With over 6 billion smartphone users worldwide and more than 380 million apps downloaded each day, the app economy is a huge and fast-moving industry. As such, there's always new information to assimilate, new skills to master, and new lessons to take.
So with that in mind, let's have a look back at 2021 with our eyes trained on the teachable moments and strategic lessons that can be taken forward into 2022 and beyond.
Looking Back, Seeing Forward
Mobile apps are already closing in on $700 billion in annual revenue and that number is projected to reach nearly $1 trillion by 2023. Despite — or perhaps because of — the incredible market opportunities, there should no mistaking the fact that the app industry is brutally and increasingly competitive.
Last year, the average smartphone user spent some 4 hours and 10 minutes on his/her mobile device each day. Of that time, 92% was invested in apps. Excluding the dominant social networking and communication apps — which together count for 44% of total app use — that leaves 2 hours and 32 minutes per user for the rest of the app market (made up of some 2 million distinct apps) to fight over.
That's an extreme level of competition, made more intense by the fact that even when a share of user time and attention is won, business success is far from guaranteed. Every modicum of active user time — no matter how modest — needs to be carefully cultivated and optimally managed to sustainably monetize.
In one way or another, this increasing competition underpins all the lessons on our list. When it comes to Lesson 1 though, it's an especially apt introduction.
Lesson 1: UA will only get harder
While user acquisition has always been a challenge, it is only going to get harder in 2022. These days, 25% of apps are abandoned after only one use. For the rest, usage draws down quickly and dramatically — most (70%) zeroing-out within 10 opens.
Making matters worse is the imbalance of app supply and demand. The number of apps out there is growing much faster than the number of hours users are prepared to spend on them. And while there's no limit to how many apps can be made, there are only 24 hours in the day. So the gap is not just a matter of enthusiasm. It is fundamental.
Potentially, this sets the stage for a very unpleasant market correction. Sadly, this reckoning may be hastened and exacerbated by the easy-come, easy-go approach that so many hyper-casual publishers take to UA.
Promoting a disposable, single-use view of apps contributes to the commodification of supply. This risks a race to the bottom that can quickly overwhelm demand.
While the prevailing industry wisdom has long been to focus on UA — often even at the expense of overall monetization — we're now approaching an inflection point where that approach will be challenged.
While it might be somewhat counter-intuitive, we know that app revenue can grow independently from UA. Consider, for example, the fact that US app downloads have plateaued while app spending is still growing at a very healthy rate.
As the laws of economic physics bear down on a market whose supply and demand are badly out of step, UA will become increasingly competitive & costly.
So what's the lesson? Now is the time for publishers reconsider how they approach growth. They should think beyond breadth and embrace user strategies built for depth and sustainability.
Lesson 2: Cross-portfolio promotion is absolutely vital
With UA becoming more difficult and expensive, renewed focus should be given to retaining existing users and maximizing their value. One way for app publishers to do both these things is through cross-portfolio promotion.
Cross-portfolio promotion, also known as brand-new app promotion, is a common app marketing strategy used to promo the installation of one app within another app owned by the same publisher. It allows developers to generate more traffic and revenue by tapping into existing audiences.
With cross-portfolio promotion, the fact that you control both the demand and supply sides of the ad allows you greater creative and technological flexibility with the promotion. For example, you can build the promo into your core game loop in a more holistic and integrated manner — something akin to product placement in traditional media.
Cross-promotion is also important in its ability to serve as a bridge between short and long term efforts. If, for example, you're pursuing a hyper-casual growth strategy, you might have a relatively easy time bringing in users, but a much harder time keeping them. You'll also find your business vulnerable when — per Lesson 1 above — new installs get harder to come by.1
Cross-portfolio promotion allows you to use complementary hook and hold strategies — bringing them in with the cheap frills of hyper-casual before pushing them to your deeper engagement and higher spend inducing fare.
Suppose you want to take advantage of the latest internet culture craze with a duly themed puzzle game. Knowing the short shelf-life of such fad-forward fare and hyper-casual games in general, you feed new users into a content ecosystem designed to push them to one of your RPG titles — where you enjoy greater user retention and engagement.
Despite representing only the 11th most popular game genre, RPG games are the biggest earners by a wide margin
Seen in this way, a layered strategy combining cold hyper-casual UA with RPG cross-promotion allows developers to get the best of all worlds. As mobile monetization practices continue to change, growth teams can take a lesson finding new, more powerful ways to leverage cross-portfolio promotion.
Lesson 3: Under-served regions hold considerable market potential
North America and Europe are mega-markets and have always been treated as such. China has also been recognized as a mega-market for the last while. Publishers give Japan, Taiwan, Russia, Korea, and Australia a lot of attention too and have been pouring increasing resources into Latin-America over recent years. But what about the rest of the world?
Globally, India is home to more app downloads than any other country — edging out the US by more than 15B installs! Yet somehow, much like Rodney Dangerfield, it don't get no respect. Going forward, that will change. It will have to. There's just too much opportunity on the table for it not to.
