A new report from ABI Researchsuggests that 2012 will be the year when income from in-app purchases will finally outstrip that of paid downloads. Though ABI didn’t offer any specific projections for in-app vs paid download revenues, they are predicting that total revenue in mobile (downloads, in-app purchases, advertising, etc.) will grow from $8.5 billion in 2011 to $46 billion in 2016.
There are dark clouds on the horizon though, as ABI is also projecting that in-app purchases won’t reign supreme for long if both developers themselves and Google don’t make some drastic changes. Right now the vast majority of in-app revenue comes from a very small pool of committed consumers, and under current models that segment of the market is not expected to grow much in the future. The report argues that developers and publishers must find new ways to make in-app purchases more compelling and attractive, finding a way to demonstrate to consumers that paid content within an otherwise free app is worth the expenditure. Pricing must also be considered, as most consumers still seem to be reluctant to spend more than a couple dollars at a time via their phone.
The more systemic issue rests with Google, as the company has been slow to the in-app purchase game. Such transactions weren’t even allowed in the Android market until last July, and the option still isn’t available in all regions. Furthermore, Android’s complete lack of support for subscription-based apps shuts off another entire potential revenue stream for developers.
The bottom line is that while everyone thinks the freemium model is the best way to get rich quick in mobile, without some major alterations the bottom may drop out of the market soon.