According to Gartner, about 81% of apps downloaded today are free. The way free apps are able to generate revenue is through advertising. 16 percent of application store markets’ $5.2 billion revenue was generated from advertising.
The interesting bit is that most ads seem to advertise other apps. From personal experience I always find it funny to see that an App actually puts up a banner for a competing app. In real live it would mean BMW’s driving around with a “buy Audi” slogan painted on the hood.
What is even more interesting is that this $816 million paid for advertising is not flowing back in the economy. It relies on the sales of other apps to actually generate value. Imagine a situation where all apps would be “free” and be sponsored by ads for other apps. The end result would be an eco-system where no revenue is generated, it is just pushed around the various app owners. Vica versa, in a model without ads all revenue would be direct revenue.
Of course there is value in ads, increasing the sales of “paid” apps, the model of “free” apps advertising to get other “free” ads is more like a pyramid model. So the question is what is a healthy mix of paid and free apps? 20-80 seems to lean towards the pyramid model in my book.
- Mobile app revenue to surpass $15 billion this year (sfgate.com)
- Mobile app revenue to surpass $15 billion this year (seattlepi.com)
- Mobile World Presents Technical Challenges for Advertisers (adbean.net)
- The growth of in-app mobile advertising (simplyzesty.com)
- Gartner Forecasts Mobile App Store Revenues Will Hit $15 Billion in 2011 (techcrunch.com)
- “Omitted Fact From AP Story on Newspaper Revenues: 2010 Online Ad $ Less than 2007” and related posts (bizzyblog.com)