Revenue from in-app purchases for mobile games and apps will more than quintuple to $5.6 billion by 2015, and will soon exceed those generated by traditional paid apps, according to a new study by IHS Screen Digest.
The analyst group says the freemium business model is the fastest-growing segment of the global smartphone apps business, and believes that other developers will eventually find it tough to charge consumers upfront for their games and applications.
"Smartphone users overwhelmingly prefer free apps to paid apps, as we estimate 96 percent of all smartphone apps were downloaded for free in 2011," says IHS's mobile media senior analyst Jack Kent. His firm argues that the best way to make money in the mobile market will be to release free apps with in-app purchases.
Kent continues, "In 2012, it will become increasingly difficult for app stores and developers to justify charging an upfront fee for their products when faced with competition from a plethora of free content. Instead, the apps industry must fully embrace the freemium model and monetize content through in-app purchases."\
IHS forecasts that in-app purchasing revenue will increase from $970 million in 2011 to $5.6 billion in 2015. It predicts by then, in-app purchases will account for 64 percent of the mobile market's total revenue, compared to the 39 percent it saw in 2011.
The analyst group says most in-app purchases during the third quarter of 2011 in the U.S. and UK were for virtual currencies, estimating that 63 percent of microtransactions on the U.S. iPhone App store were for in-game cash. The next most popular category were for game/app features, which made up 22 percent of purchases.