© 2014 App Annie & IDC | Do Not Distribute Mobile App Advertising and Monetization Trends 2012-2017: The Economics of Free March 2014
© 2014 App Annie & IDC | Do Not Distribute revenue opportunity for publishers do app publishers monetize their apps today? -App Advertising Monetization by Country Ahead Takeaways 2
© 2014 App Annie & IDC | Do Not Distribute Mobile apps are outpacing both mobile and PC browser-based ads in revenue growth Worldwide Online Advertising and Mobile App Revenue: 2012 to 2013 Browser-Based Advertising Mobile Apps Source: App Annie & IDC 10BPC OnlinePC OnlineOther PCMobile DisplayMobile SearchMobile In-AppMobile AppSearchDisplayAdvertising*AdvertisingAdvertisingAdvertisingStore RevenueAdvertisingAdvertising(iOS App Store& Google Play)Device: PC Mobile * Other PC Advertising includes online rich media, video and classified advertising •Mobile in-app advertising revenue is likely to continue taking share from PC 3 advertising revenue as advertisers allocate their budgets for maximum return Revenue (USD)
© 2014 App Annie & IDC | Do Not Distribute Mobile app revenue growth is driven by gains in device adoption and revenue per device Worldwide Combined iOS and Android Worldwide Combined App Store and In-Smartphone and Tablet Installed Base App Advertising Revenue per Device* : IDC Source: App Annie & IDC growth growth *In-app advertising across all app stores; app store revenue across iOS App Store and Google Play •Massive growth in smart mobile devices dramatically expands opportunity to reach consumers •As revenue per mobile device is also increasing, mobile devices represent an 4 increasingly powerful avenue of monetization Device Installed Base Indexed Revenue
© 2014 App Annie & IDC | Do Not Distribute revenue opportunity for publishers do app publishers monetize their apps today? -App Advertising Monetization by Country Ahead Takeaways 5
© 2014 App Annie & IDC | Do Not Distribute App publishers use a variety of business models to generate revenue Business Model HTop 3 Apps by iOS and Google ow does it work? Play Revenue in 2013* Freemium Free download with in-app purchases Puzzle & Dragons Candy Crush Saga Clash of Clans Paid Paid download with no in-app purchases Minecraft – Pocket Edition Pages WhatsApp Messenger** Paidmium Paid download with in-app purchases FIFA 13 Grindr Xtra Bloons TD 5 In-App Advertising Contains ads (banner ads, video ads, etc.) N/A Dynamic Business model shifts depending on certain factors (app shifts to an ad-supported model if N/A the user does not make in-app purchases, etc.) *Based on App Annie Intelligence estimates **WhatsApp Messenger ranked as the #3 paid app based on its iOS revenue up until early August 2013, when it went from paid to freemium on iOS
© 2014 App Annie & IDC | Do Not Distribute The opportunity for apps also extends beyond direct monetization in the app stores App Name* Monetization Strategy eBay Drive online shopping conversion Netflix Allow current subscribers to stream content on the go WDrive shoppers to brick-and-mortar stores via coupons, inventory algreens information and pharmacy chat Bandsintown Brings users to musical performances through local concert Concerts notifications and recommendations Offers consumers the ability test how IKEA products would look in IKEA Catalog their homes without traveling to the store through the use of augmented reality 7 *Additional information on these apps available on App Annie Store Stats
© 2014 App Annie & IDC | Do Not Distribute Freemium and In-App Advertising tower over other app business models Mobile App Revenue in Key Countries* 200* Brazil, Canada, France, Germany, +56% +211% 20122013India, Japan, Russia, South Korea, 150United Kingdom & United States Source: App Annie & IDC * In-app advertising across all app 100stores; app store revenue across iOS App Store and Google Play 50-29% -23% 0In-AppFreemiumPaidPaidmiumAdvertisingiOS App Store & Google Play •Freemium and In-App Advertising allow publishers the opportunity to cast a wider net and better monetize in the long-run through a potentially more consistent revenue stream •Paid and Paidmium revenue both8 shrank from 2012 to 2013 Indexed Revenue
© 2014 App Annie & IDC | Do Not Distribute Freemium is more prevalent and outperforms other app store monetization models App Store Composition by Business Model Worldwide, December 2013* Composition ByN83% 8% 9% umber of AppsSource: App Annie Composition ByRev92% 4% 4% enueFreemiumPaidPaidmium* Business model percentages are based on the combination of the Top 1,000 apps on the iOS App Store and the Top 1,000 apps on Google Play from App Annie Intelligence •Freemium drives a disproportionate volume of app revenue across both stores •Freemium apps are even more common on Google Play than on iOS App Store9
