The mobile app gold rush is not over

Posted on January 30, 2017 by Eric

California-Gold-Rush

Every so often, but with a seemingly increasing pace and usually on the back of a doomsday report from a vendor, a frenzied pulse of anxiety will progress throughout the technology industry at large about the sustainability of the app economy.

Most recently, this happened after Flurry published a report asserting that app usage growth is slowing. It also happened at the end of 2016, after Nielsen released a report that ranked apps by usage across all platforms and found that eight of the top 10 apps used in 2016 were operated by Facebook and Google:

tops-digital-chart-1

A similar story played out in the middle of 2016, when SensorTower released a report claiming that the top app publishers saw installs decrease by an average of 20% year-over-year (through to May 2015) in the US:

This nervous handwringing is usually captured with metaphors like "gold rush" or "boom", insinuating that intrepid entrepreneurs no longer want to try their luck with apps because there's no money to be made in them. The mines are shuttered and tumbleweeds dot the empty streets where app millionaires formerly celebrated the bounty of their digital labor.

But the app boom isn't over; it wasn't over in June 2016, it wasn't over in late 2016, and it's not over now. Apple's App Store set a new revenue record on January 1st, 2017 by processing $240MM in transactions; Apple announced on January 5th that $20BN had been paid out to developers over 2016, meaning that the App Store generated roughly $28.5BN overall in 2016, of which Apple kept $8.5BN (30%). Apple's payout to developers was up 40% from 2015, meaning overall App Store revenues increased by as much (and in China, year-over-year overall revenues grew by 90%).

And app revenues are no longer the exclusive domain of mobile games. Prior to setting a revenue record on January 1, 2017, the App Store's most recent revenue record announcement was for November 2016. More than $1.2BN in revenue was generated on mobile on Black Friday last year as the majority (55%) of visits to retail websites were made on a smartphone or tablet. The Euromonitor group expects mobile to generate 25% of all travel bookings in 2019, and Tinder -- the mobile-only dating app -- expected to more than double its PMC, or paid member count, in 2016 as of its most recent quarterly report.

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These aren't "bust" numbers.

And these growth rates only capture revenue driven by in-app purchases, which is decreasing as a total proportion of mobile app revenue. Because of the way most third-party polling services estimate revenue via sampling, and also because ad revenue is simply difficult to track, advertising very seldom is mentioned in the doom-and-gloom forecasts for the mobile app economy. But mobile ads have become an important source of revenue for some publishers, especially games, and the credibility should be questioned of any report that discusses the decline of the app economy without acknowledging mobile advertising revenues. Mobile ad spend is growing at an impressive clip.

emarketer_digital_spend_2016-2017

All of this said, there are a few things to note anytime an article or report prophesizes the end of mobile apps:

  • There are only two 1st-party sources of app revenue date: the platform owners (Apple and Google) and app developers. Apple has been more forthcoming about App Store revenues than usual lately as it emphasizes the importance of its services businesses, but Google generally only releases Google Play revenue data at its I/O event. Some app developers are public companies, and their revenue can be pulled from their quarterly and annual reports (as with the Match Group 10Q data above);
  • 3rd party sources of revenue data rely on a broad range of sampling and forecasting tools, some of which are questionable. Tread cautiously when utilizing 3rd-party sources of data for important decisions;
  • Mobile ad revenue is not trivial to estimate: it relies on a set of assumptions about user base size (DAU / MAU), impressions-per-session, and CPM payouts. Usually impressions per session falls across a long-tail distribution, with many developers "uncapping" the number of impressions that can be shown in a given session, especially if the ad units they're using are rewarded.

To the extent that the Gold Rush metaphor applies to mobile apps, it's certainly not over: in the California Gold Rush, mining technology grew so expensive that most prospectors were priced out of the business, with a preponderance of the gold being mined by a small number of technologically savvy mining companies. If anything, the app economy is in that phase of the gold rush, but certainly a number of mobile prospectors are still making good money.

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