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Virtual Goods: The Best Way To Monetise Your Mobile App?

virtual-goods3.gifThe last few years have seen an explosion of mobile applications and app stores. With the majority of mobile apps remaining free to download, many developers had hoped to monetize them through advertising.

But research shows there may be a better way, as the sale of virtual goods has already become the leading source of revenue in certain sectors.


Recent analysis by Flurry has revealed that the sale of virtual goods has overtaken advertising as the top revenue generator in top categories for devices using Apple’s iOS platform. The study collected data from a sample of social networking and gaming applications who’s combined daily reach is 2.2 million daily active users.

The study found that there has been a steady shift in revenue mix over the past several months. Revenue generated from advertising peaked during the 2009 holiday season, at a level of just under $4 per user per month. At that time sales of virtual goods were just over $1 per user per month, for a monthly total of $5 per user.

Moving forward to September 2010, we see a completely different story. Overall revenue has almost doubled to $9 per user per month, but now advertising represents only $1 per month, with virtual goods making up over 80% of the total.

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At the moment, this phenomenon is most pronounced in the iPhone market. Apple has supported in-app payment capability for some time which makes it easy for developers to charge users for small additions or virtual goods. On the other hand, the Android environment does not yet support this level of in-app payments, so virtual goods are not as popular.

This consumer attraction to virtual goods is not unique to mobile, as virtual goods are also the primary source of revenue for social gaming on Facebook . Social gaming revenues overall were reportedly $600 million in 2008 growing to a $1 billion industry in 2009 with forecasts predicting it to be worth $4 billion by 2013.

Although the virtual goods model may not fit all application categories, the idea of selling small incremental features, additional levels, or other virtual content is something that every developer and publisher will need to look at carefully. Especially as the means for mobile payment improve and become more accepted by consumers, this is likely to develop into a major revenue model for the mobile industry.


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