Mobile apps spending to reach $166 billion next year

It is no secret that the era of the app has well and truly arrived. Apps are not just restricted to phones and tablets. In facts, they have made the jump to full time PCs and Apple devices too. App Annie, the company that studies and analyses App stores have just published their predictions for 2017.

2016 is shaping up to be a phenomenal year for the app economy. By the end of December, we expect $52 billion in gross consumer spend on mobile app stores and a staggering $77 billion in gross spend on mobile in-app advertising. Mobile is more mainstream than ever, and businesses from all industries are relying on this channel to bolster existing revenue streams and unlock new ones.

This year also saw some key shifts play out in the app economy, many of which we called out in our 2016 predictions report; in fact, looking back on our analysis, a majority of our predictions turned out to be accurate. For example, commerce and online-to-offline (O2O) apps in Asia saw a wave of consolidation headlined by Didi’s acquisition of Uber China, putting an end to subsidy wars. We also predicted that Niantic’s Pokémon GO would lead to increased interest in augmented reality (AR). Of course, we had a few misses as well. Notably, iPad productivity downloads actually declined year over year following the launch of the iPad Pro.

2017 is set to be another banner year for the app ecosystem. In addition to key platform innovations and continuing growth of mobile-first companies, more companies from traditional industries will realize that mobile is no longer an optional investment.

We forecast that gross mobile app spend, including app store spend and advertising spend, will hit $166 billion in 2017.

Gross consumer spend on mobile app stores will constitute $65 billion. Games will remain the primary driver of this revenue, but subscription revenue from dating and media streaming apps will grow faster.

Gross in-app advertising spend will account for $101 billion. Social media, video platforms and games will continue to receive a substantial share of this revenue. Within these categories, mobile video ad formats will experience the fastest revenue growth. In addition, brand advertising will be a strong contributor, growing to 12.5% of total mobile in-app ad spend.

Time spent in shopping apps was up 52% year over year on Android phones worldwide (excluding China) during the first three quarters of 2016, largely due to growth in mobile commerce. In 2017, we expect the strongest growth to come from brick-and-mortar retailers as mobile apps reinvent the in-store experience.

Total sessions of apps from other brick-and-mortar businesses, notably banking and quick-service restaurants, will also see an uptick in 2017 as companies learn to incorporate mobile into their operations.

For the last few years, Netflix and premium video streaming services were viewed as potential disruptors to traditional pay-TV. However Netflix views itself as a single network; i.e., it competes with individual TV networks rather than a bundle of networks. This characterization is a better fit with Netflix’s investments in original content. This strategy should still lead to subscriber and engagement growth as primary consumption channels shift. However, with limited libraries, premium subscription services will find it difficult to replace the existing TV paradigm by themselves.

We believe this balance of power will shift in the coming years thanks to the growth of short-form and live video on platforms like YouTube, Facebook and, soon, Snapchat. In October 2016, time spent by Android users in the United States grew by nearly 45% on YouTube alone. It’s poised to grow even further in 2017 as media companies increase their investments in dedicated content. Over time, this will evolve into a true disruption as it will leave less time available for terrestrial TV, particularly among younger age groups, leading to an increase in cord cutting and the number of “cord nevers.”

In 2016, much of the discussion around chatbots centered around the concept of “conversational commerce.” The counter-argument to this is the very existence of the on-demand economy. Food delivery and ridesharing apps exist because they remove friction — they replace conversation with a graphical user interface (GUI). On the contrary, the power of messaging lies in making existing conversation more efficient; for example, customer and after-sales service. Facebook is likely to lead the charge here through increasing integration of Facebook Pages with messaging apps like Facebook Messenger and WhatsApp. Chatbots will still play a role, but artificial intelligence capabilities will not be sophisticated enough to carry on complete customer service conversations in 2017. Instead, chatbot use cases will remain limited to notifications and routing users to the right human touch points.

Google presented a bold vision for a voice-assisted future when it unveiled the Google Assitant. While we believe this will help increase the number of voice search queries on mobile, it will fall short of a large-scale shift in app interaction patterns. We estimated that voice interactions accounted for approximately 1.2% of total smartphone sessions on Android phones in August 2016. Even with meaningful growth in voice search, we expect voice interactions to remain well under 2% of overall smartphone sessions. This is because existing touch-based interactions are already deeply ingrained and unlikely to shift at this point in the maturity cycle. That said, on-screen suggestions based on the same underlying AI will gain traction.