In-app purchase revenues to top $5B in 2015, fueled by loyal users

In-app purchases are on pace to generate 64 percent of total mobile application revenues in 2015, up from 39 percent in 2011, according to information and analysis provider IHS Screen Digest. The firm adds that in-app purchase revenues will rise to more than $5.6 billion in 2015, compared to $970 million a year ago.

As of the third quarter of 2011, freemium applications--i.e., free downloads that offer premium in-app transactions like virtual currency and virtual goods--represented 45 percent of the top-grossing apps on Apple's (NASDAQ:AAPL) and 31 percent of the highest-earning apps on Google's (NASDAQ:GOOG) rival Android Market, IHS notes. In addition, 68 percent of the top-grossing U.S. applications featured some form of additional content or functionality available as an in-app purchase.

"Smartphone users overwhelmingly prefer free apps to paid apps, as we estimate 96 percent of all smartphone apps were downloaded for free in 2011," said IHS senior analyst for mobile media Jack Kent in a statement. "In 2012, it will become increasingly difficult for app stores and developers to justify charging an upfront fee for their products when faced with competition from a plethora of free content. Instead, the apps industry must fully embrace the freemium model and monetize content through in-app purchases."

Virtual currencies like additional poker chips and redeemable points lead in-app purchase options, accounting for 63 percent of all in-app transactions on Apple's iOS platform during the third quarter. Specific in-game functions or features follow at 22 percent. IHS Screen Digest adds that time-limited navigation services, dating and premium social network access are also popular, as are specific functions or features for photo and video apps. Payments for additional media content made up just 2 percent of the top U.S. in-app purchases.

Building relationships with mobile application users and fostering long-term usage behaviors are critical components to driving in-app purchases reports mobile app analytics firm Localytics in a separate study also issued last week. Localytics notes that the average consumer does not complete an in-app transaction until 12 days after first launching the app in question.

Forty-four percent of in-app purchasers surveyed by Localytics completed their first buy only after interacting with the app at least 10 times. Moreover, consumers who interact with the app on a regular basis before making in-app purchases are more valuable over the long run, making 25 percent more in-app purchases over their lifetime as a customer. Localytics adds that first-session purchasers make an average of 2.8 purchases in a given app during their user lifetime, compared with 3.5 transactions for other purchasers.

"While moving users towards a purchase as quickly as possible is often considered the primary objective, this data suggests that turning purchasers into loyal, repeat users should be a top priority," Localytics states on its blog. "While a first-session purchase is an excellent result, our data found that only 16 percent of users who make a purchase their first app session will go on to engage with that app 10 or more times, compared with 26 percent of overall app users. Thus, it is imperative that app developers and marketers pay special attention to their analytics solution's loyalty features."

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Related articles:
Forecast: In-game purchase revenues to reach $4.8B in 2016
Forecast: In-app virtual goods sales to top $1B in 2012
Forecast: Annual mobile app revenues to reach $11.9B in 2015
Survey: Half of all App Store games generate less than $3K
Flurry: Freemium titles yield two-thirds of App Store gaming revenues

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