start by taking the revenue generated per user in the iTunes App Store and setting it to 100%. We then compare the relative revenue generated per active user from Amazon and Google to the amount of revenue per active user generated by the iTunes App Store. Doing so, we find that Amazon Appstore revenue per active user is 89% of iTunes App Store revenue, and Google Play revenue per active is 23% of iTunes App Store revenue. Another way to interpret the results is that, for the same number of users per platform, every $1.00 generated in the iTunes App Store, will also fetch $0.89 in the Amazon Appstore and $0.23 in Google Play. These results mirror those of a similar analysis conducted by Flurry last December, where we found for every $1.00 generated per user in the iTunes App Store, developers generated $0.24 per user in the Android Market.
Amazon's bet to fork Android in order to put consumers into their own shopping experience on Kindle Fire appears to be paying off. Showing its commerce strength, Amazon already delivers more than three times the revenue per user in its app store compared to what Google generates for developers.
For some possible insight, let's consider the DNA of each company. Apple runs the highest revenue-per-square foot generating retail store on the planet as well as the successful iTunes store. Amazon, who invented the one-click purchase, perfected online shopping with data, efficiency and customer service. Google’s strength is in scalable online search engine and advertising technology. Running a store, retail or digital, has not been Google's traditional core competency.
As developers make decisions to support different platforms, the ability to generate revenue per user will always be a key factor. Based on revenue potential, we expect to see an increasing number of developers support Amazon. We also believe that companies such as Samsung, the leading Android-supporting OEM, could also consider emulating Amazon’s move to fork Android. Google, who recently saw the departure of Eric Chu, the most public-facing proponent of Android Market improvement, will need to reduce commerce friction to maintain strong developer support. From an ecoystem perspective, the emergence of Amazon as an additional distribution channel appears to be a boon for developers.
[UPDATE: For clarity, I went back through this post and specified, where appropriate, including in the title of the chart, that the revenue comparison in this analysis was per user, not total revenue generated. Peter]
Apple and Google have ushered in a new era of mobile computing whose consumer adoption is rivaled only by the PC revolution of the 1980s and the Internet boom of the 1990s. Since 2007, more than 440 million iOS and Android devices have been activated, with 1 million additional devices across both platforms now activated each day.
On top of this massive and rapidly expanding platform, a software battle is raging. With very low barriers to entry, and friction-free digital distribution, companies have been feverishly building, shipping and updating applications, intent on capturing and monetizing consumer audiences. To illustrate this growth, let’s look at the number of available apps in the App Store vs. the Android Market.
This chart is comprised of publicly available data. Where data wasn’t available for the same month in both markets, we estimated the number of available apps based on interpolation (e.g., approximating a point between two existing data points), or by looking at the growth rate leading up to a specific month. The number of apps is growing significantly in both markets. And while the App Store has attracted more apps to date, the Android Market is closing the gap. Now, let’s turn our attention to total app downloads.
The chart above sums Android Market and App Store downloads per month. Starting on the left, with January 2010, we show downloads per month every three months, until we reach October 2011. In October 2011, we estimate over 2.6 billion apps were downloaded. The number of apps now downloaded is four times greater than this time last year, in October 2010. With the holiday season under two months away, the 3 billion-mark download per month mark surely will be shattered this December. Month-over-month, app downloads have been growing at an astounding rate 11.4%. With app downloads growing swiftly, even faster than the number of apps being made available, let’s now look at app retention.
This chart shows the percent of consumers that continue using an app, since their first use, over 12 months. At the far left, marked as month “0,” 100% of a consumer cohort begins using an app. After three months, 24% of them continue using. After 6 months, this percent shrinks to 14%, and, by 12 months, only 4% are left. For this analysis, we compiled data from 25 apps downloaded a cumulative 550 million times.
With app downloads increasing month-over-month and app usage not only climbing, but also surpassing web usage, we know that consumers are both discovering and using apps more than ever. And while the industry often talks about discovery as a problem, we think the real problem is traffic acquisition. To understand this, we turn to the web.
Online, website marketers don’t stop marketing after they get a consumer to visit the site only for the first time. They can get in front of the consumer in various ways again, and spur a return visit by having the consumer click on a link. Typically, online, a visit starts from an organic search result, but search doesn’t exist for apps the same way, and consumers seem to browse more, especially given touch interfaces. The closest thing to search in the app world is a consumer browsing the top ranking lists, which represents “popularity” in a similar way to top ranking organic search results. However, in the app world, top rank lists are more like “paid search” since heavy advertising is what typically launches an app to rank high, at least for a while.
