Hasta La Gadget!

Despite being such a (relatively) new category of device tablets are racing up on their smaller cellular cousins, with rapidly growing user adoption and smartphone-surpassing web page traffic generation. Little wonder then that tablet apps are also generating increasing amounts of revenue — predicted to pass smartphone app revenue within five years.

Making a forecast in a new report, analyst ABI Research predicts tablets will account for more than a third (35%) of total app revenues this year, or some $8.8 billion out of a total pool of $25 billion. That’s still a way behind smartphones of course — projected to generate $16.4 billion this year, or just under double the amount generated by tablet apps — but the revenue share is growing and ABI reckons tablets will surpass smartphones in app revenue generation by 2018.

The reasons for tablets to become ultimate app revenue winners are down to their larger screen, which offers plenty of scope for developers to build attractive wares, and also lower cost slates helping to ramp up tablet ownership and increase app downloads, reckons ABI.

“The larger screen makes apps and content look and feel better, so there are more lucrative opportunities,” says senior analyst Aapo Markkanen in a statement. ”One might think that the bigger installed base of smartphones would compensate for the disparity, but that notion fails to take into account the arrival of low-cost tablets, which hasn’t even started yet at its earnest. The smartphones paved the way for them, but in the end we believe that it’s the tablets that will prove the more transformative device segment of the two.”

The analyst adds that the tablet category is also well placed to open up the computing market by addressing underserved demographic groups such as the elderly and children. “The really big deal about tablets is how they will help to finally bring the computing age to, for instance, children and the elderly,” says Markkanen. ”The business opportunity associated with them is undeniable, but at the same they can also bring about very significant social benefits.”

On the OS front, ABI predicts that the lion’s share of the app wealth this year will continue to be generated within Apple’s iOS ecosystem: it expects 65% of the combined $25 billion to come from iOS vs just over a quarter (27%) from Google’s Android ecosystem. While “the other mobile platforms” will generate the remaining 8% between them (ABI does not break this out).

Despite dominating app revenue, ABI recently predicted that Apple’s iOS will only account for 33% of the smartphone app downloads this year, vs. 58% being Android apps. However Apple’s tablet lead with its iPad devices continues to be a big one, with ABI expecting 75% of the tablet apps downloaded this year to be iPad apps, vs. just 17% being Android apps. Amazon (with its Kindle Fire tablet) is projected to get around 4% app share, while Windows tablets are relegated to around 2%.

Despite Apple’s lead in the tablet market taking its first serious dent in Q3, the iPad’s dominance of the tablet market will continue for the next five years, according to Strategy Analytics. The launch of the iPad mini and “continued dominance” of the iPad will ensure Apple’s iTunes App Store remains the “premier destination” for tablet downloads through to 2017, the analyst predicts.

In its Mobile Apps Download Forecast: 2008 – 2017 report, Strategy Analytics forecasts a total of more than 350 billion smartphone and tablet app downloads between 2008 and 2017. The analyst predicts the Google Play store will account for more than 45 percent of phone-related downloads in 2017, while Apple’s iTunes Store will account for 56 percent of tablet downloads in five years’ time.

Over the 2008 to 2017 time period Strategy Analytics says paid downloads will generate more than $57 billion globally. However it expects the paid app market to be in decline by 2017 as it forecasts free apps will represent more than 91 percent of all downloads by then.

“Paid downloads remain an essential component of the app ecosystem,” noted Josh Martin, Director of Apps Research at Strategy Analytics, in a statement. “Paid downloads will remain an important way for smaller developers to monetize their efforts. For developers committed to paid downloads transitioning to tablets may be the smartest way to preserve the business model over the long term.”

The analyst believes that the average selling price of all downloads will drop to just 8 cents for smartphone apps by 2017, as the proportion of free app downloads continues to grow. This revenue decline, coupled with an expected increase in app store maintenance costs — owing to the requirement for more app approval personnel, higher marketing costs etc — could force app stores to “consider new revenue streams or higher revenue splits”, says the analyst.

“App Stores will also see a revenue crunch as more revenue is earned from advertising – revenue generated outside the bounds of the app store – and will need to prepare,” Martin added. “Newer platforms such as Windows 8, BlackBerry 10, Tizen and Firefox are building their operating systems and storefronts with this knowledge which should go a long way to making them attractive to developers and end-users.”