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Freemium Smartphone Apps will Dominate in 2012

ABI Research believes that the emergence of the smartphone "Freemium" software application (app) market has been much more than a mere buzzword from this year. Moreover, the global market outlook for 2012 is likely to follow a similar pattern of high growth.

Within the top-ranked 250 Apple iOS apps, across all categories, an average of 88 percent are already free to download -- monetized incrementally with advertising and in-app purchases.

The trend will continue in 2012, and it is entirely possible that at this time next year, in selected categories, all relevant Apple iOS apps will be free.

Apple enabled in-app purchasing for free apps in October 2009 and since then developers have been remarkably quick to evolve their business models.

Aapo Markkanen, senior analyst for consumer mobility at ABI Research, said "What many observers misunderstand about Freemium is that it isn't only about monetizing, but also about marketing. The threshold for consumers to download free apps is really low, so more people end up using and recommending them -- which then also gives those apps a bump in distributor ranking systems."

The resulting impact: paid apps fail to draw the attention of smartphone users. However, the app adoption trend can differ substantially between countries.

In Germany, 17 percent of the top Apple iOS apps are still paid, while in India and South Africa their share is already as low as 5 percent. By contrast, in the United States, 10 percent of the top apps are free.

Furthermore, revenue models vary notably between different app categories. In both navigation and weather, one-fourth of the top apps are paid, whereas in segments like lifestyle (3 percent), entertainment (5 percent), and games (6 percent), their share is starting to be miniscule.

According to Dan Shey, ABI Research practice director for mobile services, "Apple has always had an edge against other app platforms in convincing users to pay, and if anything, the shift toward Freemium is amplifying the dynamic. In-app purchases are often impulse purchases, so the payment experience has to be very smooth and simple."

Regarding Google's mobile app market opportunity, ABI believes that revising the Android Market's current billing process will be one of the key issues for the company to address in 2012.

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