Further, always trying to rank high, as a tactic, is not only untargeted and expensive, but also suffers from diminishing returns. First, the bar required to make the top 25 keeps rising, as the installed base of consumers grows and more apps compete for a fixed number of top spots. Regarding diminishing returns, an app can only appeal to first-time-users each time it ranks. It’s a pure first-time acquisition tool. App users don’t re-launch apps when seeing them in the top rankings. They need to go to their app icon and launch from there. So as an app’s installed based grows over months, even years, the relative number of incremental users that can be added from ranking in the charts continues becomes relatively smaller. In other words, over time, an app is better off targeting its much larger installed base of users to increase usage. This is the equivalent of traffic acquisition.
The key challenge is that developers lack the tools to bring traffic back to their app, post-download. And, therefore, the industry has a traffic acquisition problem, not a discovery problem. Only when compelling ways of connecting with existing app users are established, that allow the easy re-launch of an app, can app makers address retention through marketing, and fully control their own traffic acquisition.
In this new age of mobile computing, the long-term success of Apple and Google depends largely on their ability to amass third-party developer support. Developer innovation improves the way consumers connect with others, entertain themselves, work, and more, all through apps. The more a platform provider can attract unique and superior content, the more appealing the hardware device appears to consumers prior to purchase and the more loyal they become afterwards.
Last week, Apple reported that it had sold a cumulative 200 million iOS devices. Currently the App Store contains more than 425,000 apps, with total downloads surpassing 15 billion. From the developer’s point of view, the most attractive aspect of the iOS consumer audience is that they all have credit cards on file with iTunes. This means 100% of them can seamlessly pay for apps and in-app purchases. All told, the App Store offers a powerful business opportunity to developers and has attracted leading mobile developer support.
At the same time, Google’s more open Android OS distribution strategy has garnered the support of numerous notable OEMs, spawning a rapidly growing installed base of Android devices that is gunning to overtake the iOS installed base. With broader distribution across more carriers, Android device activations surpassed 500,000 per day tweeted Andy Rubin last month. This growth is up from 300,000 activations per day reported just last December. In terms of apps, the Android Market has 200,000, and Google said it crossed the 4.5 billion downloaded application mark in May.
At Flurry, we regularly track developer support across the various platforms that compete for their allegiance. When companies create new projects in Flurry Analytics, they download platform-specific SDKs for their apps. Since resources are limited, the choices developers make in building for different platforms strongly signal their confidence in those platforms. They are literally investing their R&D budgets in the hopes of generating future revenue. In total, over 45,000 companies use Flurry Analytics across more than 90,000 applications. For this report, we compare Q1 to Q2 new project starts.
Studying the numbers, it’s readily apparent that Android has lost developer support to iOS. Specifically, Android new project starts have dropped from 36% in Q1 to 28% in Q2. Overall, total Flurry iOS and Android new project starts grew from 9,100 in Q1 to 10,200 in Q2. Of note, this drop in Android developer support represents the second quarter-over-quarter slide, which follows a year of significant, steady growth for the Google-built OS. Over the course of 2010, Android developer support had steadily climbed each quarter, peaking at 39% in Q4 2010.
Considering the events that could have precipitated this shift in developer support, Flurry has identified two probable causes:
1. iPhone Launch on Verizon: With iPhone’s arrival on Verizon in February 2011, three and half years after launching on AT&T, Apple closed the most significant vulnerability gap in its U.S. distribution, and likely worldwide. In fact, with its lengthy exclusive distribution agreement of iPhone on AT&T, it could be argued that Apple itself gave Android the opportunity to reach critical mass on other carriers, most notably Verizon. In that time, Google, Verizon and a host of OEMs worked hard and fast to push Android devices as an alternative to AT&T’s iPhone juggernaut. With Verizon’s launch of the iPhone, the pendulum appears to have swung back in favor of iPhone over Android development.
2. iPad 2 Launch: Establishing an installed base of more than 20 million tablet devices in less than one year, the iPad success story has been compared to taking a buzz-saw to the PC industry. Apple’s iPad shipments, from its last disclosed quarter, were higher than the initial first two quarters of iPad availability. Apple has additionally claimed that it is seeing the “mother of all backlogs.” Building efforts lag behind consumer demand for the device. We believe that wholesale consumer acceptance and adoption of tablets, which just a year ago was questionable within the industry, is further luring developers to build for iPad instead of Android.
