App Annie App

Monetization Report
Publishers to Earn $189 Billion
from Stores and Ads in 2020
Table of Contents
Introduction and Executive Summary 3

App Revenue Fundamentals 7

Overarching App Revenue Drivers 12

App Business Models 17

Market-Level Trends 20

Considerations 24

About App Annie 29

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App Annie Mobile App Store and In-App Advertising Forecast

Today, app publishers come from every industry not just game studios
and media and entertainment companies, but also banks, retailers,
airlines, ride-sharing services and government agencies to name a few. To
fully capitalize on the app economys exceptional growth, publishers need
to anticipate future market opportunities when planning for a variety of
business scenarios, including product launches, performance goals,
international expansion and portfolio management. This report highlights
Combined worldwide in-app
the key trends that will shape the app economy over the coming years. advertising and net-to-publisher
We combined our industry-leading data and app market expertise with app store revenue is expected
cutting-edge data science to build the proprietary model that generates
our forecast. This data provides marketers, CFOs, strategists, investors, to more than double to $189
and other professionals, with insights about where the app economy is
going next so they can make sound decisions and investments to build billion from 2015 to 2020.
more successful businesses through apps.

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Executive Summary

The global revenue opportunity for publishers of mobile apps is forecast to grow by 2.7x from $70 billion in 2015 to $189
billion in 2020. Publishers need to understand and capitalize on each markets unique app monetization mix.

By 2020, in-app advertising and app store revenue each will exceed their combined 2015 total. Clearly both will see strong
growth, yet advertising outpaces store and its share of revenue expands from 58% to 62%. Two key factors are driving this
growth: 1) the dramatic increase of time spent in apps which has more than doubled over the past two years, and 2) the
doubling of the global installed base of smartphones and tablets to 6.2 billion in 2020.

While game publishers will continue to capture the majority of revenue, advertising will fuel apps (excluding games) publishers
as their share of revenue will climb from 34% ($24 billion) in 2015 to 45% ($85 billion) in 2020.

By the end of 2015, APAC had grown larger than the Americas in revenue, much of this growth driven by China. By 2020, Asia
will deliver more than $85 billion to publishers. However, the US markets maturity in advertising delivers high CPMs and more
brand dollars. This, coupled with higher percentage of app store revenue passed through to publishers, means the US market
will remain the single largest market for publishers, delivering $59B in 2020, compared to $54B from China.

In this report, App Annie shares its outlook and forecasts publishers revenue to be earned via all mobile app stores and through in-app advertising. This report excludes
mobile commerce revenue that occurs outside of app stores. The reader should note that consumer spend on apps via app stores and gross advertiser spend on in-app
ads is significantly higher (to read our reports on gross app store revenue, please see our App Annie Mobile App Forecast and June forecast announcement).

www.appannie.com/intelligence | 2016 App Annie

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The Technology Behind the Report

App Annie helps companies build better app businesses and is used by 94 of the top 100 publishers across the
globe. From competitive benchmarking to international expansion, we deliver the data and insights needed to
succeed in the app economy.

The information contained in this report is compiled from App Annie Intelligence, the leading market data solution
for the app economy. To see how our app store data for download, revenue, demographic and usage estimates can
help guide your critical business decisions, request a demo today.

EVALUATE & ASSESS ACQUIRE & GROW DEVELOP & LAUNCH ENGAGE & MONETIZE RETAIN & NURTURE

Identify market and Identify high-performing Validate your app strategy Monitor active user and Increase retention and
investment opportunities creatives and keywords to and roadmap by analyzing revenue growth to identify enhance app features
by validating usage trends optimize organic and paid the usage and demographic high performing based on user feedback
by country. user acquisition efforts. trends of key competitors by publishers. and engagement metrics.
country.

www.appannie.com/intelligence | 2016 App Annie

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App Annie Is the Most Trusted Partner in the App Economy

Over 700,000
registered members
rely on App Annie to
better understand
the app market,
their businesses and
the opportunities
around them.

