Want to make money from your app? Don't charge for it, offer more in-app purchasing

App downloads from Apple and Google's stores will dominate over the next five years, but how app makers can earn money from them is set to change.

Read this

What are app stores and content ecosystems actually for?

Summary: All of the platform owners have stores for selling apps and content. But why do they do it? The answer may surprise you.

Read More

While Apple and Android will have the app market sewn up in the near future, the next five years are expected to bring a major shift in how apps make money.

App store downloads are expected to rise from 64 billion in 2012 to 102 billion this year, while in-app purchasing begins to account for a larger slice of overall revenue, and is forecast to reach $26bn this year.

Apple and Google pretty much have the app store download world locked up for the next five years, according to figures published by analyst firm Gartner on Thursday, which sees the two companies' stores accounting for 90 percent of 268 billion downloads set to be made in 2017.

Gartner expects iOS and Android devices to account for 87.5 percent of the global installed base of smartphones and tablets in 2017, helping their two nearest rivals — Microsoft/Nokia and BlackBerry ( if it's still around then ) — scrapping over the remaining 10 percent.

Over time, Gartner sees the mix of revenue between paid-for apps, app advertising and in-app purchases shifting significantly.

While app developers have already realised in-app purchases can be lucrative — notably Finland's Supercell, maker of Clash of Clans, and Sweden's King.com, which is behind Candy Crush Saga — in 2013, paid-for apps will still account for 75 percent of total revenue, according to Gartner.

However, revenues from paid-for apps are expected to fall below half of all revenue by 2016, as earnings from both in-app purchasing and advertising grow. By 2017, total revenues are expected to reach $76bn, with paid-for apps accounting for 37.8 percent, in-app purchases 48.2 percent, and advertising 14 percent.

Gartner app downloads 2017
Image credit: Gartner Forecast: Mobile App Stores, Worldwide, 2013 Update

In the US, according to mobile analytics firm Distimo, in-app revenues began exceeding those from paid-for apps since last year.

Gartner also expects total download growth and in-app revenue growth to slow over coming years, though for different reasons.

Average monthly downloads per iOS device are expected to decline from 4.9 in 2013 to 3.9 in 2017, and over the same period on Android from 6.2 per device to 5.8. That trend is because users will stick to apps they know and like, according to the analyst firm. 

And while in-app purchasing will be more established by 2017, its growth will slow as devices reach more mass markets, according to Gartner.

Further reading