Momentum Behind The Free-To-Play Model Slowed Toward Year-End, Distimo Suggests

It looks like momentum behind the freemium model slowed in the last quarter of the year as the iPhone 4S launch bumped up downloads for apps across the board, according to a retrospective by European app tracking company Distimo.

The share of revenue that the top freemium apps drive compared to all other business models dipped for two consecutive months in October and November after steady gains for the whole year. Distimo didn’t have an explanation, but the shift happened around the time Apple launched the iPhone 4S. App downloads on the iPhone had actually been declining throughout 2011 until the new phone launched, pumping up the entire ecosystem.

Since then, we’ve seen a number of high-profile paid app launches like Rockstar Games’ Grand Theft Auto 3, Chair Entertainment’s Infinity Blade sequel and Activision’s Call of Duty: Black Ops Zombies. At the same time, very fierce competition in the freemium space like the four-way shootout between Zynga, Pocket Gems, TinyCo, Storm8 over genres like zoo games has left certain categories oversaturated.

Distimo also took a look at relative revenues on Android, the iPhone and iPad. There’s no surprises here. iPhone revenues outmatch Android revenues by 4-to-1 for the top 200 grossing apps and the iPad even continues to beat Android’s top 200 grossing hits by 2-to-1 in revenue.

We’ve covered the reasons for this gap many times already. Because Apple had about a decade’s lead on Google in terms of accumulating payments details from consumers via iTunes, it had a ready-to-go and ready-to-pay customer base when it launched the original iOS app store. Google, in contrast, had a failed payments product in Checkout that it’s trying to overhaul for Android Market. The company has made some smart choices recently in coercing Android owners who get the latest version of the OS to enter their credit card information.

Because of these payments issues, Android developers overwhelmingly choose the freemium route compared to iOS developers. Distimo’s analysis excludes advertising revenue and we would bet that Android developers are far more dependent on that stream for now. So it’s possible that Distimo is overshooting its gap for the very highest-grossing games.

Lastly, Distimo looks at the rise of China as a major source of downloads for developers. China now drives about one-third of the download volume for the iPhone that the U.S. does, up from one-fifth in January. China’s emergence is even more stark on the iPad, where the country drives nearly as many downloads as U.S. consumers do for the top 300 free and paid apps.

China has become Apple’s second largest market in terms of revenues over the past year, according to chief executive Tim Cook, who mentioned this in the company’s last earnings call.

I spent a month in China earlier this fall talking to many developers there. If you want a very comprehensive take about all of the risks and opportunities of China for smartphone developers, I have one here. (The short version is that piracy and fragmentation make Chinese smartphone owners extraordinarily difficult to monetize despite the huge audience size. Developers that will be successful need an on-the-ground presence there and literally years of patience.)


Recommended articles