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 App Revenue Fundamentals

7
Usage Is the New Currency and a Critical Driver of Revenue Growth

Apps are increasingly becoming the go-to resource

for communication, entertainment, shopping,
productivity and more. As a result, the time
consumers spend in apps has exploded.

Globally, time spent in apps grew by a staggering

114% on Android phones from H1 2014 to H1
2016 according to App Annie Intelligence.

Communication and Social apps like WhatsApp

Messenger and Facebook attract the largest share
of time spent.

Time spent in Media & Video has grown by 212%

over this period and is on the brink of overtaking
games.

Finally, time spent in Transportation and Shopping

has grown by a staggering 339% and 359% as apps
*Excludes China
transform traditional industries, driving innovation
and changing the competitive landscape.

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The Relationship Between Downloads, Usage and Revenue

App downloads, usage and revenue are deeply intertwined.

Time spent in apps has experienced huge growth at the
worldwide level, yet the trajectory of each of these metrics
within a country is dependent on its level of maturity.

In the early stages, the installed base of devices and

downloads grow most rapidly as consumers discover apps.
Over time, app habits develop as users become more engaged
with their go-to apps and overall time spent in apps expands.
This increased engagement leads to revenue growth via
in-app advertising, app store purchases and mcommerce that
takes place outside of app stores (e.g., ordering a ride or
purchasing an item for delivery). This engagement also
benefits industries whose primary app strategy is to improve
customer service and/or reduce costs.

Mature markets like the US and Japan are shifting from a

download growth phase to one characterized by expanding
app usage and revenue growth. Meanwhile, emerging markets
like India and Indonesia are still experiencing hypergrowth in
app downloads.
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Multiple Ways to Generate App Store and In-App Advertising Revenue

To generate revenue through the app stores and in-app advertising,

Top 3 Apps by iOS and
publishers use a variety of business models. Its critical they choose the Business How Does It
Google Play Revenue in
ones best suited for their particular app and its target users. In addition, Model Work?
H1 2016*
publishers can use a mix of models within a particular app, as well as
use a dynamic model where the apps business model shifts depending
Monster Strike
on certain factors like user behavior. Free download with
Freemium Clash of Clans
in-app purchases.
Game of War - Fire Age
Although games account for a massive share of revenue 66% today
other app categories continue to achieve success as they evolve how
Grand Theft Auto: San Andreas
they monetize. Paid download with no
Paid Facetune
in-app purchases.
Terraria**
Subscriptions have become an increasingly important type of in-app
purchase, currently accounting for roughly 15% of all app store
Minecraft Pocket Edition
revenue. They have impacted a broad range of categories, including Paid download with
Paidmium Minecraft: Story Mode
in-app purchases.
music streaming (Spotify and Pandora Radio), video streaming (Netflix Ghost Blows Out the Light 3D
and HBO NOW) and dating (Tinder).
Contains ads (banner
Both Apple and Google made changes in June 2016 that we believe will In-App Advertising N/A
ads, video ads, etc.).
propel subscriptions even further. Apples App Store and Google Play
*Based on App Annie Intelligence estimates
have increased the share of revenue that publishers receive for **If an app used multiple business models or switched business models during H1 2016, the apps
subscriptions and iOS has opened them up to all app categories, ranking for any particular business model was solely based on the portion of its revenue that was
generated by that business model
including games.
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Opportunity Extends Beyond App Store and In-App Advertising Revenue

Not all apps are created to generate revenue

through the app stores or in-app advertising. App Name* Approach

Some apps drive commerce transactions that are eBay Drive online shopping conversion
processed outside of the app stores. These apps
come from a variety of companies, including
Uber Drives mobile transactions that are processed outside of the app store
shopping site eBay and ride-sharing service Uber.

