'Inside the App' Purchases Will Drive 48 Percent of Mobile App Revenue by 2017

Are mobile apps a business, or the enabler of a business? Consider that free apps will account for 91 percent of total mobile app store downloads in 2013, according to Gartner.

"Free apps currently account for about 60 percent and 80 percent of the total available apps in Apple's App Store and Google Play, respectively," said Brian Blau, research director at Gartner.

Ignore for the moment the likelihood that a good percentage of those apps get downloaded but are not used more than once, get used only a few times, or only for a few months. What’s the revenue model for the 91 percent of “free” apps?

“Inside the app purchases,” one might say. Gartner estimates that in-app purchases will account for 48 percent of app store revenue by 2017, up from 11 percent in 2012 and 17 percent in 2013. 

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In other words, mobile apps will be, in most cases, the enabler for a revenue stream (selling things inside the app), not a direct revenue generator.

Mobile app stores will see annual downloads reach 102 billion in 2013, up from 64 billion in 2012, according to Gartner researchers, while total mobile app store revenue in 2013 will reach $26 billion, up from $18 billion in 2012.

As with most other parts of the Internet ecosystem, leadership is, and will be, concentrated. "iOS and Android app stores combined are forecast to account for 90 percent of global downloads in 2017,” said Blau.

Over time, it also is likely that users will stabilize their usage of apps that have the highest value, leading to a lower rate of new app downloads, though the trend might slow only gradually.

Average monthly downloads by iOS users will decline from 4.9 in 2013 to 3.9 in 2017, while average monthly downloads by Android device users will decline from 6.2 in 2013 to 5.8 in 2017, Gartner predicts, as users develop strong preferences for some apps.

What isn’t so clear yet is the relative importance of tangible goods and services, compared to digital content goods, which will be purchased inside mobile apps. What is clear is that the business model for “free” apps will not be driven mostly by advertising, as might be the case for some Internet apps.