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Summary

Global app forecasts recently published by Ovum predict that in-app advertising revenue will overtake end-user spending on in-app purchases and paid downloads next year. Total app revenue – derived from both end-user spend and in-app ads – will amount to $185bn globally by 2021.

End-user spend remains dominant for games and Apple

The split between end-user spend and in-app ads will vary significantly according to the type of app or store in question.

For mobile games, which account for the bulk of app revenue, end-user spend will remain the dominant source of monetization, making up nearly two-thirds of revenue by 2021. For non-game apps, in-app advertising became the main engine of revenue growth around three years ago and will account for three-quarters of market value by 2021.

For the Apple App Store, end-user spend will be the dominant source of revenue throughout, despite non-game apps representing a bigger share of its revenue than on Google Play. By contrast, in-app advertising will this year become the main driver for the Google Play store and will remain so for the rest of the forecast period.

Android will overtake iOS next year in total revenue

Despite the iPhone making up only 13% of the installed base of handsets worldwide, compared to Android smartphones' 85% share, the Apple App Store will continue to outgun Google Play in terms of total app revenue over the next five years.

If, however, the Android market is looked at as a whole (i.e. Google Play plus the numerous independent Android app stores out there, especially in China) Android app revenue will exceed iOS app revenue as of 2018.

In terms of in-app advertising, Android has been ahead of iOS from the start of the forecast period in 2012.

Provisos to advertising's lead

Advertising might be claiming the bigger half of app revenue going forward, but this does not necessarily translate into the greater share of monetization for app developers.

A big chunk of in-app ad revenue is hogged by the apps of mega publishers-come-ad networks such as Facebook. Ovum estimates that Facebook alone accounts for nearly half of global in-app ad revenue – most of that generated from ads published inside its own apps, including Instagram. The apps of other social networks, such as Twitter and Snapchat, are also capturing an ever greater share of in-app ad revenue.

So, while the current split between in-app ads and end-user spend is virtually 50/50, if the revenue generated from ads inside of just Facebook's own apps is taken out of the equation, the split becomes around 40/60. Of course, that has to be weighed against the fact that the bulk of in-app-purchase revenue is, at any one time, concentrated in the hands of a few game studios and other app publishers.

Another proviso is that Ovum's end-user spend calculations are based on money billed via the app stores' payment platforms, not directly by app publishers via off-store channels. That leaves out the bulk of physical-goods and physical-world e-commerce transactions that are increasingly happening via mobile apps. It also leaves out content and media services subscribed to outside the stores but accessed within apps.

Appendix

Further reading

Digital Content and Services: App Ecosystems Forecast, 2016–21, ME0002-000741 (February 2017)

Author

Guillermo Escofet, Principal Analyst, Digital Media

guillermo.escofet@ovum.com

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