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The Mobile Application Market – 2nd Edition

  • February 2013
  • -
  • Berg Insight AB
  • -
  • 123 pages

Executive summary

Software especially developed for mobile phones has been around for well over a decade and before the term application (app) store was popularized, distribution of mobile content and applications was often realized through portals which were managed by network operators. Operator portals had some success in selling mobile content but the ecosystem was at first unclear and did not attract enough developers and users to really take off. The Apple App Store – an on device centralized store – with easy to find applications and with a simplified business model for developers, was later the disruptive force that kick-started the market for mobile applications. The success was immediate and within its first week of operation, the App Store achieved 10 million app downloads. Today all leading operating system providers and handset vendors have followed and launched their own application stores. The ecosystem around devices consisting of services and applications has today become an important influencing factor for users when choosing handsets.

Therefore, it is important for mobile platform vendors to achieve a prosperous mobile app ecosystem that creates revenues for publishers and value for end users in order to increase customer loyalty and sell more devices. Mobile applications are already a multibillion Euro business and the importance of mobile apps is clear when observing the consumer interest in apps as well as the fact that apps attract and generate revenues for a growing mobile community of software developers, publishers, media owners and mobile ad companies. In 2011, there were approximately 30 billion app downloads made on all mobile platforms. Consumers are getting used to expanding the functionality of their devices through apps and Berg Insight estimates that the number of app downloads doubled year-on-year in 2012 to reach 60 billion downloads. Even if featurephones are able to run apps, the increased sales of smartphones and the rising popularity of apps are closely tied together. In 2017, over 80 percent of all handset shipments will be smartphones, building a large user base that will spur the number of app downloads to reach 108 billion during 2017.

The number of app downloads per platform will gradually mimic the market share for each mobile platform. However, some platforms such as iOS, Android and Windows Phone are much more app centric than older platforms such as Symbian, Series 40 and BlackBerry OS. Also, network effects in the symbiosis between users and developers, reinforces the most popular platforms and attracts both more developers and users. Berg Insight forecasts that Apple’s App Store and Google Play combined will serve over 62 percent of the total app downloads in 2017. The Windows Phone operating system is projected to be the third most popular application platform in 2017. Berg Insight estimates that revenues from paid applications, in-app purchases and subscription services – so called direct revenues – reached € 5.1 billion in 2012, up from €_3.0 billion in 2011. Berg Insight forecasts direct app store revenues to grow at a compound annual growth rate of 15.8 percent to reach € 10.6 billion in 2017. Apple’s App Store is the current leader in direct monetisation of mobile applications and will keep the number one position during the forecast period. In 2012, the Apple App Store generated direct revenues of € 3.45 billion. In 2017 the company’s app store is predicted to generate € 5.2 billion in direct revenues. Google Play for Android apps is the second largest app store in terms of direct revenues and generated € 900 million during 2012 which will grow to almost € 2.5 billion in 2017. The market for in-app advertising took off during 2010 as a means to capitalize on free apps. In 2012, app advertising revenues reached € 1.35 billion worldwide. The in-app advertising revenues will increase throughout the forecast period and in 2017, in-app advertising is forecasted to generate € 3.5 billion corresponding to 25 percent of the total app revenues.

Google Play and Apple App Store generated € 510 million and € 570 million respectively in inapp ad revenues in 2012. Free to download monetisation strategies such as in-app purchasing and in-app advertising are today dominating. Top mobile application publishers such as Rovio Entertainment, Electronic Arts, Zynga and DeNA all work with multiplatform and free to download strategies. Facebook is today the publisher which generates most inapp advertising revenues and the company offers apps on all major platforms.

Table Of Contents

The Mobile Application Market - 2nd Edition

Executive summary 1

1 Introduction to mobile applications . 3

1.1 Background .. 3
1.1.1 App stores simplify distribution for developers .. 4
1.1.2 Explosion in the number of apps and app stores . 4
1.1.3 Mobile Internet and the rise of the mobile app market .. 5
1.2 Tablets, smartphones and featurephones 6
1.3 Mobile application categories . 7
1.3.1 Gaming 9
1.3.2 Utility and productivity .. 10
1.3.3 Entertainment 11
1.3.4 Books and reference . 11
1.3.5 Communication and social networking 12
1.3.6 Mobile enterprise . 12
1.3.7 Other categories .. 13
1.4 App usage .. 13
1.5 App discovery 14
1.5.1 Third party app directories . 15
1.6 The mobile application ecosystem . 17
1.6.1 App store network effects .. 18

