Smartphones app usage, facilitated by explosive iOS and Android device adoption, has created among the fastest-growing media channels in the history of consumer technology. Flurry estimates that, worldwide, over 600 thousand apps are available for over 350 million iOS and Android devices. On average, consumers have downloaded over 65 apps per device.
While micro-transaction models, largely associated with free-to-play games, have proven the most lucrative business model for iOS and Android apps, there have been big bets placed on advertising. In addition to its own iAd initiative, Apple acquired Quattro, a mobile ad network, for $275 million in January 2010. This was shortly after Google announced its intention to acquire Admob, a rival ad network, for $750 million in November 2009.
In June 2011, Gartner projected that mobile advertising revenue would double to $3.3 billion worldwide in 2011, and grow from around $300 million to over $700 million in 2010 in North America. eMarketer, a research firm, predicts that U.S. mobile ad spending will top $1.1 billion this year.
In this report, Flurry focuses on the size and growth of available advertising inventory within iOS and Android applications. We used data from over 100,000 applications tracked by Flurry to estimate the size of this media channel. The chart below shows that U.S. app inventory is not only growing at a staggering rate, but also poised to absorb the equivalent of the entire U.S. Internet display advertising spend by the end of this year.
Reviewing the chart, we see that U.S. mobile app inventory has grown aggressively over the last year. With its growth trajectory, it will be able to absorb the entire U.S. online display ad spend by the end of the year. Another way to look at this is that, in approximately two years, mobile app inventory is growing so aggressively that it could easily meet the demand of a mature, 15-year-old form of online advertising.
To arrive at these figures, we first tracked the average number of ads shown per application session, which we found to be 4.3. The average application session is 4.2 minutes. For reference, the average session length of a website is just under 1 minute. We then looked at the number of sessions. Flurry tracks about 20% of all sessions in the market, and so we grew our numbers accordingly to come up with a market size.
We compared this inventory with the net spend on display advertising in the US. The US market currently spends a little over $12bn per annum on online display advertising. We assumed a conservative CPM (cost per 1000 impressions) of $2.50 for mobile application inventory. As a point of reference, a typical 30 second video on a large video streaming website such as Hulu has a CPM of $10-$15.
We at Flurry see four reasons why the market is growing at such a fast rate:
1) Smartphone growth – over a million smartphone devices are currently being activated on a daily basis
2) Publisher growth – The App store now has over 400,000 apps in the market and Android, with over 200,000, is catching up quickly
3) Session use growth - Flurry has previously found that smartphone users now spend more time in mobile apps per day than the average Internet users spends online.
4) Publisher integration of ads – with larger screens, targeting, and increased adoption of mobile applications, more publishers are integrating ads into their apps
Not only is inventory growing, but Flurry has also found that the average user of a smartphone is a very attractive target for advertisers. With a sample of more than 60,000 app users, we used location data and zip code statistics available from the U.S. Census Bureau to understand their demographics. On average, smartphone users are better educated and earn higher household incomes than the average of the U.S. population.
Additionally, looking at age and gender, we find that U.S. smartphone app users cluster into younger age groups and trend slightly more female.
In 1994, Hotwired.com was the first company to start selling display advertising in large quantities on the Internet. Back then, it took over six years for advertisers to embrace this model. For mobile apps, less than four years into their growth cycle, a critical mass of highly attractive consumers has been achieved. With growing awareness by brands and advertising agencies, we now expect digital advertising on mobile to take off in earnest.
Last month, we published two posts about iOS and Android freemium game revenue. The first showed that, over the first half of 2011, game revenue in the App Store shifted dramatically from premium to freemium, with 65% of all revenue generated among the top 100 games now coming freemium games. In fact, at the time of writing this blog post, all of the top 5 titles in the App Store top grossing category were freemium games, and 22 of the top grossing 25 were games. The second post revealed that consumers spend an average of $14 per transaction when making in-app purchases in freemium games.
With in-app purchases in freemium games driving the bulk of revenue generation in the iOS and Android app economy, Flurry devotes this post to what consumers actually spend their real dollars on. With over a year’s worth of data, Flurry categorized over 57 million purchase transactions across a set of freemium iOS and Android games that averaged over 2 million daily active users.
As in the world of retail goods, the two main categories available for purchase in freemium games are durable and consumable goods. In freemium games, we define durable goods as items that provide a permanent gameplay benefit. Examples include buying armor to increase defense in a role-playing game, or buying a building in a city simulation to increase city revenue. By contrast, a consumable item is something that is depleted when used. Examples include a set of grenades in a war game, or fertilizer that helps crops grow faster in a farming simulation. Finally, we define personalization items as those that are durable but do not add any gameplay benefit (i.e., purely decorative).
The chart shows that over two-thirds of all items purchased in iOS and Android freemium games are consumable, goods that users deplete. Measured another way, approximately half of all real dollars spent within all apps are for game items consumers don’t keep. Based on our data, the most popular virtual purchase, consumable or otherwise, is for “premium” in-game currency. Premium currency can be spent in a number of ways to accelerate progression in a given game, including converting it into “grind” currency, the primary currency that consumers accrue and use through normal gameplay (a.k.a. the “grind”). Premium currency, which also allows consumers to purchase special items that cannot typically be acquired with regular “grind” currency, is said to “alleviate the grind” (i.e., allow a user to advance faster in a game). Games that are designed with consumable items in mind tend to monetize very well. For developers, this offers the best ROI on game development resources.