Other apps deliver additional value to users by

HBO GO Allow current subscribers to stream content on the go
extending the capability of services that are
initially provided from outside the app economy
entirely. For example, HBO GO and DIRECTV allow Drive loyalty and engagement by allowing consumers to easily refill
Walgreens prescriptions, as well as set usage and dosage reminders
pay-television subscribers to view content on their
mobile devices.
Offers consumers the ability to test how IKEA products would look in their
Ikea Catalog homes without traveling to the store through the use of augmented reality
Apps can also be used to generate brand
awareness, drive loyalty, reduce costs and/or
Barclays Video Allows customers to have confidential voice chats with advisors, providing
enhance the customer journey. Some examples great customer support, as well as a way to discuss/sell new mortgages
Banking
include Walgreens, Ikea Catalog and Barclays
Video Banking.
*Additional information on these apps available on App Annie Store Stats

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 Overarching App Revenue Drivers

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Combined Worldwide In-App Advertising and App Store Net Revenue to
Exceed $189 Billion in 2020
Combined worldwide in-app advertising and
net-to-publisher app store revenue is poised for
huge growth and will more than double over the
forecast period. In fact, by 2020 the individual
revenues for in-app advertising and app stores each
on their own will exceed their combined 2015 total.
While both are expected to experience strong
growth, advertisings share of revenue increases
from 58% to 62% from 2015 to 2020.

Revenue growth will be driven by strong smartphone

and app adoption in developing economies and
mobile apps ability to capture greater share of
wallet in mature economies.

The forecasted revenue growth will not be exclusive

to the top apps and categories. Rather it will be
more widely spread across the app economy. Also,
other sources including mobile commerce and
new device platforms will further expand the
*App store and in-app advertising revenue estimates are net-to-publisher and inclusive of all mobile app stores,
overall monetization opportunity. including third-party Android stores. This forecast does not include gross spend by advertisers and consumers.

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Mobile Installed Base Doubles, Driving Revenue Growth Through 2020

We forecast that the installed base of smartphones

and tablets will more than double from 2.7 billion in
2015 to 6.2 billion in 2020.

Smartphone adoption in emerging markets will be the

primary driver of growth. 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.

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Strong Revenue Growth Across Both Games and Apps
Revenue growth will be spread across the entire app
economy with both games and apps (excluding games)
experiencing significant gains. Although games will
continue to drive the majority of combined in-app
advertising and app store revenue through 2020, its share
will decline from 66% to 55% as apps grow at a faster rate.

In fact, combined net revenue for apps is projected to more

than triple over the forecast period. While game publishers
drive the majority of ad spending, much of this spend is
allocated to social and video platforms, driving strong
revenue growth for apps. In addition, the increasingly
popular subscription-based revenue models will contribute
to store revenue growth.

The huge revenue growth across categories and business

models demonstrates that there will be a variety of
opportunities for app developers and marketers. They will
be free to choose the avenues that best fit their apps and
strategy rather than having to conform to a narrow set of
growth areas. *App store and in-app advertising revenue estimates are net-to-publisher and inclusive of all mobile app stores,
including third-party Android stores. This forecast does not include gross spend by advertisers and consumers.

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iOS and Google Android Lead in Dollars, While Third-Party Android Sees
Fastest Growth
Similar to games and apps (excluding games), App Annie
forecasts significant revenue growth across the iOS and
Android ecosystem.

App store popularity is dependent on the adoption of mobile

operating systems in a country. To maximize their success,
publishers need to account for these differences when
creating their app development and go-to-market strategies.

Android is popular in both mature and emerging countries

thanks to a range of devices that scales from high to low end.
iOS continues to see strength in mature markets particularly
in the US and Western Europe.

While Android leads worldwide downloads by a factor of 7:2

due to its dominant installed base, iOS leads on revenue by
3:2 due to its more affluent customer base. iOS will maintain
its lead over Google Play and third-party Android through
2020; though the latter two are projected to grow faster.
*App store and in-app advertising revenue estimates are net-to-publisher and inclusive of all mobile app stores,
including third-party Android stores. This forecast does not include gross spend by advertisers and consumers.
Chinas highly fragmented app store market accounts for the
**Values for Other are under $3 billion in all time periods and not shown on chart for readability.
vast majority of third-party Androids revenue and growth.

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 App Business Models

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In-App Advertising and Freemium Will Continue to Dominate Other Business
Models Through 2020
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.

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.
*App store and in-app advertising revenue estimates are net-to-publisher and inclusive of all mobile app stores,
including third-party Android stores. This forecast does not include gross spend by advertisers and consumers.

