The good news for app developers is that total paid app sales last year rose 27% to $8 billion. The bad news is that the average revenue per paid app fell at the same rate -- from $26,700 to $19,500, according to a new report from mobile market research firm research2guidance.
The growing demand for apps overall leads to more apps being created. “Owing to this, there are now so many applications available that supply even exceeds demand,” noted the firm in a Web post today. It pointed out that the decline in average sales per app is in line with recent years and could eventually lead to a situation where paid apps are no longer profitable.
As free content takes over, paid apps could become as challenging as selling paid content on the Web, research2guidance suggested. In September, the Gartner forecast estimated free apps would account for nearly 90% of total app storefront downloads in 2012, rising to 93% by 2016.
In response to that trend, developers are increasingly relying on other business models, including in-app advertising, in-app purchases, m-commerce and apps bundled with hardware or services. “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,” stated research2guidance.
For now, the rising sales of paid apps are being driven by the growing number of smartphone owners. Generating the majority of paid downloads are the app storefronts tied to the major smartphone platforms, including Apple’s App Store, Google Play, BlackBerry World and the Windows Phone Store.
The Gartner study estimated the App Store alone would account for 21 billion of the 45.6 billion downloads in 2012, up 74% from 2011. In terms of pricing, it found 90% of apps cost less than $3 each, with those between 99 cents and $2.99 driving 87.5% of paid downloads last year, and 96% by 2016.
A separate forecast by Strategy Analytics predicts the average price for a smartphone app (across both free and paid titles) will fall to just 8 cents by 2017. For most major brands, the focus is less on selling apps than getting them onto as many smartphones as possible to boost exposure and engagement. So the shift to lower pricing or lower revenue per app shouldn’t be as much as an issue for them as, say, a game developer.