The app culture has arrived.
Technology research firm Parks Associates says that by the end of 2010, we will have downloaded 4.6 billion mobile apps. By 2014, Parks projects, the number will reach 11 billion. App store GetJar, the self-proclaimed second-biggest app store on the planet, said its downloads recently crossed the 1 billion mark.
When you consider that apps were little known just three years ago, these numbers are impressive.
"It's a remarkable growth story," said Kristin Purcell, associate director of research at Pew Internet, which did a study of its own on the growing popularity of apps. According to Pew, 35% of adults have cell phones with apps on them, and 24% actively use their apps. Although most of the growth has come from one segment -- young males -- the growth story is still impressive.
"It's staggering when you realize apps have only been around a few years," she added. "The funny thing is there's still a large segment of the population that doesn't know what they are. Ten percent of the people we asked if they had preloaded apps on their phones didn't know if they had."
Purcell says those findings probably mean that in a few years, apps will become even more widespread among the public. With the growth of smartphones, which Parks says is in the range of 30% to 40% per year, some research firms are predicting that the mobile-app market will triple in value by 2014. Juniper Research sees the app market valued at $25 billion in 2014.
Games rule the app roost. According to a Nielsen study, 61% of people with a smartphone who use apps said they download and play games. This figure ranked higher than any other type of app category. Parks Associates' data showed similar results.
"We asked, 'What type of apps did people download most often?" said Harry Wong, director of mobile research at Parks Associates. "When you look at the results, games were first, then music, then media and social-networking-related apps, and location-based services was fourth." Although the apps themselves might seem trivial, Ilja Laurs, chief executive officer of GetJar, says the app categories showcase different ways developers can get paid in this growing segment.
"There are three ways apps make money for developers: paid apps; advertising within apps, where you get paid per click; and a freemium model, where the app is free but virtual goods within cost money," Laurs said. "For games, the one way to make money that makes sense is paid. A typical person will run a game 10 times and then get bored. Running advertising in games will only lead to 10 to 15 impressions, revenue that would be almost zero."
Laurs said GetJar's research found that 80% of its developers' app revenue came from the paid model. Considering that games are the most popular kinds of apps and that paid is the best way for game app developers to make money, it all seems to add up.
However, Purcell said Pew's data shows that only about half of the app users it surveyed paid for one, and even that figure was surprisingly high. "We had the impression people were only downloading these things because they were free," Purcell said. But she did agree with Laurs on one point: "There is a market for paid apps, but it's just games at this point."
In terms of total revenue , Wong said paid mobile apps will have generated $2 billion this year. He said Parks Associates expects that number to double by 2014. Meanwhile, advertising for free apps generated $215 million this year. By 2014, that number will quadruple to $860 million.
As apps continue to grow in popularity -- and revenue -- developers will find themselves in the catbird seat. Depending on the app-store provider, developers can get 60% to 70% of the revenues their app generates. Typically, the store charges a fee for distribution, billing services, and marketing. But Laurs said GetJar provides a model in which developers can get 100% of the revenue and does not have to pay any fee.
"We allow developers to use any billing they want, and we take 0% from them," Laurs said. "The way we generate revenue is developers can bid for premium visibility in our store. Twenty percent of the space in our app store is reserved for sponsored listings. Developers show off their applications, and once a consumer clicks a sponsored listing; we charge the developer the second lowest bid. That business model is profitable and powerful for us."
This model, Laurs said, is one reason GetJar has been able to differentiate itself from competing app stores and move 100 million downloads per month, a mark that it's set to surpass in October. He also said his app store can support numerous new and old platforms -- something Apple's (Nasdaq: AAPL) App Store and Google's (Nasdaq: GOOG) Marketplace cannot do.
For Laurs, the 30% or 40% fee robs a certain segment of developers: "Someone like The New York Times, who wants an app to promote their news subscription, does not need support from the app store. They are promoting directly to their consumer base that goes on their website and reads their paper. In reality, what happens is that fee is a marketing fee. It's broken economics."
Yet regardless of the model, it seems developers get paid pretty well. Apple has said its App Store has generated more than $1 billion in revenue for developers, and Wong foresees an even more lucrative future for app developers.
"I see a situation where say you're a small app developer, well you can get hired by a brand to develop an app for them," Wong said. "For instance, if Kraft wants an app, they hire a third party, Kraft gets the ad revenue and the third party gets outsourcing work. It's a good spot to be in."
