The Web is full of headlines that claim almost all app store revenue now comes from in-app purchases within free apps. But like much of what appears on the Internet, it is necessary to take a closer look at the numbers, to better understand the story.

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In-App Purchases: Fool’s
Gold or Pay Dirt?
Raul Castañon-Martinez
March 2014

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Introduction
 Recent headlines from tech sites claim almost all app
store revenue now comes from in-app purchases
within free apps.
 It is necessary, however, to take a closer look at the
numbers to better understand the story.

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Methodology
 Using our December 2013 US survey data, we
created a visual representation to identify users who
do in-app purchases.
 We asked users who downloaded apps if these were
paid or if they downloaded only free apps.
 We then identified users that have done in-app
purchasing in the last month and how much money
they are spending on these.

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Apps Downloads
Source: Yankee Group U.S. survey data, December 2013.

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Analysis
 Two out of three smartphone owners in the U.S.
never spend money on app stores.
 Users that download only free apps will most likely
not spend money on in-app purchases.
 Users that download paid apps are more likely to
spend money on in-app purchases.

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Conclusions
 Focusing on freemium and in-app purchasing might
lead developers to misidentify the user segment that
brings in most of the app store revenues.
 These users also download free apps; in many cases,
they will download a free version as a trial.
 These users follow a different app life cycle as other
freemium users.