The Second Mobile Cycle

Key insights

6 takeaways

01
The mobile app economy has transitioned from a first cycle defined by freemium games and in-app purchases to a second cycle characterized by subscription-based services and diverse content.
02
The Top Grossing charts are no longer dominated solely by games; they are now split evenly between gaming titles and subscription-powered services.
03
Subscription models allow apps to generate significant revenue at a more moderate scale, as evidenced by Tinder, which maintains a top-five grossing position with approximately 25 million monthly active users compared to the hundreds of millions required by top-tier games like Clash of Clans.
04
Declining mobile data costs and the elimination of roaming charges have fueled a surge in mobile video streaming, enabling high-bandwidth content consumption outside of Wi-Fi environments.
05
Platform policy changes, such as Google and Apple reducing their revenue share on second-year subscriptions, have further incentivized developers to adopt subscription-based monetization models.
06
The rise of major content channels acting as distribution platforms, such as Facebook, allows creators to monetize audiences without needing to build independent distribution infrastructure.

Summary

Mainstream tech media has declared the mobile cycle over and moved on to chat bots, AR/VR, and voice devices, but a second mobile cycle has quietly taken hold. Mobile cycles are defined by the form of content interaction successful participants use and the business models that monetize it. By that measure, the app economy has fundamentally changed since its early years, and the argument rests on observations of the US market and global data pricing trends through October 2017.

The first cycle was driven by freemium games that built massive audiences and monetized through in-app purchases and advertising. The second is defined by a more diverse set of apps with smaller, better-retaining audiences that monetize primarily through subscriptions, alongside IAP and ads. The clearest evidence is the thawing of the Top Grossing chart. From 2013 through 2015, a small cohort of games from 2012 and 2013 dominated it, whereas the US Top 10 Grossing positions are now split evenly between games and subscription services, many of them streaming video apps.

Falling mobile data prices are a major enabler. The EU's elimination of roaming charges across 28 member states, along with cheaper data in Nigeria, China, and India, lets users stream rich media outside wifi. This aligns with shifting US media habits: fewer movie ticket purchases, more than half of teens streaming full-length content, and "cord nevers" making up nearly one-fifth of the population.

Subscription economics let developers reach Top Grossing revenue at modest scale. Tinder, with roughly 25MM monthly active users, is consistently a Top 5 Grossing app, versus an estimated 200MM MAU for Clash of Clans and 65MM for Pokemon Go. Google's matching of Apple's halved platform fee on second-year subscriptions should accelerate this. Subscriptions offer steadier revenue than IAP funding user acquisition, and the largest content channels, such as Facebook, are becoming distribution platforms that let creators monetize without building their own distribution. This creates platform tensions but has also catalyzed a new wave of startup formation.