As you can see from this diagram, there are two apps so significant in their ability to capture and retain our attention that they deserve a direct mention. The Facebook app galvanises our attention so much that it represents 18 per cent of all time spent by Americans on smartphones. I’ll dive into the details later in the chapter. Interestingly, and this is a reflection of the quality of the app as well, in 2013 Apple’s Safari mobile browser captured 12 per cent of our time, representing more than half of all mobile Web browsing. Given the rather
fragmented and competitive mobile browser space, this is a big achievement which represents another nail driven into the coffin of desktop browsing.
It’s worth remembering this figure represents just the revenue from premium downloads and in-app payments; it doesn’t include the transactions from apps where you enter your credit card information directly
Generating Billions of Dollars via Smartphones All this incredible app engagement is already generating billions of dollars in revenue for all the players in the mobile ecosystem. We’re going to investigate the business models that work – both for individual developers and for the big companies. As the pace of innovation continues to increase, so do the opportunities to generate revenues. In-App Revenues Are Growing Fast
As you can see from the graph above, the first and best-known revenue stream comes from selling apps through an app store (paid for). This is big business for Apple and Google, who were the middle men for about 90 per cent of the 102 billion apps that were downloaded in In 2013, global app-store revenue was $26 billion.14 Apple and Google keep 30 per cent of these revenues as operators of the stores, meaning that this is the commission that app developers have to pay if they use the inbuilt app-store payment mechanisms. That means that getting a user to part with real money is as simple as a single click for the developer. The app-store owner manages everything to do with accounts, payments and any hassles associated (such as
App stores are so popular with developers because they have built up massive audiences, and they make it very easy for users to make real monetary purchases with the credit-card details that are attached to their appstore accounts
fraud and charge-backs). The second major revenue channel is in-app purchases. This has become an increasingly popular topic in the media because numerous apps have seduced children into spending thousands of dollars via apps, unaware that they are doing so.15 In-app purchasing is a natural evolution of the pay-before-youdownload model. Effectively, it makes downloading the app free (thus encouraging more people to download it), and then gives the app developer the opportunity to sell virtual services or products very simply within the app. One of the star billion-dollar apps, the very clever game Clash of Clans, makes 100 per cent of its revenues via in-app payments (Supercell, the maker of Clash of Clans, made $890 million in 2013 using this model16). As you can see from the diagram on page 27, in-app payments are projected to be the main source of app-store revenues by 2017. E-commerce via mobile apps is also a huge channel and is a bit trickier to quantify, as this revenue comes from transactions taking place via apps that go through an app’s own payment system – and hence bypassing the inbuilt app-store payment channel used for in-app purchases. The top 500 US mobile retailers – including eBay – turned over $34.2 billion in mobile retail sales for 201317 – up from $21 billion in 2012. That means that mobile represented about 13 per cent of the $260 billion total e-retail sales in Amazon doubled its mobile sales in 2013 
to $8 billion, with eBay pulling in $8.8 billion for the year as well.19 The third major way that apps generate revenue is advertising. While lots of smaller apps rely on this revenue stream, it’s very hard to achieve billiondollar success using this route. But there are two ways. One of our billiondollar-app role models, Flipboard, successfully executed an advertising strategy via its app magazine to reach its billion-dollar valuation – and has now augmented that model with an e-commerce channel as well. Instagram, the social photography app (purchased by Facebook in 2012), is the perfect example of a highly engaging app that is now rolling out advertising. I’m not going to focus on the intricacies of developing massive advertising revenue for your app at this point. Later, we will explore the risky strategy of building a ‘consumer audience’ – with the goal of being acquired by a bigger company that can better (and more efficiently) monetise your active users with their own advertising platform.