Despite the proliferation of apps, the firm expects sales to start declining in 2013 as free or ad-supported versions of "must-have" apps undercut the paid ones.
That is perhaps the single most intriguing prediction, as it tests, to a certain extent, both developer ability to create compelling for-fee apps as well as the much-discussed "freemium" business model, where some applications or functionality are given away for free and additional functionality is added "for fee."
In part, ABI Research expects revenue from mobile app sales to decline by 2013 due to competition, which will lead to downward pressure on application prices.
But ABI Research also believes “must-have” applications now sold in app stores will face competition from free or advertising-supported substitutes. This has already started to happen, with the launch of Google’s free turn-by-turn navigation service, says Bhavya Khanna, ABI Research research associate.
As with all such predictions, it might turn out to be partly right, partly wrong. Music, games and other entertainment apps likely will be able to charge fees. The same likely will be true of business, utility, content and productivity apps.
The analogy probably is today's software business. Widgets are free. But lots of other utility, productivity and content apps are sold.
To be sure, GPS-maker TomTom recently cut the $100 price of its iPhone app in half as a result of Google launching its own free Android counterpart. The ways people acquire GPS capability likely will change over time, it is true. Some people will want stand-alone devices, others will buy such capability as a built-in part of their smartphone purchase. Some will pay for fully-featured apps while others might be willing to use free or low-cost apps.
Some for-fee apps will face pressure when they are confronted by companies such as Google that have some other revenue model that allows them to subsidize functionality other providers rely on as their core revenue stream.
Users who regularly download paid apps spend approximately $9 on an average of five paid downloads per month, AdMob noted in July 2009. People do not seem to mind applets that cost less than $2 each. That suggests, at least so far, an emphasis on micro apps as the revenue driver for mobile app stores. That is a different market than most "shrink wrapped" apps sold today using other channels.
Users who regularly download paid apps spend approximately $9 on an average of five paid downloads per month, AdMob noted in July 2009. People do not seem to mind applets that cost less than $2 each. That suggests, at least so far, an emphasis on micro apps as the revenue driver for mobile app stores. That is a different market than most "shrink wrapped" apps sold today using other channels.
Still, there is a chance of disruption. Ask any telco what happened when Skype, Google Voice and other IP-based firms were able to provide voice calling functionality because it was not their legacy business.
Some for-fee providers likewise will face pressure from competitors that have lower cost structures. But that's a generic business problem. Ask any executive from an established grocery chain what they had to do when Wal-Mart showed up in their local market.
But not every conceivable application will face those problems. Consumers will pay for valuable products, and app stores likely will prove an important way for innovators to sell valuable functionality, at relatively low prices, much of the time.
We likely will see lots of new revenue and business models develop, and app stores will allow creators to sell their products at lower prices than possible before. So some of us might not agree that app store sales revenue will decline, ever.
Among other findings, ABI Research predicts that Android's share of the market will grow from 11 percent to 23 percent over that same period. "This rapid growth is driven by the mass adoption of the Android OS by both vendors and consumers from 2009 onwards," says Bhavya Khanna, ABI Research research associate.
There are now more than 14 phones that run the Android OS, and many more will launch in 2010. This, coupled with the rollout of application stores from both smartphone vendors and network operators, will see the iPhone’s share of the total market shrink between 2010 and 2014,” says Khanna.
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