Are Games the future of the app economy?

Posted on January 11, 2016 by Eric Benjamin Seufert

money

Apple released some interesting statistics around App Store spending over the holiday season last week. Among the more compelling revelations:

  • Apple customers spent over $1.1BN on apps and in-app purchases in the two weeks ending January 3rd;
  • The largest spending day in the App Store's history was January 1st 2016, with Apple taking in more than $144MM in revenue. The previous record was set just one week earlier on Christmas Day;
  • Over $20BN was spent on the App Store in 2015;
  • Cumulative payouts to developers have reached $40BN. Apple announced last year that $25BN had been paid out since the launch of the App Store, with $500MM being spent in January 2015;
  • Apple stated that over one-third of the $40BN paid out to developers since the launch of the App Store was "generated in the last year alone". Pegging this value at $14BN, it represents a 40% increase in payouts from 2014 ($10BN).

The Beyond Devices blog broke these numbers down against historical data and drew an interesting conclusion: gross App Store revenue per iOS device in use began growing precipitously in 2012 (4 years after the launch of the App Store), coinciding with the onset of the rise of in-app purchases and free-to-play gaming.

It's no secret that the developers behind the most lucrative free-to-play games generate a massive and disproportionate amount of revenue within the app economy. But since New Year's Day 2015 was also a record day for Apple in terms of App Store sales, it's interesting to consider how the Top Grossing landscape has changed since free-to-play games began to flourish on mobile:

gaming-vs-non-gaming-apps-NYD

This chart depicts the number of gaming vs. non-gaming apps in the Top 20 grossing chart (US, iPhone) on New Year's Day, from January 1st, 2013 through January 1st, 2016. Obviously the change hasn't been dramatic, but there's no denying that a change has taken place: 20% of the Top 20 grossing list was non-gaming apps this most recent New Year's Day versus just 5% on January 1st, 2013.

What's perhaps more interesting than these particular snapshots is the ability for non-gaming apps to rocket up the Top Grossing list in conjunction with specific events. For instance, both the Netflix and HBO Now apps jumped in the Top Grossing ranks (US, iPhone) just ahead of Black Friday, and Apple even rolled out a new app category ahead of the commercial "holiday". Incredibly, the YouTube app jumped 32 places to the Top 4 Grossing position (US, iPhone) on Cyber Monday (November 30th).

As consumers become increasingly comfortable with mobile shopping, it'll be interesting to see if more non-gaming apps supplant games in the Top Grossing charts. Thus far, subscription content services such as Spotify, Pandora, Hulu, Netflix, and HBO Now, along with dating apps such as Tinder, Match, and Plenty Of Fish have been the primary beneficiaries of increased consumer comfort in shifting spending patters from desktop to mobile.

The question is what will happen when truly mobile-first shopping apps -- that is, apps from developers that accept the 30% platform fee charged by Apple and Google in exchange for more effective distribution when development is approached with a mobile-first mindset -- reach critical mass, especially on tablets. While games will probably always inhabit a plurality, if not a majority, of the Top 20 grossing positions, sales and other commercial "events" will likely shock the rankings more and more frequently going forward.