There are other similarly neglected regional markets that offer a great deal of opportunity going forward too.
In just a few more years, Indonesia is expected to have over 2X as many app installs as all of the US. Africa has been largely neglected by global app developers, but with a population double the size of North America's, it holds an incredible amount of untapped market potential.
For the more developed markets, skyrocketing UA costs and intense competition will slow growth — resulting in comparatively greater ROI opportunities in underserved regions.Historically, app publishers have paid less attention to these markets, arguing that users there are less willing to spend than their counterparts from other parts of the world. Not only does that logic paint with strokes that are far too broad, but it also ignores the potential for more sophisticated monetization models. Worse still, the underlying claim behind the logic gets more out of touch with reality each year.
Some publishers may also be quick to dismiss developing markets because of high levels of suspected bot network activity. This is often said about the Indian market. And while there certainly is a lot of non-human traffic in India, these networks are not restricted by geography.
In fact, there's a growing body of evidence to suggest that the problem has already peaked in countries like India, while it worsens in the western world. But even were that not the case, at its height, bot networks were believed to be behind 20% of India's app traffic. Discounting a full 20% of India's installs, it still downloads more apps than any other country. And with a population of 1.4B, the market potential is simply massive.
Smart app publishers will take a lesson and begin developing localized portfolio plays for historically under-served markets.
Lesson 4: User behavior changes with the wind
User behavior and app consumer preferences differ by country, change with time, and are influenced by recent events & popular culture. This simple fact bears powerful impact.
An example of this can be seen in the effect of COVID-19 on global app downloads
That elasticity of behavior might lead you to think that you can anticipate or even manipulate it for your own purposes. It's true of course, but only to an extent. And there's the rub.
A lot of app companies struggle to navigate the choppy waters of expectation and surprise that come with proactive user behavior mapping and management.
Maybe it's an expression of the Hawthorne effect. Maybe it's the unbounded exchange of logic and counter-logic at play in Behavioral Game Theory. Regardless of the why though, the what is the same.
No matter how much we study user behavior, no matter how much we model it, or try to break it down into data determinants — it will always have the capacity surprise us.
Of course, user behavior must be studied and understood to the extent practicable. But app publishers must also appreciate that behavior is fundamentally fickle and prone to change.
App publishers would be wise to hone their monetization models and overall business strategies with flexibility in mind. That way they can adapt and generate revenue regardless of the market's behavioral whims at any given time.
Lesson 5: IAA is on the ascent in a big way
All of the lessons already listed really underscore this lesson: publisher cannot ignore the important role to be played in-app advertising (IAA).
As UA becomes more difficult, monetization strategies become more diverse, and less resources are poured into user puppeteering, publishers will turn increasingly to in-app advertisement.
This represents a notable reversal of prevailing wisdom in the app industry. Until now, most publishers focused on expanding their user base at all costs. This makes sense for such a rapidly expanding market and follows the playbook of many well-known and slow-to-profit tech success stories. Amazon, Facebook, YouTube, and Uber immediately come to mind.
For years this meant that monetization took a back seat — with ad revenue in particular being treated as an afterthought. Over time though, market forces have slowly chipped away at that status quo.
In 2015, only a little over 9% of developers monetized with IAA. By 2017, that had grown to just under 14%. Things began heating up between 2018 and 2019 — with 60% more apps embracing ads as a key revenue source. Then in 2021, this trend kicked into higher gear as IAA's share of Android-generated app revenues doubled in just 8 months.
Today, almost 70% of apps monetize with IAA. From 2021 to 2026, in-app advertising is expected to continue growing at an 18.4% CAGR.
In-app bidding in particular has become an indispensable engine of growth for app publishers. In-app bidding pits advertisers against each other as they compete, in real time, for the right to fill publisher inventory. Research from DigiDay shows that in-app bidding typically results in 13% - 27% higher ARPDAU than traditional mediations.
For a long time, technological and environmental limitations slowed the adoption of in-app bidding. More recently, those limitations have been solved or sidestepped on the way to an explosion in in-app bidding. From 2019 to 2020, for example, the number of apps using bidding to access Facebook Audience Network demand grew by 700%.
Going forward, IAA and in-app bidding will continue to grow in importance as a form of monetization. Publishers would be wise to take note.
Reflecting On a Thoroughly Disrupted App Industry
With mobile growth outpacing PC growth and more smartphones on the planets than humans, there can be no doubt that we're living in the app age. It's an age of sensational speed, data dominance, and other worldly opportunity.The industry is changing faster than ever and if app developers want to make the most of the opportunities afforded them, they'll need to pay close attention — acting with both courage and consideration.
From shifting UA landscapes to more diverse, sophisticated growth strategies, and the ascent of IAA as a central pillar of monetization, these 5 lessons offer valuable insight to help guide app publishers into 2022 and beyond.
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- Even if you're not yet feeling that pinch (as hyper-casual enjoyed an incredible boost from the pandemic), you can be sure that the download bonanza will end. Already now, the most mature markets are seeing decreasing app downloads
