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Why are mobile developers so obsessed with advertising?
Advertising is used as a revenue stream by 38% of mobile app developers, far higher than any other source, but the majority of developers chasing the advertising dollar aren’t making much money, so what kind of developer persists in embedding adverts when the real money is elsewhere?
At VisionMobile we ask developers about every aspect of their work, the tools they use, the languages they work with, and (most importantly) what they hope to achieve by developing mobile applications. That last question is used to divide the developer community into eight segments, reflecting the motivation behind their efforts.
We know that across the mobile community 38% of developers are using advertising, compared to 21% who are still making money from downloads and 19% who are looking for subscription revenue. That 38% has remained pretty static over the last few years – at the start of 2015 it was 36% (see State of the Developer Nation Q1 2015) despite the lack of revenue generated (see State of the Developer Nation Q1 2016 for more details). The simplicity and scalability of advertising is irresistible to cash-strapped developers. But when we break down the numbers by developer segment some more interesting patterns emerge.
More than half of Hunters, for example, are using advertising as a revenue stream, the largest of any segment. Hunters are making money from their applications, but are always on the lookout for new opportunities or sources of revenue. As a result, they are the largest users of pay-per-download and in-app purchasing, as well as advertising. Almost a third of Hunters are using each of those business models, and more than 20% are using subscriptions too.
Hunters are clearly prepared to make money any way they can, and have harnessed multiple business models to make their product viable, but the segment also reflects an industry trend towards harnessing more than one revenue stream.
The first wave of mobile applications were largely pay to download – users were asked for a few dollars which was collected by the application store. That resulted in race to the bottom, as cheaper applications supplanted higher-quality rivals, and the cost of developing a mobile app quickly become untenable. The solution was advertising, embedded in the app as it ran or sponsoring content within the app, to cover the cost of development. That worked for a while, but as the industry grew in size the advertising revenue was spread more thinly.
In-app purchasing is another alternative, and now a foundation of most games and many other mobile applications too. Freemium models, where a basic version of an app is free, but users pay to remove adverts or add features (or both) have become increasing popular. Developers aren’t pinning their hopes on one revenue model any more, they are taking money however they can.
Digital Content Publishers are almost as polyamorous as Hunters in their exploitation of different revenue streams; subscriptions are obviously very important to them, 27% citing subscriptions as a revenue stream, but Advertising is even more significant with 34% mentioning it.
There are really two groups of developers who use advertising as a revenue source – those looking for simplicity and scalability as they dream of being the next big thing, and those who have added advertising as an additional revenue stream to top up their income.
The developer of Flappy Bird didn’t expect to make much more than pocket money when he released his childishly-simple (but challenging) game into the app stores, but (almost a year later) an unexpected surge in popularity was generating $50,000 a day for the developer. The scalability and simplicity makes advertising attractive, but very few developers manage to emulate that level of success.
For the second group, advertising is more viable – the only risk is a possible alienation of users, but that can be alleviated by offering a “premium” version for those who choose to pay. For many developers the income from advertising can form part of a revenue mix which combines to form a sustainable business.
Advertising isn’t the fairy dust it once was – giving up 10% of a mobile screen isn’t the route to riches – but neither can it be ignored as part of the mobile revenue mix, as it has become for many developers.
To gain more insights into how mobile developers can be understood through segmentation take a look at Mobile Developer Segmentation 2016, available from VisionMobile.