Next, durable items represent 30% of all in-app purchases in freemium games. From a game design standpoint, it's important to have a good selection of durable items in a game as it offers important variety to the consumer with respect to the core gameplay, such as erecting buildings in a city. Buying increasingly better performing durable items gives players a sense of progress, which can be important for engagement. Additionally, offering bigger, better durable items allows users to set goals, or even change their gameplay strategy, in order to save up for, and make, bigger purchases.
As a side-note, the ratio between consumable and durable should vary depending on how critical these items are to the core gameplay experience. For example, a city-building game could lean more toward durables (e.g., buildings), since user progression is measured by creating a larger city, which is made up of individual buildings. In contrast, a farming game could lean more towards consumables (e.g., seeds and fertilizer), where the game is about growing, harvesting and selling crops in order to earn grind currency.
Finally, personalization items represent only 2% of purchases. Since these items don’t affect gameplay, consumers purchase them infrequently. Also, consumers don’t tend to decorate, and then re-decorate, in most games. For example, think about how often you change your Facebook or Linked In profile picture. The rule should be that if a game is not largely about personalization, then add just enough of these items to allow players to create their own unique gameplay look and feel.
With Flurry estimating that total U.S. iOS and Android game revenue will surpass $1 billion in 2011, game developers should understand what consumers spend the majority of their money on. As a business model, freemium games are here to stay. While the consumer is indeed purchasing virtual items that are most often consumable, what’s most important to understand is the psychology behind these games. In freemium games, consumers are experiencing compelling, immersive entertainment. They feel gratified when they progress, accomplish goals, create a unique world, and in some cases, show off to their friends. In exchange for this gratification, they are willing to spend real money, and lots of it.
Before Harry met Sally in the late ‘80s, the dating process typically involved an introduction from a friend. Then, with the Internet and email, dating evolved. By the time we were watching the movie You’ve Got Mail - and actress Meg Ryan was cementing her status as a romantic comedy lead - the concept of online dating was going main stream.
As a social ritual, dating is a human behavior easily accelerated by technology. And it’s big business. One recent study estimated that nearly 1 in 5 singletons, who have access to the Internet, use Internet dating. Another report stated that 17% of recent marriages in the U.S. were the result of online dating websites. In size, combining North American and European markets, the online dating industry well exceeds $2 billion in revenue. Within the world of mobile apps, the largest category on iOS and Android, behind gaming, is Social Networking, in which dating apps appear. Given the voracious consumer usage we’re observing, it may also be the smartphone’s second killer app.
In this report, Flurry compares the usage of dating websites (combined desktop and mobile web) to native mobile applications over the past 12 months. For Internet consumption, we built a model using publicly available data among the top 50 dating websites from Compete.com, comScore and Alexa.com. For mobile application usage, we used Flurry Analytics data, which now tracks over 90,000 mobile applications. With respect to dating, Flurry tracks a large set of dating apps with more than 2 million total users.
Let’s start with total time spent on eDating in mobile apps versus on the web. Note that for this report, we use the term “eDating” to encompass online and mobile app dating.
As you can see, mobile dating apps now command more time compared to online dating sites: 8.4 minutes vs. 8.3 minutes. A year ago, people spent more than twice as much time on the Internet for dating as they now do in mobile apps. However, mobile app usage has increased dramatically over the last year, from 3.7 minutes in June 2010 to 8.4 minutes in June 2011, overtaking online dating time spent. These findings parallel Flurry’s recent report that showed, in total, mobile app usage has overtaken Internet usage.
In terms of engagement, frequency of use is driving growth in time spent per day in mobile dating apps. Last year, the average user opened his dating app 2 times per day, a little under 2 minutes each time. Now he opens his app over 5 times a day, but for shorter periods of time, about 1.5 minutes per session.
Next, let’s look at the proportion of people who use the Internet vs. mobile apps for eDating.
The chart above shows that dating apps are more popular on smartphones than online dating sites are on the Internet. We measured this by looking at the proportion of unique users of dating services versus the total, per platform. For the Internet, we compared unique visitors of online dating sites versus the total number of people using the Internet, which totaled 12% in June 2010 and 13% in June 2011. For mobile apps, we compared unique users of mobile dating apps versus all apps, which yielded 15% in June 2010 and 17% in June 2011.
We also found that the number of people using dating apps is growing faster than the number using all apps. In short, dating is a growth category. Overall, the number of unique users of all applications increased 125%, year-over-year, while the number of unique users using mobile dating apps increased by 150% over the same period. Comparing Internet dating to mobile app dating directly, unique users in mobile dating apps now account for about one third compared to the number of Internet dating users, which has doubled over the last year.
In an age where Facebook allows consumers to display their relationship status and easily connect to friends of friends, we speculate why mobile dating apps are gaining unprecedented traction on iOS and Android. The first reason, we believe, is that dating itself is inherently local and better served by mobile. Now, unplanned meetings of two nearby matches is more of a possibility. Secondly, it seems that mobile apps facilitate better engagement throughout the day. Today’s eDater need not be in front of her computer to view potential matches, or to receive or send messages. Her phone is always by her side. Our engagement numbers regarding frequency and session length, described above, support this trend.
iOS and Android devices are versatile multi-purpose machines that have already significantly impacted the business models of music, games and other Media & Entertainment industry categories. And now, within the nexus of mobile-social-local, mobile dating apps appear to be looking for love in all the right places.