In-app purchases overwhelm new app sales

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Mobile users are willing to spend money on apps, but it's just a question of how.

A new Gartner survey reveals that mobile users are more willing to spend money on in-app features than they are to pay to download an app in the first place. The survey showed that users on average spend 24% more for in-app purchases than for apps themselves.

The survey included 3,000 users in the U.S., U.K., and China and asked these consumers how much they spent on mobile apps and on in-app purchases in the last three months. The results indicate that users enjoy a more flexible experience when buying features inside an app rather than paying for an app that may not have all the features they want.

Consumers spent an average of $9.20 on in-app purchases, compared to $7.40 for purchasing mobile apps. And age was a factor, as younger users (ages 18 to 34) spent more in-app while older users (age 45 and older) were more likely to just buy apps outright. Those ages 35 to 44 had an even split between the two spending categories. The survey also noted that younger users are not likely to change their habits anytime soon.

The survey suggested that developers should provide consumers with options for recurring in-app transactions and, all-encompassing, one-time upgrades for a premium version of an app.

But in-app advertisements are not the way to go, as only 20% of respondents said they "often click on advertisements contained within mobile apps." This is a problem for app creators, as In-Mobi reports that 63% of developers choose to monetize their apps through in-app advertising.

The survey arrives at a time in which many developers are struggling to increase users' in-app spending. The overwhelming majority of app revenue comes from gaming apps, which accounted for 85% of the $34.8 billion global app market in 2015, according to App Annie.

Over the past eight years, developers have flocked to create mobile games as smartphones became a mainstream consumer device. Technological evolutions including faster processors, larger screens, more input points, and better overall graphics capabilities, combined with dropping prices, brought the ability for gaming via smartphone to audiences larger than ever before.

In that growth and through that transition, smartphones as a gaming arena experienced its own evolution. More developers flocked to this medium, and the gaming sections of app stores became saturated. While mobile gaming apps using an up-front paid downloading model, wherein consumers paid a typically nominal fee to download an app, flourished in the early days of mobile gaming, the deluge of apps led to a change in monetization strategy.

More apps started using the free-to-play (F2P) model, wherein a consumer can download an app for free, and is then later monetized either via in-app purchases or in-app advertising. Since that transition, most consumers have been conditioned to expect quality mobile gaming apps for little or no cost.

Jessica Smith, research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on mobile gaming that examines how the mobile gaming market has been affected by the transition to F2P monetization.

It also takes a close look at how saturation in the mobile gaming category, combined with the standard F2P model, has led to numerous issues for developers, including spiking marketing costs, the premium on acquiring users who will spend heavily within a game (called whales), and the impact that it's having on mobile gamers who do not spend in-app. The report then identifies innovations in mobile app marketing and engagement that seek to alleviate the issues of F2P and inadequate monetization in the fact of mounting marketing costs.

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Here are some key takeaways from the report:

• The mobile gaming app market is so big it makes other app categories seem small by comparison. Mobile gaming apps accounted for 20% of active apps in Apple's App Store in March 2016, according to AppsFlyer. That’s more than double the second most popular category, business apps.
• It's only going to keep growing as quality smartphones become more accessible and more consumers look to their smartphones for gaming. In the US alone, 180.4 million consumers will play games on their mobile phones in 2016, representing 56% of the population and a whopping 70% of all mobile phone users, according to estimates from eMarketer.
• This quick growth is resulting in numerous growing pains. Saturation in the market has led to the dominance of the free-to-play (F2P) monetization model, which in turn has led to sky-high marketing costs.
• As marketing costs for mobile gaming apps has skyrocketed, so has the tendency for apps to focus on the very small segment of players who spend money in-app. This has resulted in game mechanics that optimize the amount of money being spent by this small user group, which can often alienate the large swath of users who do not spend money in-app.
• There are numerous new solutions coming to market that offer developers and publishing houses a diverse selection of monetization models which combine in-app purchases with other methods.

In full, the report:

• Sizes up the current mobile gaming app market and its future growth trajectory.
• Examines the role of free-to-play (F2P) games in the greater mobile gaming ecosystem.
• Identifies the major threats and opportunities inherent in the current mobile gaming market and in peripheral markets such as marketing.
• Explains the current monetization conundrum wherein the vast majority of revenue comes abysmally small segments of mobile gamers.
• Presents new approaches and solutions that can help mobile gaming apps monetize without alienating swaths of mobile gamers.

To get your copy of this invaluable guide, choose one of these options:

1. Subscribe to an ALL-ACCESS Membership with BI Intelligence and gain immediate access to this report AND over 100 other expertly researched deep-dive reports, subscriptions to all of our daily newsletters, and much more. >> START A MEMBERSHIP
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The choice is yours. But however you decide to acquire this report, you’ve given yourself a powerful advantage in your understanding of the world of mobile gaming.