Revenue for Top-Grossing iOS Games Appears to Level Off Ahead of iPhone 4S Launch

On the eve of Apple’s expected iPhone 4S launch tomorrow, it appears that revenue for top-grossing games on the platform has leveled off in the last few months.

“Revenue levels for top games appear to be stable instead of accelerating,” said Peter Farago, vice president of marketing at Flurry, which serves analytics and ads in more than 100,000 iOS and Android apps. “Games on the higher end of revenue generation can certainly earn more than $3 million a month.”

The $3 million-per-month figure is the more or less the same as what we were hearing about four months ago in June.

A developer that reached the #1 top-grossing spot in the U.S. market within the last month told us that one could expect $40,000 in revenues per day after Apple’s platform cut and returns. (Returns refer to when a user buys an app or virtual currency and decides to return the purchase.)

“The dirty little secret is that with returns, Apple takes out the return amount and they still keep their 30 percent. So they hit hard,” the developer told us.

There are a couple reasons why we might be seeing slower revenue growth. First, consumers are likely holding off on purchases of new iPhones in anticipation of the iPhone 4S. When consumers buy new iPhones, they tend to stock up on apps, especially if they’re new to iOS. Many will browse the top of the store and download whatever is popular, benefiting apps already at the top of the charts.

Indeed, when we look at the growth of the Facebook for iPhone app (which we sometimes use as a proxy for overall iPhone growth excluding China) on our sister site AppData, we’ve seen the app add between 100,000 and 400,000 new monthly active users per week in the last month. That’s down from the 500,000 to one-million-plus range we saw at the beginning of the year. Fiksu, a Boston-based company that mediates between different channels for acquiring users, also picked up the downward trend, saying last week that downloads for the top 200 free iOS apps in the U.S. fell to 4.06 million in August from 4.25 million the previous month.

If this theory is true, we should start to see revenue perk back up again for top-grossing games on the iPhone going into the holiday season as consumers buy the iPhone 4S.

The second reason is that several verticals are becoming saturated. We’ve seen many more titles come out in the casual, free-to-play genre. Sequoia-backed Pocket Gems, for example, now splits its users between three hit animal-themed apps: Tap Zoo, Tap Pet Hotel and Tap Petshop. Andreessen Horowitz-backed TinyCo has also added animal-themed apps to the mix like Tiny Zoo Friends and Tiny Pets. Backflip Studios also has another free-to-play animal care-taking game DragonVale.

At this point, double the top-grossing apps doesn’t necessarily mean double the revenue. Some developers may be at risk of cannibalizing their audience by spreading them too thinly across a portfolio of games.

All things considered though, this may be a temporary lull with the holidays and iPhone 4S coming up ahead. Farago said that Flurry expects that revenue for a top-grossing iOS game in 2011 should be at least twice what it was last year. Plus, Android is on the upswing, and Game Insight, the developer with the top-grossing app in Android Market, has told us they have surpassed $1 million per month revenue mark for a single game.