Report: Average revenue per paid app plummets 27% in 2012

January 23, 2013 | By Jason Ankeny

Consumers across the globe spent more than $8 billion on premium mobile application downloads in 2012, an increase of 27 percent compared to 2011 figures, according to new data from mobile market research firm research2guidance. At the same time, however, average revenues per paid app dropped from $26,720 in 2011 to $19,560.

"There are now so many applications available that supply even exceeds demand," research2guidance said. "As a result, the average revenue of paid applications generated in 2012 is 27 percent lower than in 2011. Such a decrease is in line with previous years and could eventually lead to a development where paid apps are no longer profitable. This might lead to a similar situation as the Internet one where, in general, paid content has proved to be not anymore a lucrative business model."

Storefronts preloaded on smartphones remain the primary driver behind the mobile app economy, with five stores--Apple's (NASDAQ:AAPL) App Store, Google (NASDAQ:GOOG) Play, Research In Motion's (NASDAQ:RIMM) BlackBerry World, Nokia (NYSE:NOK) Store and Microsoft's (NASDAQ:MSFT) Windows Phone Store--generating the majority of paid downloads. Despite significant differences in average revenue per paid app between the top five stores, the downward revenue trend is consistent across all platforms, research2guidance notes.

With paid app revenues declining, developers and publishers are embracing a host of alternative business models, most notably in-app advertisements, in-app purchases, m-commerce (for example, selling pizza via an app), bundles with hardware or services (like a free app bundled to a health-tracking sensor), efficiency gains for internal and external processes (e.g., a service technician app) and cost reduction (like personal health record apps enabling patients and doctors to record medical treatments, eliminating double-examination costs).

"The shift in revenue models also means that mobile applications will resemble more and more traditional applications that we know from the enterprise application market with common business models," research2guidance adds.

The average selling price of all downloaded smartphone applications (both free and paid) will fall to just 8 cents by 2017, according to a Strategy Analytics forecast issued late last year. Paid apps in Apple's App Store currently average $1.60, reported app store analytics firm 148Apps.biz. But with advertising and virtual goods sales driving a greater percentage of mobile app revenues, Strategy Analytics stated free apps are on pace to represent more than 91 percent of all downloads by 2017.

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