Brief:

• Apple's App Store generated $42.5 billion of consumer spending last year, almost doubling in two years and outpacing the growth of app downloads, per a study by researcher App Annie that was shared with Mobile Marketer. That increase in spending on iOS apps reflects Apple's change in its subscription model in September 2016, when the iPhone maker introduced iOS 10.
• App Annie forecast that the compound annual growth rate (CAGR) of consumer spending on the App Store will slow to 12% in 2017-2022 from 15% in 2011-2017 as the smartphone market matures worldwide. That estimated growth rate means that App Store consumer spending will reach $75.7 billion in 2022.
• Netflix, Tencent Video, Tinder, iQiyi and Pandora Radio were the top 5 apps excluding games that offered in-app subscriptions in 2017. Those in-app subscription payments have helped apps excluding games to flourish on the App Store, with consumer spending more than doubling to $10.6 billion in 2017 from two years earlier, per App Annie.

Insight:

App Annie's study highlights several interesting trends in the iOS market that will shape the way apps are marketed on Apple's App Store. About 4.5 million apps have been released on the App Store in the past 10 years, with about three of four (77%) being games. A tiny fraction (0.001%) of the more than 2 million apps now available on the app store generate more than $1 million in consumer spending, even as the number of those higher-earning apps grew to 2,857 last year from 770 in 2012, per App Annie's data. The company estimates that an even smaller number of apps (564) generated more than $10 million in annual spending last year. While apps also can earn money from in-app advertising, the app economy as a whole likely loses money as only a sliver of apps become breakthrough hits.

The evolution of subscription revenue has meant that app developers can seek a steadier revenue stream from their apps, although it appears that major media companies with significant content libraries are able to capture this part of consumer spending. Netflix, Pandora, Spotify and HBO saw the most subscription revenue in the past couple of years, along with Chinese video platforms Tencent Video and iQiyi. Disney has entered the video streaming market with its ESPN+ app, and has plans to launch an entertainment streaming service next year.

Apple's App Store likely will continue to see double-digit growth rates for the next four years as consumers worldwide trade up for the higher-end smartphones that Apple sells, but the company faces greater competition from lower-cost Android-powered phones in many emerging markets. Still, even as the iOS App Store has seen its share of downloads worldwide shrink to 30% in 2017 from 54% in 2012, consumer spending on iOS apps has remained healthy. IOS apps generate 66% of total consumer spending, compared with Google Play's 34%, indicating that iPhone owners have greater spending power for apps, per App Annie. Google Play could boost its market share if it could crack the Chinese market, but the search giant's app store currently doesn't operate in the world's second biggest economy.