App Stores and Monetization

A lot has been written this month about the Apple App Store and how it has changed the way software and services are distributed and how instrumental it has been to the success of the iPhone. The ten year anniversary of the Apple App Store was a great time for us, at Creative Strategies, to take a look at how consumers interact with app stores in general and, in particular, what drives them to spend their money on apps. To do so, we ran a study at the beginning of July 2018 across 800 US smartphone users. ( Please note that while the results cannot be extrapolated to the full US population, the samples for each cohort are statistically significant)

App Discovery

When Apple created the App Store, they based much of it on the iTunes model. While apps are not songs, they knew that users were going on iTunes to find music and they were successful, so I am guessing they thought that was a good place to start. It became quite clear early on that while searching for an app might not be that different than searching for a song, recommending an app was undoubtedly not the same. Suggesting a song based on genre or an artist did not translate into suggesting an app based on its type or a developer. I always remember getting suggestions to download subway maps in several different cities after downloading the London Tube app. Shame was, I did live in London, not in Moscow nor Paris and I was not even planning to visit those cities any time soon. It just does not work like that.

In the beginning, the app discovery problem was linked to a lack of knowledge of what was available and to some extent even of what was possible. Over time, though, the “there is an app for that” syndrome made it so that finding what you wanted became an issue because there was just too much out there to look through.

Like any kind of online shopping, you can find what you want, and sometimes even what you did not know you wanted, by browsing or searching, just ask Amazon! Among our panel, 20% of iOS users said they are browsing the app store daily, and another 32% do so weekly. Among our Android panelists, only 9% reported to be browsing the Google Play Sore daily and 21% weekly.

Search as a primary tool to find the right apps does not seem to be very popular. Only 16% of iOS panelists and 18% of Android panelists resort to it as their primary method. When getting into how effective search within the stores actually is, one gets the feeling that there is plenty of opportunity for improvement. 35% of iOS panelists said to be using app store search on occasion but believe internet search gives better results. 33% use app store search regularly and find that the results generally match what they want. Among the Android panelists, the numbers are not too dissimilar with 31% occasionally using search but believe the internet gives better results and 35% regularly using search with generally getting matching results.

It’s Cost, not Value that Drives Decisions

Searching for apps is only half the battle. Deciding what to download and what to pay for is even more complex, and it seems to be fairly different for our iOS and Android panelists. While both value customer reviews, Android users rely more heavily on these reviews in their decision process (44%) making it the leading driver. Among iOS panelists, the leading driver to download are the features of the app mentioned by 38% of the cohort.

Interestingly, when it comes to paid apps, the leading drivers remain the same for both groups but only after the price of the app itself. I find this point interesting because it would suggest that smartphone users are not assessing the return of investment they would get from an app but they might, instead, be putting a limit to how much they are prepared to spend before they look beyond the price in what the app has to offer. In other words, great reviews, feature list, screenshots, and app description do not matter if the price is already beyond what the user perceives to be the right price for the app.

If my assumption proves correct, offering more flexibility in how users can pay for apps will be critical in driving future monetization. Free “try before you buy” will not only reassure users of their investment but will also inspire confidence and help change their perception of what an app might be worth, ultimately resulting in higher spending.

iOS Users Show Higher Propensity to invest in Apps

Users across both the Apple App Store and Google Play Store seem clear about what they are paying for. The vast majority of smartphone users in our study did not feel like they were tricked into an in-app purchase or subscription (56% among iOS and 64% among Android panelists) which shows that the guidelines in making the process as transparent as possible are working well. When it comes to paying for a subscription, the vast majority would prefer a one-off payment (54% among iOS panelists 47% among Android panelists)

The idea that iOS users spend more on the App Store than Android users do in the Google Play Store is not new. This is the result of a series of factors: higher availability of paid-for content in the store, higher disposable income across users and lower tolerance for ads during app usage. 46% of iOS panelists said they would make an in-app purchase to avoid ads. This compares to only 38% of the Android panelists.

Our study confirms the gap between the two app stores quite clearly: the number of iOS panelists with 5 or more paid apps or subscription was 45% compared to 19% across Android panelists.

Beyond these numbers, our panel was asked to provide some free format comments on the apps and subscription experience that showed an overall lower interest among Android panelists who mostly did not want to be bothered with yet another subscription or payment. Interestingly among iOS users, there was a need for clarity between what requires a fee but not a subscription. iOS panelists also seemed to keep developers at a higher standard asking that paid apps would be regularly updated through some additional payments but without having to require a subscription.

 

Users might not fully grasp what developing and maintaining an app might entail, but they seem to have a clear mindset about what they are prepared to pay for as well as what they expect in return. The more transparent developers are in their approach and the more flexible App Stores charging mechanism will be the more willing consumers will be to invest in apps.

Published by

Carolina Milanesi

Carolina is a Principal Analyst at Creative Strategies, Inc, a market intelligence and strategy consulting firm based in Silicon Valley and recognized as one of the premier sources of quantitative and qualitative research and insights in tech. At Creative Strategies, Carolina focuses on consumer tech across the board. From hardware to services, she analyzes today to help predict and shape tomorrow. In her prior role as Chief of Research at Kantar Worldpanel ComTech, she drove thought leadership research by marrying her deep understanding of global market dynamics with the wealth of data coming from ComTech’s longitudinal studies on smartphones and tablets. Prior to her ComTech role, Carolina spent 14 years at Gartner, most recently as their Consumer Devices Research VP and Agenda Manager. In this role, she led the forecast and market share teams on smartphones, tablets, and PCs. She spent most of her time advising clients from VC firms, to technology providers, to traditional enterprise clients. Carolina is often quoted as an industry expert and commentator in publications such as The Financial Times, Bloomberg, The New York Times and The Wall Street Journal. She regularly appears on BBC, Bloomberg TV, Fox, NBC News and other networks. Her Twitter account was recently listed in the “101 accounts to follow to make Twitter more interesting” by Wired Italy.

1,033 thoughts on “App Stores and Monetization”

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