In-app payments more profitable than paid apps

Free apps will account for the majority of mobile app downloads in 2012 with low-cost apps making up most of the paid downloads, said Gartner.

In a release Wednesday, the research firm said global download of mobile apps this year is expected to cross 45.6 billion. Free apps will make up 89 percent of downloaded apps at 40.1 billion downloads while paid apps will take up 5 billion downloads.

Sandy Shen, research director at Gartner, said: "In terms of the apps that consumers are buying, 90 percent of the paid-for downloads cost less than US$3 each. Apps between 99 cents and US$2.99 will account for 87.5 percent of paid-for downloads in 2012, and 96 percent by 2016."

The research firm suggested that developers use in-app purchases to turn casual app users into paying customers and retain these customers with good user experience and continued product updates.
In-app purchases can be recurring revenue
This is in contrast to paid apps where users pay for the download, and can be disappointed by the experience and never use the app again. Gartner said in-app purchasing can be a recurring revenue stream for developers, but app performance and design will always be the most important factor when attracting new users and keeping them satisfied.

The report noted in-app purchases will drive 41 percent of app store revenue in 2016, up from 10 percent in 2011. The number of downloads with in-app purchase will increase from 5 percent in 2011 to 30 percent in 2016, Gartner added.

Brian Blau, research director at Gartner, said: "App stores should support in-app purchases as soon as possible as this offers a new path of monetization, and helps to attract developers as they attempt to extend an app's momentum by providing easy access to upgraded services and functionality."

However, in an interview in July, an executive from Gree Ventures noted that mobile advertising is the preferred method for game developers targeting Southeast Asian users. This is due to the region's lack of mature carrier billing system and monetization know-how, said Tatsuo Tsutumi, partner at Gree Ventures.

Mobile OS app stores to rule
According to Blau, the number of apps available will increase as more appstores appear. These appstores are maintained by platform owners, device vendors and communication service providers as well as others that want to offer mobile app services, he said.

Despite the growth in total number of apps, demand for apps will still be dominated by Apple, Google and Mircosoft. "Apple's market share is the largest, considering its App Store accounts for 25 percent of available apps in all stores," he added.

However, Gartner sees third-party appstores attracting users with their brand and moving into markets where there is a lack of dominant players.

Shen said Amazon Appstore has "appealed to users with its strong brand, global presence and a good selection of high-quality content". Facebook App Center which supports both mobile devicces and desktops will become "a powerful competitor due to its strong brand and leading position in social networking and gaming".

She added that in China, there is a boom of independent Android stores, due to the lack of presence of Google Play and "weak" stores from CSPs. "We expect to see more new entrants to the market, aiming to deepen relationships with their customers or to capture some of this growth market," she said.