App revenue jumps 15% to hit $40B in first half of 2019

Brief:

App revenue rose 15% to $39.7 billion on Apple's App Store and Google Play during the first six months of 2019 from a year earlier, app researcher Sensor Tower found. App Store revenue climbed 13% to $25.5 billion, compared with Google Play's 20% gain to $14.2 billion during the period.
Dating app Tinder was the highest-grossing non-game app during the year's first half, with revenue that jumped 32% to an estimated $497 million worldwide in both app stores, topping Netflix. The video-streaming giant was No. 1 in 2018, but removed subscriptions from the app's iOS version in December to avoid the App Store's fees. Total app store spending on Netflix fell to $399 million as a result.
Facebook maintained its dominance in the ranking of downloads with four apps in the top five, including WhatsApp, Messenger, Facebook and Instagram. TikTok, the social video app owned by China's ByteDance, was ranked No. 4 with first-time installs rising 28% to 344 million despite a temporary ban in India, its biggest market, over concerns about distributing inappropriate content to children.

Insight:

Sensor Tower's estimates indicate the app economy remains mostly healthy even as the smartphone market stagnates with consumers holding onto their mobile devices for longer. Apple's App Store generated 80% more revenue than Google Play during the first half of the year, likely reflecting Apple's strong market position among upper-income consumers who can afford its higher-priced mobile devices. The App Store's revenue is higher even though Google Play has three times as many downloads. Google's app store boosted downloads by 16% to reach 41.9 billion in the first half.

A deeper look at the data shows that App Store results were mixed, with Q1 weakness giving way to a rebound in Q2. First-time app installs from the App Store slipped 1.4% to 14.8 billion in the first half of 2019, despite a 3% increase in Q2 from a year earlier, per Sensor Tower's report. Apple may confirm that bounce-back when it reports Q2 results later this month. The company's iPhone shipments had fallen 30% in Q1 from a year earlier, as measured by researcher IDC, amid slower economic growth in China and the country's heightened trade tensions with the U.S. The decline in iPhone sales has pushed Apple to emphasize its services business, including Apple Music, Apple Pay and its upcoming Apple TV streaming video platform.

TikTok, which is notable for being the only top five app that isn't owned by Facebook, is working to build out a strategy to monetize its massive audience. The social video app this month partnered with four North American ad agencies to hone its marketing strategy. TikTok aims to boost awareness and differentiate itself as a platform like YouTube rather than an alternative to apps such as Snapchat and Instagram. TikTok's efforts are showing signs of attracting interest from brands. The app last month debuted its first multimarket brand campaign with Japanese fast-fashion brand Uniqlo. TikTok has remained the most-downloaded in Apple's App Store for five consecutive quarters, Sensor Tower said in a separate report, and was ahead of Facebook and Instagram in the Google Play Store in May.

Meanwhile, mobile game spending rose 11% to an estimated $29.6 billion for the App Store and Google Play during the first half of the year, although China weighed on those results, per Sensor Tower. Apple's App Store underperformed with 7.8% growth to $17.6 billion on games during the period, compared with a 17% gain to $12 billion for Google Play. Both app stores suffered from the lingering effects of a nine-month ban on new mobile game approvals, according to Sensor Tower. Chinese authorities had halted the approvals amid concerns that mobile games were too violent and allegations that they caused myopia or addiction among young people, Reuters reported.

While Netflix no longer is the No. 1 non-game app, the streaming giant likely is saving a lot of money in fees to app stores. Apple and Google charge app developers a hefty 30% fee of subscription revenue during the first year, which is then cut to 15% in subsequent years. Those fees led to a growing backlash from developers including Epic Games, the maker of the hit game "Fortnite," which last year bypassed Google Play altogether by letting players download the Android version of the app directly from its website.