App trials, data plans, and Google Play revenues

Posted on October 13, 2014 by Eric Benjamin Seufert

google-play

Technology news site The Information reported last week (paywall) that Google is considering the introduction of “app trials” to Google Play, allowing users to download limited versions of paid apps for free in order to evaluate them. Amounting essentially to demos, these app trials could boost Google Play revenues by removing some of the uncertainty around the quality and content of paid apps, in addition to reducing the number of negative reviews left by unsatisfied users.

The introduction of app demos is the most recent in a spate of Google Play changes that seem engineered by Google to not only differentiate the Google Play experience from the App Store’s but also to close the gap on the latter’s revenue lead. While IDC estimates that Android’s share of the overall smartphone market is 85% as of Q2 2014, Google Play’s revenues are eclipsed by the App Store’s: Citigroup analyst Mark May estimates that Google made $1.3BN from app sales in 2013 versus the App Store’s $10BN.

android_ios_market_share

Estimates differ wildly on how Google Play revenues will develop over the next few years. Richard Windsor of Radio Free Mobile believes that Google Play revenues may overtake App Store revenues by 2018; Mark May from Citigroup believes Google Play revenues will grow to $5.2BN in 2017, or roughly half of what the App Store generated in 2013. (In the article from The Information revealing app trials, an unnamed source from Google predicts that Google Play revenues in 2014 will land between $3BN and $4BN.)

This discrepancy likely owes to the global, macroeconomic factors driving adoption for both platforms. The countries in which Android commands a strong and growing lead over iOS in terms of smartphone shipments are in large part countries with relatively expensive mobile data plans. Observe Android marketshare in Brazil, China, and Mexico against that of the US:

Brazil-Smartphone-Market-Share

China-Smartphone-Market-Share Mexico-Smartphone-Market-Share US-Smartphone-Market-Share

Contrast the above adoption rates against the price of a 500mb mobile data plan in those countries as a percentage of per-capita gross national income, from a recent McKinsey study:

mobile_data_plans

In other words, while Android shipments are growing at a frantic pace – Google’s Sundar Pichai revealed at Google I/O 2014 that 538MM Android devices were in use in 2013, up from 223MM in 2012 and 77MM in 2011 – they might be growing in the parts of the world that are unlikely to contribute meaningfully to Google Play revenues due to the relative expense of mobile data.

Thus the series of changes to Google Play, all of which seem oriented toward transparency and consumer comfort in an attempt to strengthen app revenues:

  • In July, Google announced that it will no longer use the word “free” to describe freemium apps in EU app stores;
  • In September, Google increased the “refund window” — the amount of time in which a paid app can be “returned”, with its price refunded to the user – from 15 minutes to 2 hours. This essentially gives users more time to decide whether or not they feel a paid app is worth its price;
  • In early October, Google began displaying the range of in-app purchase prices available in freemium apps on Google Play app profiles;
  • Last week, rumors surface that Google will offer app trials.

These policy changes potentially signal that Google believes its Google Play store revenues are curbed by poor app reviews, that increased user comfort with paid apps could bolster revenues, or both. GigaOM reports that Google recently renegotiated its Google Play revenue share agreements with device manufacturers, reducing its payout to 15% from 25% in some cases and eliminating it altogether in others. These developments seem to indicate some recognition on Google’s part that Android’s growth trajectory alone might not be enough to close the gap between Google Play and App Store revenues.