It’s Time to Re-Evaluate How We Size The App Economy
Games have been dominating the app economy revenue since its inception. App Annie reports that games accounted for 85% of app market revenues in 2015. Our recent Appstore Economics Report highlights that games capture 76% of the top 50 grossing chart rankings, but the free app charts (which reflect popularity rather than commercial success) are much more evenly distributed with games capturing only 24% of the top 50 chart positions. Indeed, this is often interpreted in the way that games are simply better at generating revenues than other app categories.
But this presumption of games still ruling the mobile app revenue world is becoming increasingly counter-intuitive when we consider the growing user bases (and revenues) of companies like Uber, Lyft, Spotify, Deliveroo and many others.
How do Games dominate with $34.8 billion annual revenue, if $10 billion was generated in 2015 by Uber’s bookings alone? Quite simply, certain transactions are unaccounted for by the app stores – which are currently used as the industry standard to measure the size of the app economy.
While Uber is listed as a free app without in-app purchases (and therefore most likely not included in most app economy sizing models), it would be hard to argue against its monetary contributions to the app economy. Besides physical transportation services and delivery companies, who have often managed to escape the traditional measurement methods, there is also a number of hybrids out there, whose revenue is likely accounted for in the app economy only partially. Spotify for example lists in-app purchases, but gives users the opportunity to become clients through their website first, in which case the revenue would likely not be booked by the app stores. This is all further complicated when accounting for advertising revenue generated by mobile apps.
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This leakage in the app economy’s revenue measurement is not small, nor accidental. Companies have a clear incentive to omit booking revenues through the app stores if they can, to mitigate the distributors’ 30% commission fee. However, the fact that these revenues are not booked by the traditionally accepted market sizing methods does not mean that they don’t contribute to the real size of the app economy.
Google and Apple’s tight grip on the distribution part of the app economy’s value chain is being disrupted by factors such as the rise of bots and consumers' migration towards messaging platforms and mobile social portals. This leads to an inevitable insertion of companies like Facebook and Tencent into distribution of mobile apps and other revenue-generating mobile experiences.
It is therefore not necessarily the dynamics of the app economy that are stale, but rather that the mobile app industry is failing to adapt research methods fast enough to reflect the app economy’s on-going evolution. App store rankings are still a useful tool, especially for measuring popularity, but they are no longer the watertight measure of revenue they once were. The app economy has grown way beyond app stores and it’s time we start acknowledging this in order to measure its size and performance more accurately.