App Revenues Are Booming—But Perhaps Not For Long


Former Facebook executive Jeff Hammerbacher once lamented that “The best minds of my generation are thinking about how to make people click ads.” I wonder if it would make him feel any better to know that a big chunk of those ads are, in turn, simple facades to drive app installs.

You know, the same apps (up to 95% of them) that languish in a lonely app graveyard.

Hope springs eternal in Appland, however. With iOS app revenues topping Hollywood’s box office receipts in 2014, app developers are spending big to drive app installs, as a new report from Business Insider highlights—and as Facebook’s big mobile-ad earnings Wednesday—attest. Is this a permanent shift in ad spending, or merely a bookmark until mobile search improves?

The App Install Economy

Most apps are lonely. By one estimate, user retention—that is, the percentage of people who open a given app more than once in a three-month period—ended 2014 at a mere 12%. While app engagement versus the mobile Web seems high (Flurry pegs apps at 86% of our time spent in mobile), the reality is that just a few apps like Facebook, Instagram and Twitter account for the vast majority of that engagement.

The rest of the apps sit around, waiting to get used. Google data, for example, indicates that of the roughly 52 apps on the average U.S. smartphone, 33 (or 63%) haven’t been touched in the last month.

Which is why the app install economy is taking off. Or took off, rather.

According to a Business Insider report, the app install market is already $3.6 billion, and should add another billion in 2015 and rising at a compound annual growth rate of 14% through 2019:


Credit: Business Insider

BI Intelligence estimates that this app install revenue accounts for 30% of all mobile ad spending, and calls out the relative efficacy of such ad units, with an average clickthrough rate (CTR) of 0.98% during the first quarter of 2014, compared to an average CTR of 0.24% for all Facebook ad types across desktop and mobile.

So it’s a big business, one with a reasonable amount of growth left in it. But not the kind of growth we expect of mobile.

Where’s The Growth?

While a few billion dollars is nothing to sneeze at, a 14% CAGR is. It’s simply not that impressive, especially in light of the overall growth in mobile apps:


Source: VentureBeat

Much of that mobile app growth increasingly comes from non-game app types, suggesting that there’s still healthy growth ahead for mobile apps.

At some point, however, we may lose our fetish for apps as connectivity and the Web catch up. As Apple and Google invest in improving the mobile Web experience—and they are—we may finally get back to where we are now on the desktop.

A Farewell To Apps?

Or, rather, the idea of an isolated app may change. And dramatically, as former Googler Paul Adams speculates:

The idea of having a screen full of icons, representing independent apps, that need to be opened to experience them, is making less and less sense. The idea that these apps sit in the background, pushing content into a central experience, is making more and more sense. That central experience may be something that looks like a notification centre today, or something similar to Google Now, or something entirely new.

In such a world, the app isn’t the important thing. Rather, it’s the contextual experiences that our mobile devices deliver that are important, and those center on the messages that hit us at the right time and in the right place. 

As Adams writes, we’re already seeing this shift away from apps as notifications increasingly “are the app,” allowing users to interact with the message itself without needing to visit an app.

The next iteration is obvious. Lots and lots of notification cards that enable full product experiences and independent workflows right inside the card. Comment on the Facebook post. Retweet the tweet. Buy the item on Amazon. Check in for the flight. Share the news story. Add the reminder to your to-do list. Book the restaurant. Swap the fantasy football player. Annotate the run you just finished. Pay the bill. And on and on.

In such a world, the underlying OS takes on an ever-increasing importance. Apps become less so, while the back-end data sitting out on a server (attached to a website or to an app or both) becomes the critical experience as it’s transformed into messages that, again, hit the user in the right time and place.

We’re not there yet, and I’m not writing an obituary for the app experience. Not yet, anyway. But the writing is on the wall for self-contained apps that want to immerse users in an experience that is somehow divorced from the physical reality in which users live. Mobile blends physical and digital, and it increasingly does so through cards or notifications, not apps, per se.

Photo by Adriana Lee for ReadWrite

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