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Variety of Freemium Techniques to Choose From
To maximize their success, publishers Freemium
should choose the freemium technique that Value Proposition App Examples*
Monetization
best aligns with each apps features and its
user base. Free app offers limited usage, bandwidth, NYTimes
Usage hours or storage space. Pay to raise or
Functionality like speed-ups, virtual items remove those limits. Dropbox
and in-app upgrades is commonly used
for mobile games. However, it has been very Free app offers full functionality for a Netflix
effective in other categories as well. For Free Trial limited amount of time. Pay to continue
using after time period is up. The Wall Street Journal
example, LINE has been particularly
successful generating revenue from selling
stickers which are widely popular as an Clash of Clans
Pay for virtual items, speed-ups, content,
emoji replacement for messages. Functionality LINE
add-ons, upgrades, services or capabilities.

Part of subscriptions rapid success is its Skype

ability to be leveraged across various

categories and freemium techniques. Some Free app is ad-supported. Pay in-app to Color Switch
User Experience remove ads or through a separate paid
examples include NYTimes (usage), Netflix
download. Trivia Crack
(free trial) and Spotify (combination).

Combination The app uses a combination of the above. Spotify (Functionality and Usage)

19 *Additional information on these apps is available on App Annie Store Stats

www.appannie.com/intelligence | 2016 App Annie
 Market-Level Trends

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Asia Pacific Leads Strong Revenue Growth Across All Regions

All three regions are forecast to experience significant

growth for combined in-app advertising and app store
net revenue through 2020. APACs revenue is
expected to more than triple from 2015 to 2020, while
Americas and EMEAs will more than double.

Led by China, the worlds largest smartphone market,

APAC has already surpassed the Americas as the top
region for revenue. Through 2020, China will be the
primary driver of worldwide revenue growth and
extend APACs lead over the other regions. Credit card
penetration has been a key issue across emerging
APAC markets, but the extension of direct carrier
billing and prepaid vouchers for app purchases is
helping to drive app spend in these markets.

The US will continue to experience significant revenue

growth, particularly from in-app advertising and drive
the Americas region overall.
*App store and in-app advertising revenue estimates are net-to-publisher and inclusive of all mobile app stores,
including third-party Android stores. This forecast does not include gross spend by advertisers and consumers.

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Before Entering or Expanding Into a Market, Understand Its Monetization
Potential
The overall size and growth potential for app markets
can vary widely across countries. App publishers
need to factor in this data when developing their
strategy.

Through 2020, the US and China are forecast to

significantly widen their lead for combined in-app
advertising and app store net revenue. China is the
single largest market by gross consumer spend on
mobile app stores; however, lower average app store
fees, combined with higher advertising spend and
higher CPMs help the US rank #1 by net-to-publisher
revenue.

Meanwhile, Japans revenue growth will be tempered

by its maturity in app store revenue and its more
modest levels of in-app advertising revenue.

Though relatively small in terms of absolute revenue,

India will experience the fastest growth of any *App store and in-app advertising revenue estimates are net-to-publisher and inclusive of all mobile app stores,
country with at least $300 million in revenue in 2020. including third-party Android stores. This forecast does not include gross spend by advertisers and consumers.

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App Monetization Strategies Should Fit Local Market Preferences

The share of revenue generated through app

stores versus in-app advertising varies across
countries. App publishers need to account for
these differences to maximize their success in
any given market.

The majority of Japans mobile app revenue

comes from the app stores which sets it apart
from the other key countries. This is driven by
the remarkable success that in-app purchases
have had in this market, especially for games. In
fact, Japan has the highest app store
monetization per user versus any other country.
The especially high use of television ads in
Japan, to drive app store revenue through user
acquisition and re-engagement for mobile
games, has contributed to this as well.

For each of the five key countries, the mix of

app store and in-app advertising is not
*App store and in-app advertising revenue estimates are net-to-publisher and inclusive of all mobile app stores,
projected to significantly change through 2020. including third-party Android stores. This forecast does not include gross spend by advertisers and consumers.

