The number crunchers at App Annie have released a new report on the growth of the mobile business through 2020, and while games will still control a majority of app revenues, their growth is slowing while other apps are accelerating. App Annie forecasts that the total market, including revenues from in-app advertising and the app stores, will be worth $189 billion in 2020, and games will account for about 55% of that total (as opposed to 66% now), bringing in $53 billion from app stores and over $51 billion from in-app ads.
Thanks to the continued rise of mobile adoption in emerging markets, App Annie sees the global smartphone (and tablets) installed base more than doubling from 2.7 billion in 2015 to 6.2 billion in 2020. "Due to the sharp rise in new, less affluent consumers from emerging markets entering the mobile economy, average revenue per device will take a small, temporary dip in the near term. As these markets mature, average revenue per device will rebound and exceed 2015 levels. By 2020, the increasing revenue per device will magnify the impact of installed base expansion and accelerate the growth of the overall monetization opportunity," App Annie noted.
According to the firm, the best monetization opportunity for game developers and app publishers will still be advertising and free-to-play. "In-app advertising and freemium have historically generated a huge portion of app revenue and are projected to account for more than 90% combined share throughout the forecast period. The success of both of these models is driven by their ability to appeal to a broader user base by eliminating upfront costs, and to create ongoing revenue streams for their publishers," App Annie stated.
"From 2015 to 2020, in-app advertising is expected to significantly increase its lead, with its share of app store net revenue growing from 58% to 62%. Despite healthy growth rates, paid and paidmium will remain an extremely small part of the overall market, though they will continue to be successful for the right apps."
While advertising is likely to become more prevalent in the games space, App Annie cautions game makers to follow some best practices.
"With games accounting for a 66% share of revenue in 2015, particularly through a growing in-app advertising revenue source, it is no surprise that many mobile games monetize by serving ads throughout gameplay. Largely popular games, such as Clash of Clans and Game of War - Fire Age, generate significant revenue from in-app purchases via app stores; however, there are many games that rely on in-app advertising as both a primary revenue source as well as a way to cross-promote games within the publisher's offerings, such as those from Ketchapp Studio (and Ubisoft's acquisition of this studio validates that publishers see the growing value of ads and cross-promotion).
"Monetizing through serving ads, however, can lead to players churning due to ad overload. This can be mitigated by a common strategy: opt-in ads that advance gameplay through extra lives or game bonuses, as seen in the game Two Dots. On the advertising side, games that focus on user acquisition through in-app advertising campaigns tend to focus on highlighting gameplay, in order to entice downloads that will be less likely to churn."