While Android’s device installed base continues to surge, ongoing work to improve the Android Market layout and to push forward the adoption of Google Checkout are critical to its success. PayPal’s recent acquisition of mobile payment player, Zong, demonstrates that Google may not be enabling consumer payment quickly or well enough, which is inviting 3rd party competition and creating billing fragmentation. Furthermore, the development community is concerned about the rising cost of deploying across the Android installed base, due to the double whammy of OS and storefront fragmentation. With developers pinched on both sides of the revenue and cost equation, Google must tack aggressively at this stage of the race to ensure that Apple doesn’t continue to take its developer-support wind.
To free, or not to free
Among the most common questions we get from game developers is whether the free-to-play (a.k.a. freemium) model makes sense for their next game. For teams that have always charged players up-front with a premium pricing model, the thought of distributing games for free makes them very uncomfortable. I made the switch myself when I joined a free-to-play social games startup as a Studio Director in 2009, so I’m well aware of both the anxiety and the opportunity.
To best answer this question, I decided we should do it the Flurry way: with hard data. To do so, we compared the revenue generated by pricing model, freemium vs. premium, among the top 100 grossing games in January and June of this year. Premium simply means charging for the download (e.g., $0.99). Freemium describes the free-to-play model, where the game is given away for free, and then the consumer can purchase virtual currency and/or virtual goods through in-app-purchases. Tracking over 90,000 apps with its analytics service, Flurry can measure the amount of revenue generated per ranked position in the App Store top grossing category. The chart below compares the proportion of revenue generated by each model.
Inspecting the chart, we see that free games already represented 39% of the games revenue generated by Apple’s App Store in January, but that number has since risen to 65% last month. The traction of the freemium business model is undeniable and growing fast. In fact, with games often occupying more than 75% of all top 100 grossing apps in the app store, it’s the single most dominating business model in the mobile apps industry today.
Unleashing the beast
In the old paid world of video games, success was measured by multiplying the number of units sold by the unit price, the traditional retail model. In the new world of digital games distribution, it’s all about how many players you can keep engaged with your free game, followed by how many compelling spending opportunities you can provide them.
When you make your game free and add in-app purchases, two powerful things can happen: first, more people will likely try your game since you’ve made the “ante” zero; and second, you will likely take more total money, since different players can now spend different amounts depending on their engagement and preferences. It’s not unheard of for individual players to spend into the tens of thousands in a game they like.
Flurry data shows that the number of people who spend money in a free game ranges from 0.5% to 6% depending on the quality of the game and its core mechanics. Although this means that more than 90% of players will not spend a single penny, it also means that players who love your game spend much more than the $0.99 you were considering charging for the app. And since you gave away the game for free, your “heavy spender” group can be sizable.
Free-to-play is here to stay. If you’re a game studio, you simply need to understand how to take advantage of this game-changing opportunity. In future posts, I’ll cover strategies and tactics you can employ to make this powerful model work best for you.
In the United States, Thanksgiving weekend sales are closely studied to predict consumer spending for the upcoming holiday season. This year, NPD Group reported that the share of shoppers for brick-and-mortar increased by about 6 percent while online shoppers' share grew by 44 percent. Further, according to IBM’s Coremetrics, Cyber Monday online sales already exceeded this year's Black Friday by 31%.
Similarly, over the Thanksgiving weekend, Flurry measured strong growth for new smartphone devices and application downloads. Note that because the mobile device and application download markets continue to grow at accelerating rates, we used a week-over-week vs. year-over-year comparison.
The chart below shows the number of new devices detected by more than 55,000 applications in the market which include Flurry Analytics. The bulk of growth is driven by Apple iOS devices and a number of recent break-out Android devices, including the Samsung Galaxy S, Motorola Droid 2 and LG Optimus S. Flurry detects a new, unique device the first time an application which includes Flurry Analytics is launched on that device.
Reviewing the chart above, new devices detected on Black Friday jumped by 57% over the previous week's Friday. Total new device growth for the holiday weekend, compared to the same four-day period from the prior week, was 31%. Interestingly, this surge demonstrates that consumers appear to be buying and activating smartphones early in the season for personal use. This early indicator suggests that strong spending on smartphones as gifts throughout the season should continue.
App consumption over Thanksgiving weekend also showed solid growth. However, as the chart below shows, downloads on Thanksgiving Day led all days of the holiday weekend with 54%, versus new handset growth which led on Black Friday. At 39% growth, Black Friday applications were also strong. Total week-over-week download growth was 25%.
Christmas is historically the strongest season of app downloads to mobile phones. As consumers receive new handsets, they immediately personalize their handsets with new content. With early growth indicators for both handset and download growth, Flurry predicts Holiday 2010 will deliver another record-breaking season for application consumption and mobile device sales.