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

Despite a successful launch of an ad-supported version of Angry Birds on Android (s goog), 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 (s aapl). 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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7 Responses to “Developers — Don’t Bet on Mobile Ad Revenue to Pay the Bills”

  1. R. Paul Singh

    So when would we have In-gaming purchaser anonymous:) All of the facebook gaming giants like Zynga and Playdom are built on this and now it is mobile’s turn to go there for a while. Just like people get bored with any game after a while they will also get bored with in game purchasing model.

  2. Andrei Timoshenko

    It should never be forgotten that advertising only makes sense when something is being bought – in other words, ‘ad-supported production’ can only ever be a small fraction of ‘for-sale production’. As a result, ad-supported business models make much more sense when the digital economy is at the periphery of the real economy than they do when the former is a major mainstream component of the latter.

  3. Interesting stuff. I never thought that ads can catch up but its a good alternative to in game purchases.

    With in game purchases problem is that games then are developed with “make people pay” in mind which is bad for games as cultural and entertainment activity. So it becomes something like gambling games where they are designed to make person spend money. So now most successful games are not ones that are most entertaining and qualitative but ones that can trough various tricks addict and trick person to spend money.

    And so we have conflict where making good game and making game that will bring in money is not same thing and sometimes is even opposite thing. This is something that bothers me with in game purchases model.

    Still play first and pay later is a better model then paying up front for product that you may not like…

  4. Lately I’ve read a lot of articles that cite the same – go freemium and get people to do in-game purchases and/or pay for more functionality later.
    Well this might work well, I’ve been distinctly told several times by many friends and co-workers on how annoying in-game purchases are. I dont think that is the cost as much as it is not knowing how much you can rack up your bill do.

    So while this might be a trend, I dont believe it will be a lasting trend.