Mobile in-app ads are growing at about 60 percent a year and are expected to surpass PC online display ad revenue by 2017, according to a report by market researchers IDC and AppAnnie.
Mobile app stores (iOS and Google Play) grew revenue by 2.3 times in 2013, while mobile in-app ads grew at 60 percent, outpacing the 50 percent growth for mobile browser ads and the 10 percent growth for PC browser-based ads. About 40 percent of developers use in-app ads in their apps.
Mobile apps, especially games, are monetizing well through free-to-play (a kind of freemium model) and in-app ads. Most of the key markets in the world are expected to move quickly toward in-app advertising models.
The U.S. is expected to be the top source of mobile app-related revenue. App revenues are expected to growth 3.5 times in the U.S. from 2013 to 2017.
India, meanwhile, is expected to see its mobile app-related revenue grow 8.7 times by 2017. That will happen as the result of rapid smartphone adoption. In key countries, smartphone adoption is expected to grow another 2.3 times by 2017.
IDC and AppAnnie advise publishers to consider different business models, depending on the region. India skews toward in-app advertising, while Japan and Russia skew toward app store revenue. Ad networks offer a simple way for publishers to fill ad inventory without the resources needed for mediation platforms or real-time bidding exchanges.
In-app purchases based on a free-to-play model now account for 92 percent of purchases, while 4 percent come from paid apps and 4 percent from a blend of free and paid. In 2013, freemium apps grew 211 percent in revenue, while in-app ads grew 56 percent. Paid app revenues declined 29 percent and free-paid combos (“paidmium”) declined 23 percent.
Paid apps aren’t a big part of the market anymore, but the typical prices for those are $2 to $6.
In a given month, most developers say that 2 percent to 5 percent of users will make a virtual goods purchase.
For companies that switch business models, the results can be positive. Electronic Arts switched from a paid model to free-to-play when it launched Real Racing 3, a mobile racing game. The popularity of the app and its revenues skyrocketed.