In-App Purchases Are Here To Stay

revenue-breakdown

You know all those in-app purchases developers have been adding to their iOS apps lately that unlock features (Animoog), new sound libraries (iMaschine) and new instruments (Tabletop)?

Looks like they are here to stay. App analytics firm Distimo reports that three-quarters of developers revenue comes from in-app purchases:

In-app purchases (IAP) now generate the majority of the revenue in the app stores. This has been the case for some time now, and it continues to rise.

In-app purchases generated only 53% of revenue in the Apple App Store for iPhone in January 2012 in the U.S., but  generated a record 76% in February 2013 clearly demonstrating the success of this monetization method.


Based on this trend – expect a lot more free apps with in-app purchases to unlock features.

Let us know what you think of the trend. And, if you’re a developer, let us know your thoughts!

40 thoughts on “In-App Purchases Are Here To Stay

  1. It’s worth mentioning that the lion’s share of this revenue is from games selling virtual currency, often with a freemium model. Unlocks and content is pretty small compared, so far.

    1. I do see your point iman however you are not getting the whole app, so how will you be able to tell if it is rubbish or not before you buy it. What if the feature that makes the app great is something you have to buy. Most of the time the developers hold back the good features and make you pay extra.

      1. Scottleroc

        A lot of it depends on what the developer makes a purchase. Charging for MIDI or Audiobus would suck in my book. But I’ve happily bought iMaschine sound libraries.

        Free music apps should either:
        be completely free;
        they should be a demo version that’s good enough to let you know if you want to buy the app; or
        they should be free and let you buy sample libraries and content.

        I think what pisses people off is when developers give you a totally useless app that has to be upgraded to be useful.

  2. Currently if I buy some IAP in an app like iMaschine on iPhone and then fire it up on the iPad, it does NOT show that I have already paid for them. In app purchases are for THAT device only and if you restore your iphone to factory defaults, it is gone. forever. This is not the case for regular apps…. Until these in app purchases are tied to my apple ID and downloadable to other devices linked to my apple id, I will not be buying any more.

    1. They often show as not purchased but the account retains the information. For example if for whatever reason it doesn’t display that you own the feature and you have $0 in your account, it recognizes that you have previously purchased it and you are able to get it.

    2. It’s up to the developer to implement that. I work for a non-music app with IAPs, and we have a way to restore your purchases.

    3. I’ve never had trouble restoring in-app purchases on another device. I guess I just picked the right apps?

      From Apple KB article ht4009:

      “Replenishable In-App Purchases and subscriptions cannot be downloaded again for free, and must be repurchased. Examples include but are not limited to: extra ammo, additional health, extra experience points, or other one-time services.

      Non-replenishable In-App Purchases and auto-renewing subscriptions can be downloaded again for free. Examples include: bonus game levels, a map/city guide, a daily news subscription, or other recurring services.

      To download an In-App Purchase again, you must download it from within the installed app using the same iTunes Store account name for the original In-App Purchase. “

    4. For some apps (iMaschine?) you can export the content somehow on one device and import it on another, but I agree that automatic syncing is better.

    1. Just checked the free report. It doesn’t say more than what the webpage shows.
      They hold back all data, suggesting you to buy their analysis tool.

      Anyway:
      9/10 of the apps in the top list are games.
      The top 250 apps are probably over 75% games too.

      The music app market could concievably be a bit different from this top crop – more commited users willing to spend more for an app buy, etc.
      Or not: This simply requires a specialized analysis which we don’t have.

      1. So what you’re saying is that the report on their web site is free, but if you want to get the in-depth analysis for the revenue from extra purchases, it’s an extra purchase? Niiiiiiiiiice.

        1. Yep! :-/

          But in fairness some of the other reports have a bit more info.
          The one on effect of price drops even featured a couple of audio apps:
          Loopy and soundprism – apparently they increased revenue by dropping price from “audio app level” (2-4x normal prices) to a more common price range of 3-10 dollars.
          Did you read that one, soundapp devs?!

  3. I hate in app purchases, I will delete the app immediately. The only in app purchase I do is donuts for the Simpsons and I think that’s a rip off. Please developers don’t make apps with hidden purchases.

    1. And since when are they “hidden.” Any app which uses IAP’s is clearly labeled on it’s App Store page, and you can even review the separate IAPs and their associated costs from right there… so who’s hiding anything?

      I’d much rather pay for special features and get future support than get a free app that’s abandoned in 6 months time because the dev couldn’t pay his rent.

  4. Umm, what about revenue from ads? From what I hear nobody makes much money with ad supported apps but surely SOME revenue must be coming from this?

      1. oh, i agree, in app ads are an abomination but I’m just saying that their chart totally leaves out ad revenue so we probably aren’t getting the whole picture from their stats…

    1. I recently watched a developer conference video from Rovio wherein one of the developers stated the free, ad-supported Android version of Angry Birds makes about as much revenue as paid, ad-free iOS version. Angry Birds is a bad example (being so ridiculously successful) but that’s the only comparison I’ve heard on this topic.