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 Considerations

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Evaluate Best-in-Class Apps to Bolster Your Creative Strategy

Commerce Subscriptions
The monetization strategies of commerce apps can be assessed by The growing popularity of subscription-based revenue models
exploring advertising creatives using App Annie Intelligence. Retail among media streaming apps has led to a rise in creatives focused
apps seeking to drive customer loyalty and engagement, such as on one of their key benefits: the ability of users to consume content
Walgreens, use creatives that highlight the benefits of using their on the go. HBO NOW does this through various video ads that
app, such as easily refilling prescriptions by scanning rx barcodes. highlight excerpts from their original and exclusive content, as well
Uber, on the other hand, drives commerce transactions that are as offer initial 30-day free trials. Music streaming service Pandora,
processed outside of the app store, and employs a wide mix of on the other hand, uses an iterative creative advertising strategy
brand-based advertising that relies on brand and logo recognition, that first promotes the free aspects of its app, and then focuses on
as well as frictionless transaction messaging. converting free users to paid subscribers.

25 2016 App Annie

Top Games Showcase Best Practices of Earning Revenue and Boosting User
Acquisition Through In-App Advertising
With games accounting for a 66% share of revenue in 2015, Games Monetizing Through Serving Ads
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
publishers offerings, such as those from Ketchapp Studio (and
Ubisofts acquisition of this studio validates that publishers see the
growing value of ads and cross-promotion). Games In-App Advertising Campaigns
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.

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Brand Advertising, B2C Messaging Poised to Become Monetization Drivers

Brand Advertising B2C Messaging

In 2015, we estimate that brand advertising represented just 9% of Messaging apps have already become app and service distribution
total ad spend on mobile. Instead, the majority of spending from channels in East Asia. This is largely the result of cultural dynamics
these advertisers focused on traditional channels like TV. This was unique to those regions and is unlikely to be replicated in the West.
one of the primary factors behind the disparity in share of time However, there are elements of their strategy that can be
spent and ad spend on mobile (25% vs. just 12%, respectively in the emulated, notably enabling communication between businesses
US in 2015 according to the KPCB Internet Trends Report). and consumers. Last year, LINE generated roughly a third of its
revenue from official business accounts sending messages to
In the next few years, we expect this gap to somewhat narrow as a subscribed users. Facebook is looking to follow this model by
meaningful amount of brand advertising spend moves to mobile, merging its Facebook Pages database with WhatsApp Messenger.
particularly mobile video. This is inevitable as apps like YouTube, Unlike chatbots that insert conversation where it doesnt exist, B2C
Snapchat and Facebook have become the primary source of messaging could ease conversation where it already exists today,
entertainment for valuable, younger demographics. e.g., after sales and customer service.

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App Annie Intelligence
The #1 enterprise-class app market data solution available

Store Intelligence Usage Intelligence Marketing Intelligence

Download and revenue estimates Understand user engagement, behavior Optimize your app store presence and
aggregated by app, publisher, country and demographics through metrics such gain unparalleled visibility into your
and category, for all major stores as active users, duration, gender and more competitors user acquisition campaigns

Data is available for:

(support varies by product)
All countries and categories Millions of apps and thousands of publishers Daily, weekly and monthly granularity

Over five years of historical data iOS, Google Play and Android

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About App Annie

App Annie delivers the most trusted app data and insights for your business to succeed in
the global app economy. Over 700,000 registered members rely on App Annie to better
understand the app market, their businesses and the opportunities around them. The
company is headquartered in San Francisco with 450 employees across 15 global offices.
App Annie has received $157 million in financing, including from investors such as
e.ventures, Greenspring Associates, Greycroft Partners, IDG Capital Partners, Institutional
Venture Partners and Sequoia Capital.

For more information, please visit www.appannie.com, check out our Insights and follow
us on Twitter (@AppAnnie). To find out more about our products, visit our Market Data
Intelligence, Store Stats and App Analytics tour pages. For the most current monthly
rankings of apps and publishers, check out the App Annie Index. Report methodology and
updates are available here.

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