Now we know why companies are spending insane money to buy mobile apps

How Much Money Do Mobile Apps Make

Facebook’s $19 billion acquisition of WhatsApp is not going to be the last jaw-dropping deal in the mobile app industry. If you’re looking for reasons why, search no further than Mary Meeker’s epic, 164-slide “Internet Trends” mammoth presentation.

Slide 15 of the presentation shows that online ad dollars are still being completely misallocated. 19% of advertising spending still goes to print publications, even though people now spend only 5% of their media consumption time on print. Only 4% of ad money is spent on mobile, even though people now spend 20% of their media time on smartphones and tablets.

This enormous discrepancy will be fixed as big, conservative brands keep shifting their marketing spending from print to mobile. It will mean tens of billions of annual ad dollars flowing from print to mobile in coming years. Nobody quite knows who the biggest benefactors will be, but any app that can acquire tens of millions of monthly users and command several minutes of daily engagement is in the hunt.

Slide 16 in the presentation shows the epic growth of revenue generated by mobile apps. Global mobile app revenue exploded from $6 billion to $38 billion between 2010 and 2013. This is an amazing ramp.

It is easy to scoff at some of the recent valuations of mobile apps like Snapchat and WhatsApp, but these valuations are getting pegged in a very specific situation, namely one where global mobile app revenue growth has increased sixfold in three years. Even more importantly, there are clear signs that advertising revenue funneled to mobile platforms still lags far behind where it should be considering the daily consumer engagement level, which means that these apps could look like bargains in a few years’ time.

This does not mean that we are not entering a crazy bubble era. Some of the valuation levels of individual apps may indeed be lunatic and could collapse in coming years. But this feverish mobile software industry atmosphere has been created by industry revenue growth that is both remarkable and seems to have room to further growth due to ongoing misallocation of ad spending.

It seems reasonable to expect that mobile content market will rip tens of billions of dollars per year from the hides of television and print industries, while consumer spending on in-app purchases will continue to increase. This means there will be at least a couple of companies that will become fabulously wealthy over the next five years by tapping into these trends, although we still don’t know yet whether the biggest winners will be messaging apps, social networking apps, games or video apps.

 

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