2 Mobile application platforms 21

2.1 Mobile handset market overview . 21
2.2 The smartphone market .. 23
2.2.1 Focus shift from devices to mobile app ecosystems 25
2.2.2 Touch input and advanced sensor technologies drives app innovation 27
2.2.3 Mobile devices and apps challenge PCs and gaming consoles 28
2.3 Mobile platform and handset vendors .. 29
2.3.1 Apple . 29
2.3.2 Google .. 31
2.3.3 Huawei .. 32
2.3.4 LG Electronics .. 32
2.3.5 Microsoft .. 33
2.3.6 Nokia . 34
2.3.7 Oracle 35
2.3.8 Qualcomm .. 36
2.3.9 BlackBerry .. 37
2.3.10 Samsung Electronics 37
2.3.11 Sony Group 38

3 Mobile app developers and publishers .. 41

3.1 Major mobile developers . 42
3.2 Mobile app publisher strategies .. 44
3.2.1 Choosing monetisation strategy . 44
3.2.2 In-app purchasing is the most successful monetisation strategy .. 45
3.2.3 Platform and app store support .. 46
3.2.4 Cross platform development and multi monetisation strategies reduce risks . 48
3.3 Case studies .. 49
3.3.1 Social gaming - a recipe for MAG Interactive's success 49
3.3.2 Ndemic Creations plagues the world 50
3.3.3 Toca Boca builds success on company brand .. 51
3.3.4 Endomondo's community fitness app leaves no one behind . 52
3.3.5 Big Duck Games' Flow Free indie success .. 53
3.3.6 Storm8 has its own private network with 200 million users .. 54
3.3.7 SwiftKey looks beyond apps to expand its business 55
3.3.8 Console gaming giant Ubisoft expands on mobile platforms . 56

4 Mobile network operators .. 57

4.1 Major mobile network operators .. 57
4.2 Network operators and the mobile app market .. 59
4.2.1 Operator app stores face varying degrees of success 59
4.2.2 Operator industry initiatives 60
4.2.3 Operator opportunities in the mobile app market .. 60
4.3 Mobile operator app strategies 61
4.3.1 Orange . 62
4.3.2 Vodafone . 62
4.3.3 Telenor . 63
4.3.4 China Mobile . 64
4.3.5 Telefónica 65
4.3.6 MTN Group . 66

5 Mobile application stores 67

5.1 OS developer application stores . 70
5.1.1 Google Play 71
5.1.2 Windows Phone Store .. 71
5.2 Device vendor application stores 72
5.2.1 Apple App Store .. 72
5.2.2 BlackBerry World . 73
5.2.3 LG SmartWorld . 74
5.2.4 Nokia Store . 74
5.2.5 Samsung Apps . 75
5.3 Operator application stores 76
5.3.1 ATandT AppCenter . 76
5.3.2 Bharti Airtel App Central .. 76
5.3.3 China Mobile Market . 77
5.3.4 China Telecom Tianyi 78
5.3.5 China Unicom WoStore 78
5.3.6 Orange App Shop .. 78
5.3.7 SK Telecom T-Store .. 79
5.4 Third party application stores 79
5.4.1 GetJar 80
5.4.2 Amazon Appstore for Android .. 81
5.4.3 Appitalism 81
5.4.4 Downjoy 82
5.4.5 NetDragon Websoft 83
5.4.6 Tencent App Center .. 83
5.4.7 Sky-Mobi Maopao .. 83
5.5 White label application stores 84
5.5.1 Appia . 86
5.5.2 Huawei Digital Shopping Mall .. 86
5.5.3 Opera Mobile Store 87
5.5.4 Ericsson Multiscreen Storefront .. 87
5.5.5 SlideMe . 88

