Market research firm IHS iSuppli is projecting that in-app purchases will account for 64% of total app market revenue by 2015, up from 39% in 2011. These percentages reflect the total from both iOS and Android smartphones. In-app purchases already represent 45% of iOS app revenue and 31% of the highest-earning Android apps.
While the percentages of revenue are changing over the next few years, the even bigger story is the projected growth in overall revenue. Revenue from in-app purchases, currently totaling $970 million in 2011, is projected to reach $5.6 billion in 2015.
“Smartphone users overwhelmingly prefer free apps to paid apps, as we estimate 96 percent of all smartphone apps were downloaded for free in 2011,” noted Jack Kent, senior analyst, mobile media for IHS. “In 2012, it will become increasingly difficult for app stores and developers to justify charging an upfront fee for their products when faced with competition from a plethora of free content. Instead, the apps industry must fully embrace the freemium model and monetize content through in-app purchases.”
Games have led the way to in-app purchases, and the practice is spreading to non-game apps. “Games pioneered the in-app business model,” Kent observed. “Now the approach has proven so successful, companies building other types of smartphone app must adopt this strategy if they are to maximize their mobile app revenues.”
Looking at the end of the third quarter figures in the US and UK, most in-app purchases, some 63%, involved buys of virtual currencies for use in games. The next most popular purchase category was for specific in-game features , which represented 22% of purchases.