  5. Most of the money is in games, and I’d bet that almost all IAP revenue is also in games. It would be interesting to know the breakdown by app type.

    I hate IAP; I think I’ve only made one in-app purchase. It feels to me like bait-and-switch, or a sleazy up-sell. My preference is for separate versions — a free one to try, and a completely separate full featured on. I wish Apple would implement a try-before-you-buy option, that would let someone run an app for a day or two for free.

    1. Unfortunately, that doesn’t work, because the developer is unable to continue funding development. If they can continue making new features for you to buy, it allows them to continue working. I’ve heard of developers who did what you suggest and even set a really high price, like $40 for their popular app, but were unable to stay in business, because it just doesn’t work like that.

    2. I think you can return an app on Google Play within 24 hours or something – I would like to see Apple do the same thing for the App Store.

      I would hope that such a policy would help to filter out some of the junk apps as well, although undoubtedly the junk apps would evolve to compensate.

  6. Id like to know your thoughts on the trend of Apple using Chinese slave labor for the bulk of its mass production. I wonder if it has anything to do with the desire to flash-fry a buffalo in 40 seconds? Is it just an “out of sight, out of mind” kind of thing? Or is it more like a “nothing to see here, move along” kind of thing?

    Eh, lets just say “fuck it” for now. Is there an app for that? GOTTA HAVE IT!!

  7. I don’t mind IAPs as long as the terms are up-front. For example, I didn’t mind buying new sound packs for Animoog. One of these days — when I need it — I’ll purchase MIDI out too. A couple days ago I read that Sunrizer is going to become multi-timbral, and it will be an IAP. See http://feedproxy.google.com/~r/PalmSoundsFeed/~3/gLIRQaFwZUQ/multi-timbrality-iap-coming-to-sunrizer.html. Am I disappointed? Hardly. I paid $10 for Sunrizer almost two years ago. The developer has added scores of new features and patches and hasn’t charged anything for them. That’s nice for the customer, but it’s not sustainable unless there’s new revenue coming in, either in the form of new sales or upgrade fees. Mind you, I would feel differently if the dev were charging for bug fixes; but that’s not the case here.

  8. These are some great points (above).

    Some in-app purchase options bother me more than others. If I buy the app and it is fully functioning and there are to-buy options tucked away so I don’t have to see them (like at the bottom of a preset menu) that’s ok. Also, if there is a set of functions that I know I won’t need, I appreciate not having to pay for it if I don’t use it. Also, if there is an app that basically functions as a limited demo, at least it gives me an idea of what the software is like.

    But if there is a free or cheap app that is basically a shell for in-app purchases, I delete as fast as I delete ad-ware.

    Off the subject, but sometimes freeware becomes ad-ware– which I jettison immediately. (There’s a word you don’t hear every day).

  9. I am not a fan of the “freemium” model, and I particularly dislike “pay to win” and “play and wait” type games, many of which seem optimized for monetization rather than quality gameplay.

    What is also highly annoying is when you pay for an app and then the developer “updates” it with advertising.

    Fortunately most music apps give you something good an useful for a reasonable price out of the gate and don’t bombard you with in-app purchases. I think the only app which I’ve become annoyed at and avoided using because of its reliance on in-app purchases is Tabletop.

  10. It’s a great model if you get a free or super cheap app that has some value to it, and then choose extra content of your choice at a fair price. This is just a more convenient way of doing the tried and true “free demo” and “expansion pack” method, but without a bunch of extra installs and discs. It only sucks when you have to pay large amounts for unlocks of content without much value, or when a developer is shifty about letting you know what you really get and where.

    I wish more companies would do this. Usually they throw in a ton of samples you don’t want, or bundle extra crappy apps you will never use, just to drive up the overall price. Or charge a ton for individual products to influence you to instead buy “everything” for a more reasonable, yet still large price. (I’m looking at you, native instruments).

  11. I haven’t really used music apps that much (since I usually just wait to get home to make music), but I know in game apps IAPs have become a huge problem. Instead of just making a game $5 they will make it free, and then you have to pay $50 to complete it. And the biggest problem is that people actually pay the $50!

  12. The latest interview on here with Dave Smith and Roger Linn comes to mind. Some real words spoken by Dave Smith.

    I have plenty apps but don’t support the IAP system.

  13. You know…”pay to win” gaming model is not really new…just think about the arcade! every time you died you can make a “micropayment” of 25 cents to get three more lives…the only thing the arcade designers back then never thought of was what if you let the players spend a quarter for a better gun or a faster car! Seems so obvious now but no one thought of it in the 80s, haha. Makes you wonder what kind of “obvious” stuff no one is thinking of right now….