6 Mobile application economics . 89

6.1 Application store revenues . 89
6.1.1 Direct and in-direct revenue streams 90
6.1.2 Mobile app marketing .. 91
6.2 App store billing solutions .. 92
6.3 Mobile app pricing .. 94
6.4 Mobile application monetisation strategies and business models 95
6.4.1 Paid apps 96
6.4.2 One free limited version combined with one premium version .. 98
6.4.3 In-app payments . 98
6.4.4 Subscriptions . 100
6.4.5 Ad-funded . 101
6.4.6 Marketing and brand apps .. 103
6.4.7 New channel to market . 104
6.4.8 Bundle component .. 104
6.4.9 Attract a large user base and building communities . 104
6.4.10 Free apps . 105
6.5 Mobile ad networks and in-app ad solution providers .. 105
6.5.1 Amobee . 106
6.5.2 InMobi . 107
6.5.3 Jumptap 107
6.5.4 Madvertise 108
6.5.5 Millennial Media . 109
6.5.6 Smaato .. 109
6.5.7 Tapjoy . 110

7 Market forecasts and conclusions .. 111

7.1 Market forecasts by app store 113
7.1.1 Application download forecast by app store . 113
7.1.2 Direct revenues forecast by mobile app store .. 115
7.1.3 In-app advertising revenues forecast by app store. 117
7.2 Market forecasts by region .. 118
7.2.1 Application download forecast by region 118
7.2.2 Direct revenues forecast by region . 119
7.2.3 In-app advertising revenues forecast by region 120
7.3 Conclusions and strategic advice 121
7.3.1 App stores is about successful ecosystems .. 121
7.3.2 E-commerce, content and subscriptions . 122
7.3.3 Business models and monetisation 122
7.3.4 Mobile platforms and cross platform development 124
7.3.5 Multiple app store support .. 125
7.3.6 The mobile web, HTML5 web apps and native apps . 126
Glossary . 129

List of Figures

Figure 1.1: Available apps by category (October 2012) . 8
Figure 1.2: Application usage by category . 14
Figure 1.3: Top app discovery methods .. 15
Figure 1.4: Examples of app discovery and promotion services (November 2012) . 16
Figure 1.5: The mobile application ecosystem . 18
Figure 1.6: Network effects between users and developers . 19
Figure 2.1: Mobile subscriptions and handset sales by region (World Q2-2012) .. 21
Figure 2.2: Smartphone and featurephone shipments (World 2005-2012) .. 22
Figure 2.3: Smartphone shipments by vendor and OS (World Q3-2012) .. 24
Figure 2.4: Active smartphone platform user base by OS (World 2007-2012) 26
Figure 2.5: Smartphone shipments by input mechanism (World 2006-2012) . 27
Figure 2.6: Overview of mobile application platforms (2012) 29
Figure 3.1: Mobile application developer origin .. 41
Figure 3.2: Major mobile application publishers (December 2012) .. 43
Figure 3.3: Free versus paid business models for different application types . 45
Figure 3.4: Top 15 grossing apps in the Apple App Store in the US (Dec 17, 2012) .. 46
Figure 3.5: Number of available apps by mobile app stores (2010-2012) 47
Figure 4.1: Top mobile operators (World Q3-2012) .. 58
Figure 5.1: Leading mobile app stores (December 2012) .. 68
Figure 5.2: Leading app stores by number of downloads per day (March-Nov 2012) .. 70
Figure 5.3: Examples of mobile operator application stores (December 2012) .. 77
Figure 5.4: White label mobile app store providers 85
Figure 6.1: Revenues by app store (World 2012) 90
Figure 6.2: Mobile app revenue streams . 91
Figure 6.3: Billing solution characteristics .. 93
Figure 6.4: Payment methods supported by mobile application stores . 94
Figure 6.5: Mobile application monetisation strategies 96
Figure 6.6: Available paid apps on Apple App Store and Google Play (2011-2012) .. 97
Figure 6.7: In-app purchasing as share of direct revenues (2010-2012) 99
Figure 6.8: Ad-funded app category ranking by revenues (2012) .. 102
Figure 6.9: In-app ad solutions from major mobile players . 106
Figure 7.1: Mobile application downloads and revenues (World 2010-2017) .. 111
Figure 7.2: Mobile device shipments by segment (World 2009-2017) . 112
Figure 7.3: Application downloads by app store (World 2010-2017) 114
Figure 7.4: Direct revenues by app store (World 2010-2017) 116
Figure 7.5: In-app ad revenues by app store (World 2010-2017) 117
Figure 7.6: Mobile application downloads by region (2010-2017) . 118
Figure 7.7: Direct revenues by region (2010-2017) 119
Figure 7.8: In-app ad revenues by region (2010-2017) 120
Figure 7.9: Top 3 app business models by generated revenues (November 2012) .. 123

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