© 2014 App Annie & IDC | Do Not Distribute It’s never too late to switch business models! App Name* Change in Monetization Strategy WIn a Forbes article**, the WhatsApp founders revealed that they hatsApp Mwould switch the app price "from free to paid so they wouldn't grow essenger too fast" with a freemium business model in place since July 2013 Though app stores take a percentage of consumer spend, Skype Skype began allowing users to purchase Skype credits through app stores in late 2012 to limit purchase friction FIFA 13 was the #1 paidmium app for 2013, and Electronic Arts still FIFA 14 switched over to a freemium business model for the even more successful FIFA 14 Real Racing 2 utilized a paidmium business model, but the success of Real Racing 3 the series skyrocketed with the release of freemium Real Racing 3 * Add10 itional information on these apps available on App Annie Store Stats **
© 2014 App Annie & IDC | Do Not Distribute revenue opportunity for publishers do app publishers monetize their apps today? (free download with in-app purchases) -App Advertising Monetization by Country Ahead Takeaways 11
© 2014 App Annie & IDC | Do Not Distribute There are many freemium value propositions that can appeal to different types of users Freemium MoValue Proposition App Examples* netization Usage Free app offers limited usage, bandwidth, NYTimes hours or storage space. Pay to raise or Dropbox remove those limits. Time Free trial of full functionality for a limited amount of tim WhatsApp Messenger e. Pay to continue using after tim SwiftKey Keyboard e period is up. Functionality Pay for virtual items, speed-ups, content, Clash of Clans add-ons, upgrades, services or capabilities. LINE Skype User Experience Free app is ad-supported. Remove ads by Say the Same Thing paying in-app or through a separate paid SoundHound download. Combination The app uses a combination of the above. Evernote (Functionality and Usage) * Additional information on these apps available on App Annie Store Stats
© 2014 App Annie & IDC | Do Not Distribute Functionality is the most common value proposition used by freemium app publishers Among the apps you manage or publish, how do the freemium apps monetize (select all that apply)? UsageSource: App Annie Survey February 2014 (n = 1694) TimeFunctionalityUser ExperienceCombination0%10%20%30%40%50%60%Percent of Respondents •Publishers need to select the right freemium technique to match each app’s 13 function and user base
© 2014 App Annie & IDC | Do Not Distribute The freemium model is very successful, even with a small proportion of users making in-app purchases If your apps offer in-app purchases, please estimate the percentage of your apps’ monthly average users (MAUs) who make at least one in-app purchase: 0% to 1%Source: App Annie Survey 2% to 5%February 2014 (n = 1169) 6% to 10%11% to 20%21% to 100%0%10%20%30%40%Percent of Respondents •Publishers can structure their apps to target the whales who make repeated purchases •Are your in-app purchases structured in a way that caps revenue? Can 14 your users purchase repeatedly?
© 2014 App Annie & IDC | Do Not Distribute Freemium model now dominates games, while growing steadily outside of games Worldwide iOS App Store Revenue 2012 vs. 2013ATop App by iOS Examples of pp 250and Google Play In-App ACategory pps that use in-appRevenue in 2013 Purchases 200purchasesAMessaging LINE Stickers pps that do not usein-app purchasesMusic Pandora Radio No ads, 150Streaming unlimited listening 100News NYTimes Unlimited 50articles Dating Zoosk Subscription, 0respond to 2012201320122013suitors Games Apps Excluding Games Source: App Annie Intelligence •Although more prevalent in games, the freemium business model has successfully expanded into other categories such as messaging, music, news and dating •This is partially driven by “gamification” of apps, but may also reflect natural 15 limits to what consumers will pay for up front Indexed Revenue
© 2014 App Annie & IDC | Do Not Distribute revenue opportunity for publishers do app publishers monetize their apps today? (paid download with no in-app purchases) -App Advertising Monetization by Country Ahead Takeaways16
© 2014 App Annie & IDC | Do Not Distribute Paid apps appearing in the Top 1000 grossing apps on iOS and Google Play most commonly in the $2-$6 range Download Price* of Apps in the Top 1000 Grossing Apps on iOS App Store and Google Play, December 2013 30%Source: App Annie 20%10%0%Under $$2 to $$4 to $$6 to $$8 to $$10 & OverDownload Price * Download price as of December 31, 2013 from App Annie Intelligence •App store revenue is not directly correlated to app price, and publishers must select an appropriate price for their app and category 17 Percent of Top Apps
© 2014 App Annie & IDC | Do Not Distribute revenue opportunity for publishers do app publishers monetize their apps today? (paid download with in-app purchases) -App Advertising Monetization by Country Ahead Takeaways18
