The business of mobile applications will soon change to "freemium" models driven by in-game advertising and could be purchased directly from a mobile operator instead of an app store.
A future shaped by apps and ads
BARCELONA // The future of the mobile applications industry will be driven by advertising and free downloads, experts say.
Mobile apps have become the main driver of growth in the telecommunications sector in the past few years. They have shaped the fortunes of operators and phone makers by enabling them to generate more revenue.
The mobile app market was worth US$6.8 billion (Dh24.97bn) last year, said a recent report by the technology consultancy IDC, and is forecast to increase to $25bn by 2015.
Apple's iTunes App Store is expected to account for about one fifth of the market in 2015.
But as the sector continues its rapid growth, the economics behind the market are also evolving rapidly, said Mikael Hed, the chief executive of Rovio, which developed the popular mobile game Angry Birds.
Mr Hed said the most successful apps in the future would be those available via "freemium" downloads: the apps will be free but consumers will pay for extra features. Advertising within video games was also a "very viable business model", he said.
"It's very much a volume business and it's turning into more of a television business [model]," Mr Hed said. Ivan Farneti, a partner at Doughty-Hanson, a private-equity company that has invested in mobile apps, expects the freemium model to be attractive to venture capitalists.
"The free part of accessing an application is very easy and once customers become engaged, they feel compelled to use the app," Mr Farneti said. App developers are also looking for ways to distribute software that will free them from revenue-sharing models offered by Apple and Research In Motion (RIM). Mr Hed described as "completely broken" a system in which software developers were paid quarterly for copies of their apps downloaded by customers of Apple and RIM.
Ilja Laurs, the head of GetJar, an alternative app store that has recorded more than 1 billion downloads, said that unless the revenue-sharing model was eliminated, developers would look for alternative ways of reaching mobile users.
App developers could sell directly from the internet, with a 1.5 per cent fee going to the online payments company PayPal rather than the 20 to 30 per cent that Apple and RIM have levied.