Surprise, surprise: People would rather not pay for smartphone apps. The latest numbers from Gartner research released Tuesday showed that free apps accounted for 89% of total downloads in 2012, or 40.1 billion compared to 5 billion paid downloads. The study also revealed that users are more inclined to purchase apps when the price is between $0.99 and $2.99.
“In terms of the apps that consumers are buying, 90 percent of the paid-for downloads cost less than $3 each,” said Sandy Shen, research director at Gartner. “Similar to free apps, lower-priced apps will drive the majority of downloads. Apps between 99 cents and $2.99 will account for 87.5 percent of paid-for downloads in 2012, and 96 percent by 2016.”
Gartner estimates that Apple’s (AAPL) App Store will continue to lead the competition with more than 21 billion downloads in 2012, representing an increase of 74% from 2011. The firm notes that despite the fact that Apple, Microsoft (MSFT) and Google (GOOG) are the current dominant players in the app store realm, there is still room for a third-party store such as Amazon (AMZN) or Facebook’s (FB) offering.
Gartner’s press release follows below.
Gartner, Inc. : Gartner Says Free Apps Will Account for Nearly 90 Percent of Total Mobile App Store Downloads in 2012
Gartner Says Free Apps Will Account for Nearly 90 Percent of Total Mobile App Store Downloads in 2012
Key Trends for the Mobile Industry to Be Examined at Gartner Symposium/ITxpo 2012STAMFORD, Conn., September 11, 2012- Free apps will account for 89 percent of total downloads in 2012, according to Gartner, Inc. Worldwide mobile app store downloads will surpass 45.6 billion in 2012, with free downloads accounting for 40.1 billion, and paid-for downloads totaling 5 billion (see Table 1).
“In terms of the apps that consumers are buying, 90 percent of the paid-for downloads cost less than $3 each,” said Sandy Shen, research director at Gartner. “Similar to free apps, lower-priced apps will drive the majority of downloads. Apps between 99 cents and $2.99 will account for 87.5 percent of paid-for downloads in 2012, and 96 percent by 2016.”Gartner expects Apple’s App Store to have more than 21 billion downloads in 2012, which is an increase of 74 percent over 2011 and indicates continued strong demand for mobile app content.
“Apple’s market share is the largest, considering its App Store accounts for 25 percent of available apps in all stores,” said Brian Blau, research director at Gartner. “The number of apps available is driven by an increasing number of stores in the market today that include platform owners, device vendors, communication service providers (CSPs) and others who want to offer core mobile app services. These stores will see their combined share of total downloads increase, but demand for apps overall will still be dominated by Apple, Google and Microsoft.”
Table 1. Mobile App Store Downloads, Worldwide, 2010-2016 (Millions of Downloads)
2011 2012 2013 2014 2015 2016 Free Downloads 22,044 40,599 73,280 119,842 188,946 287,933 Paid-for Downloads 2,893 5,018 8,142 11,853 16,430 21,672 Total Downloads 24,936 45,617 81,422 131,695 205,376 309,606 Free Downloads % 88.4% 89.0% 90.0% 91.0% 92.0% 93.0% Source: Gartner (September 2012)
Besides a few major app stores from global OS vendors (such as Apple’s App Store, Google Play and Microsoft’s Windows Phone Marketplace), Gartner analysts said there are also stores from third parties that attract users with their brands or take advantage of the lack of dominant players in some markets.
“Amazon has appealed to users with its strong brand, global presence and a good selection of high-quality content while Facebook’s recently launched App Center – supporting both mobile devices and desktops – will become a powerful competitor due to its strong brand and leading position in social networking and gaming,” said Ms. Shen. “In China, there is a boom market of independent Android stores, due to the lack of presence of Google Play and ‘weak’ stores from CSPs. We expect to see more new entrants to the market, aiming to deepen relationships with their customers and/or to capture some of this growth market.”
Using an in-app purchase business model is a more effective method of converting casual app users into paying customers and then retaining them with good user experience and continued product updates. This is a different approach from upfront payment where users pay and download, and can be disappointed by the experience and never come back. In-app purchasing opens the door to a recurring revenue stream for developers, but app performance and design will always be the most important factor when attracting new users and keeping them satisfied.
In-app purchases will drive 41 percent of the store revenue in 2016. While the market is moving toward free and low-priced apps, in-app purchases will drive downloads as well as app store revenue. Gartner expects the number of downloads featuring in-app purchase will increase from 5 percent of total downloads in 2011 to 30 percent in 2016, and its contribution to the store revenue will increase from 10 to 41 percent in the same period.
“App stores should support in-app purchases as soon as possible as this offers a new path of monetization, and helps to attract developers as they attempt to extend an app’s momentum by providing easy access to upgraded services and functionality,” Mr. Blau said.
