App downloads exploding, tablets will fuel it further

Apple fueled an app revolution with the introduction of the iPhone and relentlessly informing us that "there's an app for that". Smartphone owners are downloading apps in increasing numbers, with the average user installing dozens of the little snippets of code for the phone. The latest numbers from Gartner show how big a business apps have become, with $5.2 billion generated in 2010. The revenue generated by apps, both direct sales and ad revenue, is expected to almost triple in 2011 to over $15 billion.

This is good news for app developers, who typically keep 70 percent of revenue for apps sold in app stores. The business model for apps is becoming more refined over time, with app sales only accounting for a portion of the revenue generated. Ad revenue is on the rise, fueled by the practice of using ad-supported free apps on the hot Android platform. Developers are also seeing more revenue from in-app sales, a practice bound to grow significantly as Google is set to allow the practice for apps in the Android Market.

The rise of the tablet should drive app sales, as consumers will be grabbing apps for these mobile devices. While some smartphone owners are reluctant to buy apps for the phone, the tablet owner will likely view the practice as business as usual given the perception that these devices are computers.