• by Sean Hargrave , Staff Writer, August 1, 2017

If you were to ask the average person where app developers make their money, most would probably think advertising is the main source, and they would be right. If you ask the average person what proportion of the market is paid for -- and thus ad-free -- I very much doubt anyone would get anywhere close. 

Just 2% of all app revenue comes from paid downloads, and just a single 1% is derived from ongoing subscriptions. Now, considering that apps are almost exclusively consumed on a mobile device, that means an awful lot of income is coming from in-app purchases and advertising on a small screen. Figures from AdColony, reported on in The Drum -- which include app developers from across the globe -- show how reliant developers are on interruption rather than up-front fees or charges for improved participations.

Just over half of all app revenue comes from advertising -- and the biggest slice is video, followed by display and then native. Together, advertising accounts for 56% of revenue. However, the standout statistic here is that nearly a third of total revenue comes from video advertising. That means that it alone, as one digital marketing channel, accounts for nearly as much as the 39% of total revenue contributed from in-app purchases.

The reason for bringing this up? Well, a couple of years ago, I looked into the fact of app developers and was quite shocked that a very small minority are doing well, there's a sizable chunk doing "OK," but most are not earning enough to make a decent business out of their efforts. The problems are pretty obvious. People prefer to have free apps -- they love an app for a while but then a few weeks after download it goes to the graveyard of a mobile phone. It can sit unused on the fourth of fifth screen that the user rarely swipes across to until one day it comes into view and gets deleted.

So, I mention video advertising in particular because it has become the fashionable way to monetise an app in the past year or so. I can't tell you how many times my kids have sighed as they are forced to watch a video ad before they can get down to another beach buggy race or taking on some assault course or another. 

The end result? While they start off accepting the video ads as a necessary evil, they soon get fed up and don't bother with the app any more. It accelerates the app's progression to that cursed graveyard outside their "games" folder and on the fifth or sixth screen they never swipe to.

It's easy to see why advertisers would want to reach out to such attentive users, waiting for "just one more go" to finish a level. They're highly engaged, at first, and can almost be guaranteed to be watching. But that's only for a while. Resentment of the constant interruption soon kicks in and another game is downloaded.

The advertiser probably shouldn't worry -- they can just hop from one game to another, serving videos wherever attention is focussed. For app developers, however, interruption surely must ring alarm bells. With just 3% of revenue coming from up-front fees or subscriptions, it's a very harsh niche to be in, and advertising is a necessary fact of life. But, full ads in between every attempt at a game, or at lest every other attempt? Surely that cannot serve developers' needs for anything other than the short term.

The solution? Well, it's tough, but dialling down the frequency of ads might seem counter-intuitive, although it could keep people using apps for longer. What about a "skip ad" button famed by YouTube? That might allow an ad to be counted as served, but only force the user to watch as much as they can stand before they get back to a game.

It's a tough call because so much is riding on video advertising, and it must seem like pennies from heaven for games developers to turn hooked users' attention in to revenue. Longer-term, however, if frequency and user controls are not looked at, it will surely send more apps to the graveyard more quickly, and their users off to another new game that will soon be highlighted for deletion.