© 2014 App Annie & IDC | Do Not Distribute There is still opportunity for monetization of users following a paid download Source of Paidmium App Revenue in 2013 for Key Countries* In-App PurchasesPaid Downloads39% * Brazil, Canada, France, Germany, India, Japan, Russia, South Korea, United King61%dom & United States * App store revenue across iOS App Store and Google Play Source: App Annie Intelligence •Paidmium apps primarily generated revenue from their downloads, but users were still willing to spend a sizeable amount on in-app purchases19
© 2014 App Annie & IDC | Do Not Distribute revenue opportunity for publishers do app publishers monetize their apps today? -App Advertising (contains ads) Monetization by Country Ahead Takeaways20
© 2014 App Annie & IDC | Do Not Distribute Over 40% of surveyed publishers used paid advertising within their apps Do you display paid advertising with any of your apps? Source: App Annie Survey Yes42% February 2014 (n = 2039) No58% 0%20%40%60%80%Percent of Respondents •Publishers must strike the right balance between monetizing through app stores and monetizing through in-app advertising 21
© 2014 App Annie & IDC | Do Not Distribute In-app advertising revenue rides on the back of popular hits with desirable ad-placements If you display paid advertising, how much revenue do you earn from in-app advertising per month across all of your apps? 100%80%Source: App Annie Survey February 2014 (n = 658) 60%40%20%0%050K100K+ Ad Revenue (USD) •Breakout apps can make over $100K per month •Developers in the 75th to 90th percentile can make up to $10K per month •This illustrates the uniqueness of Flappy Bird reportedly making over 22 $50K per day in in-app advertising Cumulative Percent of Respondents
© 2014 App Annie & IDC | Do Not Distribute Hit apps also drive in-app ad impressions If you display paid advertising within your app, how many in-app ad impressions do you fill each month across all apps? 100%Source: App Annie Survey 80%February 2014 (n = 678) 60%40%20%0%01MM2MM3MM4MM5MM+ In-App Ad Impressions •Apps need usage to generate advertising impressions, which is where downloads, engagement and user retention play a cri23 tical role Cumulative Percent of Respondents
© 2014 App Annie & IDC | Do Not Distribute Publishers also have to find the in-app advertising format that best fits their users In 2014, how often will you use these in-app ad formats? Interstitial Video Ads(n = 393) Interstitial Non-Video…(n = 497) Native Ads(n = 451) Incentivized Ads(n = 361) Pre/Mid/Post-Roll…(n = 304) Banner Ads(n = 713) 0%20%40%60%80%100%Less Than in 2013About the Same as in 2013More Than in 2013Source: App Annie Survey, February 2014 (n = 807) •Interstitial ads, incentivized ads and native ads appear set for the largest gains in 2014 24
© 2014 App Annie & IDC | Do Not Distribute Ad networks are the primary channel for selling in-app ads Through which channels do you sell your in-app ads (select all that apply)? Ad NetworksSource: App Annie Survey Mediation PlatformsFebruary 2014 (n = 781) Direct to AdvertisersAgenciesReal-Time Bidding Exchanges0%20%40%60%80%100%Percent of Respondents •Ad networks are still the most commonly used platform for publishers to fill ad inventory 25 •Mediation platforms and real-time bidding exchanges are gaining traction
© 2014 App Annie & IDC | Do Not Distribute revenue opportunity for publishers do app publishers monetize their apps today? -App Advertising Monetization by Country Ahead Takeaways 26
© 2014 App Annie & IDC | Do Not Distribute United States and Japan lead in mobile app revenue; revenue growth occurred across key countries Mobile App Revenue* by Country : App Annie & IDC 100x x x x x x 0UnitedJapanSouthUnitedGermanyCanadaFranceRussiaBrazilIndiaStatesKoreaKingdom*In-app advertising across all app stores; app store revenue across iOS App Store and Google Play •When developers’ target countries to enter, they should first analyze the monetization potential of the market •Japan and South Korea benefit from historically leading edge mobile 27 technology and service environments Indexed Mobile App Revenue
© 2014 App Annie & IDC | Do Not Distribute Selecting the mobile app business model that fits the target region is of paramount importance Mobile App* Revenue Composition in 2013 100%32% 75%42% 53% 60% 62% 64% 66% 72% 73%App Store 77% 50%In-App68% Advertising25%58% 47% 40% 38% 36% 34% 28% 27% 23% 0%IndiaUnitedUnitedGermanyCanadaSouthFranceJapanBrazilRussiaStatesKingdomKorea*In-app advertising across all app stores; app store revenue across iOS App Store and Google Play Source: App Annie & IDC •India and the United States skew towards in-app advertising, while Japan, Brazil and Russia lean towards app sto28 re revenue App Revenue
© 2014 App Annie & IDC | Do Not Distribute revenue opportunity for publishers do app publishers monetize their apps today? -App Advertising Monetization by Country Ahead Takeaways 29
