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In-App Purchases Generate More Revenue than Ads
Mobile developers looking to monetize free applications should pay special attention to a new report from mobile analytics firm Flurry. According to this study, conducted using a sample of leading iOS applications with a combined reach of 2.2 million users, in-app purchases have taken over as the leading source of revenue for social networking and social gaming applications.
Flurry's analysis revealed that, during 2010, there has been a shift away from advertising to virtual good sales as the major source of revenue for apps in these two categories. And as of September, in-app purchases accounted for 80% of revenues generated by mobile developers.
This shift is not surprising, says Flurry's VP of marketing, Peter Farago. "Virtual goods sales already represent the primary source of revenue for social gaming on Facebook," he writes in the new report. He also noted the growth of the social gaming industry as a whole, citing data from Michael Pachter, a video game analyst for Wedbush Morgan Securities. Social gaming was a $600 million dollar industry in 2008, a $1 billion dollar industry in 2009 and is expected to reach $1.6 billion this year and over $4 billion by 2013.
As social games expand their reach, virtual goods and advertising revenues will both increase, says Flurry. In addition, as the company already noted, iOS games now rival prime-time TV viewing in terms of audience size.
Unfortunately, notes Flurry, Google's Android Market doesn't support in-app purchases, also known as micro-transactions, which means the virtual goods model isn't viable yet for Android apps.
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