China Is Apple’s Second-Biggest Apps Market After U.S., Free Apps Reign

When it comes to battling for smartphone share in China, Apple (NSDQ: AAPL) is right in there with Android OEMs and Nokia (NYSE: NOK), and its App Store is one of its key weapons. A report out today notes that China is Apple’s second-largest apps market after the U.S. But developers looking to target the booming region of Asia need to take note: free apps are much bigger than paid, which means they will need to look elsewhere to get a return.

It looks like a regional trend: in the latest report from Distimo, the app analytics firm notes that in May, download volumes across Asia went up significantly, while at the same time they decreased in Western countries.

China is a particular target for Apple: in the last quarterly results, in April, COO Tim Cook noted that iPhone sales in the country grew by 250 percent, compared to 155 percent in the U.S. He also noted that the company made just under $5 billion there in the first half of the year — although that means that Q2 was slightly lower than Q1, when Apple specifically noted it made $2.6 billion.

And there is still a lot to play for. Figures just out from ABI note that in 2010 only 11 percent of all phone shipments were smartphones. At the end of 2010 there were 46 million people using 3G services.

The Distimo report, which this month focuses on Asia, number-crunches apps from all the major international app stores — Apple App Stores for iPad, iPhone, and Mac; BlackBerry App World; GetJar; Google (NSDQ: GOOG) Android Market; Nokia Ovi Store; Palm (NYSE: HPQ) App Catalog; and Windows Phone 7 Marketplace — so leaves out apps that are distributed by local operators themselves. (That’s a pretty huge category by some accounts, which is in contrast with Western markets.) Countries included in Distimo’s report are China, Hong Kong, India, Indonesia, Japan, Malaysia, Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand and Vietnam.

Some of the other key findings:

South Korea disproportionately active and games are the most popular content. It’s a small country, but it’s mobile-crazy. Distimo notes the download volume is “remarkably high” there for its size, and higher than Western markets like Germany and France. As you might expect, games are the most popular category of apps in Asia, although interestingly, Apple’s App Store in South Korea does not have a games category.

Individual increases. Not a whole lot of specific country information here, but a couple of items have been drawn out: Distimo notes that download volume in China grew “significantly every month during the last few months”. Since December 2010, downloads in Thailand went up 40 percent, while India went up by 27 percent.

Paid versus free. The region, on the whole, is a lot more price-sensitive than the West when it comes to paying for apps — so much so that you have to combine all the countries in the region (and their massive populations) to even get close to the amount of apps download revenue generated in the U.S. for the App Store — the most revenue-generating of all the storefronts.

Together, Asia’s revenues are two-thirds that of the U.S. at the moment, although that also takes into account that apps in Asia cost about one-third more than they do in the U.S. The actual volume of paid app downloads is only about one-third of the downloads in the U.S. The one big exception is Japan, which Distimo says generated the “majority” of paid app revenues in the region. It also has the highest average app price, at $3.33. See the map below for a breakdown by countries.

That means that developers on all platforms have to look elsewhere to make money. That includes areas like advertising — something already being used quite a bit, as you can see from the stats released the other day about Nokia advertising trends — and potentially things like virtual currency. However, in-app purchases, which include virtual currency, is an area that Distimo says has yet to take off in many countries in Asia. In China, revenue from apps that feature in-app purchases is only at 34 percent, compared to 69 percent in the U.S.:

There is also the option of merchandizing on the most popular apps: that’s the approach being taken by Rovio with Angry Birds.