Analysts predict Android revenue will catch up to iOS

Android will begin closing the revenue gap between it and iOS as in-app purchases become the dominant source of revenue for app developers, according to a new report from IHS Screen Digest. The market intelligence company is forecasting in-app purchases will be worth $5.6 billion dollars by 2015, and will account for 64 percent of total app market revenue.

The increase in in-app purchases will come primarily at the expense of paid apps, which IHS predicts will become less important as a revenue source as consumers show their preference for free apps. According to IHS, consumers downloaded more than 19 billion apps in 2011, 96 percent of which were free. By the third quarter of 2011, free applications represented 45 percent of the top grossing iPhone apps and 31 percent of the top grossing Android apps in the U.S. market.

According to Jack Kent, IHS senior analyst of mobile media, Android currently lags behind iOS in freemium revenues, but the proportion of free apps is currently higher on Android than iOS. Although Android currently has issues with its users’ propensity to pay and the ease of payment on the platform, IHS predicts “Android will certainly be closing the gap” as the main avenue of monetization switches from paid to free apps.

Last year Flurry Analytics released numbers showing that Android developers earn 24 cents from in-app purchases to every dollar earned on iOS, although some developers such as Storm8 have actually found Android to be more lucrative than iOS.

IHS’ prediction is somewhat at odds with numbers Distimo released in December showing the momentum behind the freemium model was beginning to slow toward the end of the year. According to Distimo’s numbers, the share of revenue the top ranked freemium apps brought in actually dropped compared to other business models. In the same period, paid apps also saw a chart resurgence, with Epic Games’ Infinity Blade bringing in $5 million in revenue in its first month of release, despite it $6.99 price tag. This is something Kent attributes to branding.

“For premium brands, where a user can have confidence –justifiably or not– in its quality then the premium/paid download model will still work,” he explained. “Even with IAP growth, we expect 36 percent of revenues to be for up-front paid downloads in 2015 — but for smaller developers it is far easier to introduce users to some free content before charging them.”

Kent noted that even premium apps such as Infinity Blade manage to generate significant in-app revenues on top of the paid download.