5 Ways the Mobile App Economy is Evolving in 2011

It’s easy to fall into the trap of thinking of the app economy as a fully developed and mature space. And while it’s not the wild wild West that it was two years ago, the economy is still rapidly evolving – and we’re about to see some significant changes in 2011.

1. The Virtual Good is God – it’s all about in-app purchasing

Does it seem like everyone and their mother are talking about virtual goods? That’s because everyone is. And everyone’s mother just spent $200 buying virtual cows for her virtual farm. The virtual currency economy is big and growing – and it’s no joke for gaming publishers looking to monetize. Inside Virtual Goods recently published a report predicting that the virtual goods market in the U.S. alone will hit $2.1 billion in revenues this year.

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Guest author Michael Chang is co-founder and the CEO of Greystripe. He has worked as an associate at Incubic Venture Capital and as an engineer and product manager with SAN pioneer Gadzoox Networks. He has a MBA from Duke University’s Fuqua School of Business and a BS from Carnegie Mellon.

Monetization through virtual goods made a splash in 2010, but in 2011 we’ll see the economy grow into a real beast to be reckoned with. This year more iPhone and Android games will move from paid or subscription-based apps to a combination of in-app purchasing and advertising to monetize.

2. Mobile ads are about to transform – the formats and placements within apps are going to change

When mobile ads first hit the market, the online format was simply slapped onto the smartphone. Since the beginning, standard banner ads have been king – placed haphazardly on every screen of an app and each page of the mobile Web. This year will be the year advertisers start to pay as much attention to where and how an ad is placed as they do to the number of impressions and clicks.

We’re going to start seeing more and more large, engaging ads delivered as interstitials – placed at natural transition points in content. The actual ads are evolving too. Rich media will become common. Video ads will also grow dramatically, which will come as no surprise to any Angry Bird-er who experienced video ads this holiday season.

3. Regional and local ads will become commonplace – but hyperlocal ads will wait until 2012

Local was the mobile buzzword of 2010 – and it’s not going away any time soon. Throughout the year, local and regional ads are going to be popping up more frequently. BIA/Kelsey predicts location-targeted ads will grow from $400 million in 2010 to over $2 billion by 2014. Scale is driving better opportunities for targeting, and more advertisers are taking advantage.

But even though the climate is ripe for local, you shouldn’t expect an onslaught of hyperlocal ads. Yes, you’ll start seeing more ads for the Best Buy near you. But you won’t be overwhelmed with ads for the pizza place downstairs quite yet.

4. An Android application store will enhance payment and discovery. (It better, if Android wants to win the competition for developers.)

Last year was the year for Android – Google’s Android OS overtook iPhone in the total number of subscribers. But with the iPhone coming to Verizon, Android is going to have to step up its game if it wants to stay on top. In particular, Android’s marketplace has proven to be a key limitation.

Apple’s App Store, while hardly perfect, is far superior to Android’s for finding and purchasing new apps. Android needs to figure out a way to organize its apps and simplify the checkout process. Someone will figure it out in 2011. Maybe it will be Google who has announced plans for upgrades. Maybe it will be a third party like Amazon.

5. The wild cards: Emerging platforms, cross-platform HTML5 apps, non-Apple tablets and interactive TV

A few potential app economy game changers need to be watched this year. Windows and Blackberry will make a strong push in 2011 for market share of high-end smartphones. This could increase fragmentation of the mobile app economy but should also contribute to the shift toward cross-platform HTML5 mobile websites that look and feel like native apps. The introduction of iPad alternatives will be an indication of how big the tablet market can be. Google and Apple’s TV products will test if the mainstream is ready for interactive TV. It’s clear that we’re entering an exciting time.

Disclosure: the author is the CEO of a mobile advertising network.

Photo by Jorge Quinteros

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