Mobile App Monetization - Virtual goods Vs Traditional advertising

Background

  • Mass market consumer adoption of Apple iOS and Google Android mobile devices has attracted an unprecedented volume of content, delivered through applications.
  • Majority of these applications downloaded are free which is why many ecosystem players assume that advertising revenue models dominate monetization of such apps

The Study

  • As per a new analysis by Flurry, sale of virtual goods is overtaking advertising in top categories on the iOS platform.  [ Since Google’s Android Market does not yet support in-app purchases (micro-transactions), this model is not yet viable for Android apps] 
  • The study was conducted using data collected from a sample of leading iOS social networking and social gaming applications, with a combined reach of 2.2 million daily active users. 

  • Majority of revenue generated from advertising occurs during the 2009 holiday period. 
  • During 2010 revenue increasingly shifts from advertising to virtual goods sales until reaching a proportion of more than 80% from virtual goods. 

Outlook

  • Though the idea that consumers acquiring virtual swords, gold coins and respect points can outperform advertising seems counter-intuitive, this phenomenon is neither new nor unique to the iOS platform. Virtual goods sales already represent the primary source of revenue for social gaming on Facebook. 
  • Social gaming has grown from approximately $600 million in 2008 to $1 billion in 2009.   
  • One factor responsible for low advertising levels may be advertising agencies’ slow acceptance of mobile as a media platform, with skepticism about the viability of social games and social mobile media as a channel for advertisement.  With these agencies representing and guiding the biggest brands, they appear to be missing a meaningful opportunity to reach a mass market of consumers who have adopted new platforms and forms of content.