  14. As an app developer, I think in app purchases are great. It takes a lot of work to design and develop a game, and a massive amount of risk. Developers need a way of managing that risk, and so they have to get average amount spent on an app higher than the cost of advertising that app. Selling an app for $1 just can’t cover your development costs, unless you have a big distribution network already, or are very lucky (apple features your app).

    But with in app purchases if your game is good people will spend money on it. And you can increase the average spent on your app so that it can cover marketing costs. It reduces risk for everyone, players get to try before they buy, and developers get a real marketing model that can make money from.

  15. I absolutely hate in app purchase! Apps are intentionally dumbed down until you spend ridiculous amounts of cash.

  16. I’m not sure that the pie chart is the best way to represent this information. It might be better to cross-reference % of revenue by IAP with per-user/per-month revenue numbers. Basically, my I’m thinking that as the % of revenue on IAP is going up, the actually revenue being collected from each of us is going down. For me personally, I know I’ve spent less this year then last year on App Store purchases even if the % of money I’ve spent on IAP has risen.

    BTW, IAP for things like “additional levels” is fine. Just like Expansion Packs from the PC days. And I was even fine with the IAP for Kingdom Rush 2 because I didn’t need to perform an IAP in order to beat the game and they charged a fair price for me to play a fun, winnable game in the beginning.

  17. The way I see it is that there are three types of IAP.
    The first: as it should be, which i wholly agree with, is the buying of extra levels or content after previewing the game for free. Try before you buy!! A good example of this is The Walking Dead app which in total cost me about £13 if I remember rightly. I played it for a bit, loved it and bought every season on offer. No heavy, suggestive advertising during the first season. No greedy little item upgrades. No restrictions on playing, just me and the game experience. Game of the year and widely supported for a reason!

    The second type is: the trash. It’s the badly designed, (from gameplay point of view) second rate app with the purpose of using IAP’s at every possible oppotunity to scam cash from the player. Clever design of the mechanics coerce the weak willed or young into paying. This is to advance as quickly as they would expect depending on how the game marketing strategies are deployed. You can often play free forever but at a vastly reduced quality of experience and are often shown coercive messages or advertising that attempt to make you buy an upgrade. or another similar app. To me it’s not a problem, but, to a 7 year old being told ‘Your horse is sad and hungry, it needs a carrot to recover!’ please buy for £0.69 or wait 4 hours is scandalous. Add a picture of a sad horse and thats a powerful image in a childs mind. Whilst IAP’s may be controlled with a password the child still feels the emotional tug and will in all likeliness push against the boundaries set by the parents over a potentially emotionally damaging situation that is perversly and essentially non existent. This is not healthy, I’m sure psychologists would have a field day pointing out the traps in these apps. Yes I know about the age ratings but many seem way off mark. 4+, yes for the game but 18+ for the advertising methods used. In my mind this type of business sits low with schemes like Pay Day Loans, a small step above criminality.

    The third type is: the dissapointment. A potentially great game ruined by IAP’s and mechanics that prevent the game from being enjoyed as it could be. Often free to download but not always. A good example of this is CSR racing, a simple racing game that forces you to wait for a couple of hours before you play again unless you pay for the privilege. Or you could have a single 30second race experience every 8 minutes. With 10 bars of fuel, one used per race (2 for boss races) and about 7-20 seconds of racing, how long before you have an empty tank? It gets better….
    Buy an upgrade, slowly or quickly? Thats earn the cash over time or pay with bought gold.
    Have the part delivered slowly or quickly? Thats, wait if you bought it with earnt cash, instant if you bought it with gold, or pay with gold to have your cash bought item delivered instantly.
    Best cars? pay with gold
    Get gold in game? yep but you’ll never enough to buy the best cars, although its mathmatically possible I think.
    It goes on and on. Suddenely I’m an accountant not a racing driver……game deleted.
    Finally, as mentioned before, the crowning glory…. pay to be allowed back into the game after 10 minutes of playing?
    This is outright greed wrapped up in a slick covering. If I wanted to play that game for a year or so god knows what it would cost. Its not just CSR racing or its developer either, you can find these disappointments arriving regularly in app store.
    An argument exists that we used to pay like that, arcade machines. But those machines had costs involved in running them. Collecting the revenue, insurance against damage/liability, electricity, logistics and construction amongst others. Acknowlodging the development cost and cost of being on the app store how does it compare?
    It’s not a good comparison.

    I walk away (delete) from an app if its model is based on buying items in game. But, when previewing a free app and to be told I have to stop playing and wait (or pay) it is stunning. That these models make money is a sign of how brainwashed many people actually are. Brainwashed indeed to the point of actually defending the models designed deliberately to remove more money from them than the original pay once up front.

    There’s absolutely no way that developers can justify saying that people don’t want to spend £40 on a game anymore then stick an IAP at £69.99 for a ‘vault of gold’ into the game.

    /offsoapbox

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