© 2014 App Annie & IDC | Do Not Distribute Mobile in-app advertising revenue to pass PC online display advertising revenue by 2017 for key countries Online Advertising and Mobile App Revenue in Key Countries*: 2013 to 2017 Browser-Based Advertising Mobile Apps 12520132017Source: IDC 50250PC OnlinePC OnlineOther PCMobile DisplayMobile SearchMobile In-AppMobile AppSearchDisplayAdvertisng**AdvertisingAdvertisingAdvertisingStore RevenueAdvertisingAdvertising(iOS App Store& Google Play)Device: PC Mobile *Brazil, Canada, France, Germany, India, Japan, Russia, South Korea, United Kingdom & United States **Other PC Advertising includes online rich media, video and classified advertising •Mobile in-app advertising revenue is likely to continue taking share from PC 30 advertising revenue as advertisers allocate their budgets for maximum return Indexed Revenue
© 2014 App Annie & IDC | Do Not Distribute Increasing mobile devices and app-related revenue per device create a huge opportunity in mobile by 2017 Combined iOS and Android Smartphone and Indexed App Store and In-App Table Device Installed Base in Key Countries* Advertising Revenue per Device in Key * Source: IDC Source: IDC growth growth 002013201720132017* Brazil, Canada, France, Germany, India, Japan, Russia, South Korea, United Kingdom, & United States * In-app advertising across all app stores; app store revenue across iOS App Store and Google Play •Growing device adoption and increasing revenue per device will grow 31 the opportunity for mobile app publishers almost three-fold by 2017 Device Installed Base Indexed Revenue per Device
© 2014 App Annie & IDC | Do Not Distribute Key countries expected to show significant app revenue growth, creating a range of opportunities for publishers Projected Mobile App Revenue* by Country 20132017300Source: IDC 0UnitedJapanUnitedGermanySouthFranceCanadaIndiaRussiaBrazilStatesKingdomKorea*In-app advertising across all app stores; app store revenue across iOS App Store and Google Play •While the United States is set for phenomenal growth, other markets such as India and Germany also offer key opportunities for app monetization 32 growth in the future Indexed Mobile App Revenue
© 2014 App Annie & IDC | Do Not Distribute Most key countries expected to move even more toward in-app advertising by 2017 Proportion of In-App Revenue Contributed by In-App Advertising 100%Source: IDC 75%50%2013201725%0%IndiaUnitedUnitedGermanyCanadaSouthFranceJapanBrazilRussiaStatesKingdomKorea*In-app advertising across all app stores; app store revenue across iOS App Store and Google Play •Outliers are Japan and South Korea, where in-app purchases are expected to rema33 in the main source of revenue Percent of App Revenue from In-App Advertising
© 2014 App Annie & IDC | Do Not Distribute Aside from business model, what are other key publisher consideration points for app monetization? Recommendations from app publishers: •Start Early – Determine how to monetize up front, not after building your app •Value Proposition – Make sure your app provides value to users •App Discovery – Ensure people can find your app •User Acquisition – Need a large user base to bring in enough revenue •App Usage – Keep users engaged to drive monetization •Ad Sales Channel – Be sure to find the right ad network for your app •Ad Content – Show ads that are relevant to your users •User Experience – Do not let monetization strategy degrade user experience •Track, Analyze, Research, & Optimize – Measure, iterate and improve your monetization strategy constantly; keep an eye on market trends 34 (See App Annie Analytics, Advertising Analytics, Store Stats, & Intelligence)
© 2014 App Annie & IDC | Do Not Distribute revenue opportunity for publishers do app publishers monetize their apps today? -App Advertising Monetization by Country Ahead Takeaways 35
© 2014 App Annie & IDC | Do Not Distribute Key Themes & Takeaways •Mobile app stores (iOS and Google Play) and mobile in-app ads grew revenue by and , respectively, from 2012 to 2013 •The above channels outpaced mobile and PC browser-based ads, which grew revenue by and , respectively •Mobile apps monetize especially well through freemium and in-app advertising •Mobile in-app advertising revenue is projected to pass PC online display advertising revenue by 2017 when looking at combined revenue across key countries* 36 * Brazil, Canada, France, Germany, India, Japan, Russia, South Korea, United Kingdom & United States
© 2014 App Annie & IDC | Do Not Distribute Key Themes & Takeaways (Continued) •United States will remain the leading source of mobile app-related revenue, with growth from 2013 to 2017 •Remarkable revenue growth from 2013 to 2017 is expected for India’s mobile app-related revenue, driven largely by rapid smartphone adoption •Publishers should consider different business model strategies depending on the geographic region; India skews toward in-app advertising, while Japan skews toward app store revenue •Ad networks are still the most commonly used platform for publishers to fill ad inventory; mediation platforms and real-time bidding exchanges are gaining traction 37 Report methodology and updates are available here
© 2014 App Annie & IDC | Do Not Distribute @IDC kweide@ @AppAnnie press@
