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Apps will be freer than ever but generate five times more revenue - $63B - by 2017

Posting in Technology

"In-app purchases" will generate sharp revenue. They're the blades to the razors of free apps in a digital "loss leader" business world.

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Can you figure out how the app business will surge from $12 billion last year to $63.5 billion in 2017, even though consumers will pay for only 6 percent of the apps they download by then?

You might be thinking "advertising" and if so, you're on the right track, according to a new forecast from Portio Research.

But there's another even more important factor. Hail the "in-app purchase."

"Increasingly, apps will become free to download, but they will generate far greater revenue streams from advertising and in-app purchases," says Portio's Karl Whitfield. "The most buoyant of these categories is in-app purchases. From the end of 2012, worldwide in-app purchase revenues are forecast to increase from just $1.2 billion, at a staggering CAGR of 86.4 percent, to reach $26 billion for the full year 2017."

Really? As someone who has never even used an app (but I'm no Luddite - I have used a widget) let alone, to force a new verb on you, "in-app" a purchase, I find even the $12 billion figure staggering.

And all of this from free stuff - consumers today buy only 10 percent of their apps.

Sounds like new math, but it's actually a new business model. More accurately, it's the old "loss leader" scheme applied to the brave new digital world.

Once we had "razors and razor blades" as the textbook loss leader example. "Apps and in-apps" doesn't yet have quite the same recognition, but it might have a lot more money. The global market for all shaving products will hit a mere $33.3 billion by 2015, according to Global Industry Analysts Inc.

So if you want to lather up some revenue, get into the $63.5 billion app business.

Photo from Takkk via Wikimedia

— By on April 3, 2013, 8:48 PM PST

Mark Halper

Contributing Editor

Mark Halper has written for TIME, Fortune, Financial Times, the UK's Independent on Sunday, Forbes, New York Times, Wired, Variety and The Guardian. He is based in Bristol, U.K. Follow him on Twitter. Disclosure