Cheap Smartphones to Propel App Spending Past $100 Billion

Unboxing Apple Inc. iPhone 6s

The home screen of an Apple Inc. iPhone 6s is seen in Hong Kong, China, on Friday, Sept. 25, 2015.

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  • Mobile app store spending set to more than double by 2020
  • Growth led by developing markets, streaming and dating apps

Worldwide mobile application store revenue is set to reach $101 billion in five years as smartphones become cheaper and data plans more accessible, drawing in people in developing countries, according to data provider App Annie.

The user base of smartphones and tablets will more than double to 6.2 billion by 2020, up from 2.6 billion, the San Francisco-based company said in a forecast today. Some of the strongest growth will come from countries such as India, Indonesia, China, Mexico, Brazil and Turkey. Revenue generated per device will grow to $16.2 in 2020 from $15.4, boosted by spending in the Americas, Europe and the Middle East, even as average revenue will decline slightly in the fast-growing Asia-Pacific region.

“Consumer time spent on mobile is steadily increasing and a greater share of wallet is being channeled through a mobile platform,” Danielle Levitas, senior vice president of App Annie’s research & analysis team, said in an interview. “There’s a level of maturity in over-the-top services, specifically for mobile apps.”

Music streaming, video streaming and dating apps will lead the surge, boosted by better hardware and cheaper data plans, as well as expansion of services such as Spotify, Netflix, Tinder and China’s iQiyi. Baidu Inc.’s iQiyi, one of China’s largest video streaming services, doubled the number of paid subscribers to its Netflix-style platform to 10 million in less than six months to December. Games will continue to contribute the majority of spending, even as their share is forecast to drop to 74 percent from the current 85 percent.

Levitas said some companies previously didn’t allow customers to sign up for subscriptions to services within their apps, because many stores take a 30 percent cut of such purchases. They "encouraged people to go through the browser" instead. “As they realized that there’s an opportunity that’s way bigger, and mobile is where people spend their time, they had to move there,” said Levitas.

Subscriptions for streaming services such as Netflix are included in App Annie’s total revenue numbers only if they are paid for within an app, not externally via web browser. Spending on e-commerce and transactions such as Uber rides are also excluded, as is in-app advertising, which could roughly double its current market size.

Apple’s iOS is set to retain its store leadership by gross revenue over the five-year period, while Google Play and third-party Android stores will expand their lead measured in downloads due to wider proliferation of devices. Combined annual downloads will surge to 284 billion in 2020 from 111 billion last year.

Consumer spending in app stores will grow 24 percent to $50.9 billion this year, according to the report. Of this growth, $2.4 billion will come from the Americas, $2 billion from EMEA region and $5.4 billion from Asia-Pacific, which will continue to outpace the other regions in coming years.

“For many of these people, it’s their first and maybe only internet device for the foreseeable future. The apps that are going to do well are those that deliver true utility and value. Not just apps that help people keep in touch socially, sort of nice to have, but more of a need-to-have standpoint,” Levitas said. “There are a lot of real-world problems that apps are going to increasingly solve in emerging markets.”

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