By one estimate (Gartner), about 81% of apps downloaded today are free. The way free apps are able to generate revenue is through advertising. 16 percent of application store markets’ $5.2 billion revenue was generated from advertising.
But advertising what?
It seems that most of the ad dollars spent on in-app ads are spent by developers to promote other apps. I’d like to get hard data to prove this, but assuming it’s true, we have to ask if the apps being promoted through ads in apps are free apps seeking more revenue from ads…from other apps.
To put it bluntly, the $816 million that “comes from advertising” is not coming from consumers but churning around the ecosystem like a hot potato. This figure is said to triple this year.
It’s arguable that this is only logical. App users are pre-qualified as app downloaders so it makes sense to target them through apps for more apps. But where does value actually flow into the ecosystem from consumers? This problem of commerce through apps being nothing but virtual app goods implies that there is a bubble forming. This is more likely to be a problem for Android as the ratio of advertising to purchase of Android apps is higher than on iOS, but it’s a problem for all app advertising.
It’s even more ironic that the developer looking to create revenues through their app is promoting competing apps seeking the same user.
I don’t see how this can end well.
The only way ads really work is for users to transfer cash for underlying value. Aside from paid apps which have entertainment or functional value, how much spending from traditional ad buyers (brands) is targeting apps? Perhaps transitioning ad buyers is what Apple had in mind a year ago with iAd. Signs so far are not encouraging that their approach is working. That may be bad news for Apple, but it’s worse news for AdMob.