Freemium app monetization has rocketed in the US, but is most effective in Asia: Distimo

In-app purchases were the major trend of 2013 for app developers, and a new report from Distimo shines a light on the phenomenon, noting that it is most effective in Asia.

Distimo tracks iOS app data, but it joined up with Chartboost, a technology platform specializing in gaming apps, to pull together new intelligence about how developers are monetizing their apps across a range of the world’s key markets.

Looking at recent estimates of iOS app revenue based on the type of payments, the new Distimo report concludes that free apps which monetize using in-app purchases are most effective in Asia — with China, Japan and Korea coming out on top. (Note: this is based on the ratio of revenue across all apps — paid and free — not the sheer volume.)

In contrast, Distimo found that freemium monetization is considerably less dominant in the West, and particularly Germany and the UK where it accounts for 70 percent and 76 percent of total revenue respectively.

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While the ratio of freemium revenue in the US lags that of Asian markets, Distimo notes that the past two years have seen the number of US apps using in-app purchases and no up-front cost sky-rocket.

Initially freemium app pricing accounted for 46 percent of US (iOS) app revenue in January 2012, but the ratio steadily increased to account for a record 81 percent of revenue in November 2013. The number dipped in December — which Distimo puts down to a seasonal increase in acceptance of paying for apps — and stood at 79 percent of all US app revenues in January 2014.

The data thus far has been proportional of the total app spend, but Distimo figures breaking down the data by user-based metrics show that Japan leads the world in terms of average revenue per download over the past two years.

That’s not a huge surprise given that its Android and iOS app store overtook that of the US in December of last year, however the margin by which Japanese iOS spending leads the rest of the world is significant:

On average, one download is worth $5.32 in Japan, based on the selected time period. Australia and South Korea have the second and third highest ARPD respectively, showing the enormous potential of these app markets. Other countries with high ARPD values were Canada, Germany, the United States and the United Kingdom – all of which generated around $2.30 per download.

Though the Distimo report shows that freemium is hugely effective in many parts of the world, and is growing in the US, it is not predicting a bleak future for paid-for apps. It explains that while freemium pricing is the largest grossing monetization model on sheer numbers, paid apps actually generate a higher average spend if downloaded:

Although it is known that the highest revenue share is generated from the freemium model, both business models of paid apps bring in higher revenues per download.

That makes sense, since users that pay up front for apps are likely to be far more engaged due to parting with cash. Given the success of apps like Tweetbot, which costs $4.99, there is still some hope for developers looking to charge up front. Though, as Distimo’s insights show, that very much depends on the market and genre of app.

You can download the full Distimo report here.

Image via photatelier / Flickr