Developers — Don’t Bet on Mobile Ad Revenue to Pay the Bills

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Despite a successful launch of an ad-supported version of Angry Birds on Android, don’t expect the ad revenue in mobile games to be the major driver of sales. That’s the upshot of a new Juniper Research report on mobile ad spending. While ad revenue in mobile games is expected to rise tenfold from $87 million in 2010 to $894 million in 2015, it will nonetheless still be dwarfed by people spending on downloads and in-app purchases.

Juniper said that by 2015, game download and in-game purchase revenue will be ten times greater than ad spending. So while ad revenue can pay the bills for a break-out hit like Angry Birds, for most gaming apps, the best way to make money is still getting people to buy the app or getting them to purchase something within the app.

We’ve talked about how the freemium model is increasingly the way to go for app developers. Developers can sell free apps and then up-sell customers to paid versions or get people to pay for extra levels or functionality later. Or developers can sell virtual currency or goods, which works well in many casual games. I talked about how developers can use the freemium model effectively here in a GigaOM Pro Report (subscription required).

Mobile analytics firm Flurry reported a few months ago that virtual goods sales have grown to 4 times that of mobile ad spending on iOS. At the time, Peter Farago, VP of Flurry predicted that ad spending would eventually catch up to virtual goods sales. But Juniper Research, in a study from late November, said it expects in-game purchases to overtake paid download revenue by 2013 with the combined revenue expected to hit $11 billion by 2015. Basically, the freemium model is taking hold in mobile games and will be the biggest driver for revenue for game makers. Those that have a good grasp of that and are finding ways to implement it are likely to see the most revenue going forward.

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