Half of iPhone's Revenue From In-App Purchases

This chart is very interesting if you're trying to see how apps are generating revenue for developers. You'll note that in-app purchases now account for half of all iPhone app revenues, up from about a third just six months ago. The iPad is not as dependent, perhaps because the average price points are higher. Also please notice that free apps are generating one-third of all the revenue from iPhone apps.

The rapid growth shows that advertising as a revenue generation model for the iPhone has not taken hold. I think Apple's iAd program can be fairly judged to be a flop so far. I think Apple's insistence on heavy involvement with the development of iAds has kept a lot of advertisers at bay. Without advertisers, there's not much reason for developers to sign up their apps to put ads in there. The relatively intrusive nature of iAds, especially on a small screen, may also be having an effect.

In any case, it's pretty clear that the monetization strategy for the iPhone app developer has to be either in-app purchases, or the price of your app. Advertising just isn't doing it. Primarily, the games are the place where in-app purchasing is having the biggest effect. I expect this trend to continue, and in-app purchasing will be providing an even bigger share of iPhone app revenue in a year. You can take that to the bank...