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China makes App Store history

by Yujia Zhu on Nov 29, 2016

This is a guest post by Lexi Sydow, senior market insights analyst at App Annie.

Each quarter, App Annie produces a pulse on the app economy, identifying industry milestones and emerging trends. In Q3 2016, China hit a massive achievement. Let’s take a closer look.

China Shatters Industry Records

China had the largest quarter of any country on the iOS App Store, generating over $1.7 billion in revenue in Q3 2016. This colossal quarter has pushed China past the United States to become the #1 country for iOS revenue. Notably, the US has been the highest grossing country for iOS quarterly revenue since 2010. This change represents a significant shift in the global app economy. If China wasn’t on your expansion radar, it should be now. Understanding how to enter this market is key. Navigating the complexities of local infrastructure and unique cultural preferences is crucial to your app’s success.

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The Path to Becoming the #1 Country by iOS Revenue

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Lexi Sydow, App Annie

It’s no secret that Apple has prioritized China and its rapidly growing economy for some time. In Q1 2015, China’s iOS downloads grew 30% year over year, pushing it past the US for the top spot. This was partly fueled by the iPhone 6 launch in China in October 2014, which catered to the appeal of a bigger phone screen. This milestone set the stage for China’s growth. As shown in our app maturity model, downloads pave the way for increased engagement which ultimately leads to revenue growth.

In Q1 2016, China began to gain ground in iOS revenue as the country surpassed Japan to become the #2 country by iOS revenue. The following quarter, China continued to close in on the US and in fact surpassed it for iOS Games revenue. Revenue in Games tends to be a leading indicator for overall app revenue. This played out in Q3 2016 as China surpassed all records for iOS revenue in a single quarter.

Growth Categories in Q3 2016

As we saw in Q2 2016, Games continued to represent the largest growth category for China in iOS revenue. In Q3 2016, China’s lead over the US in iOS Games revenue tripled from 15% to 45%. Locally developed games dominate China’s top revenue charts and they continue to see growth year over year. Specifically, massively multiplayer online role-playing games (MMORPG) like Fantasy Westward Journey and Westward Journey Online and multiplayer online battle arena (MOBA) games like Hero Moba were large drivers of growth in iOS Games revenue. Notably, the concentration of revenue in games has become more equitable. In Q3 2016, the top 10 games by iOS revenue in China accounted for 35% of total iOS Games revenue in China, down from 50% the year prior. This indicates an opportunity for more games to see revenue success. However, foreign publishers should consider partnering with local publishers to cater to local demand, secure distribution and generate awareness.

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While Games continue to propel China’s app economy, apps (excluding games) also saw significant growth. In Q3 2016, apps grew 3.5 times year over year. Entertainment apps showed the largest absolute gains after Games with video streaming apps like iQIYI, Tencent Video and Youku leading the charge. Social Networking apps also had profound growth in iOS revenue. Within this category, communication apps like QQ, Momo and Inke drove a significant amount of revenue by incorporating video streaming into their communication platforms. The live streaming market is becoming an increasingly important part of social networking in China and is projected to reach $5 billion by 2017.

The Future for China’s App Economy

iOS App Store revenue is just one part of China’s overall app economy. Where Google Play is the dominant Android store worldwide, China is home to many third-party Android stores. Furthermore, according to our app monetization report, in-app advertising will also drive significant revenue gains through 2020. The combination of app store and in-app advertising revenue puts China on the path to make $55 billion through 2020.

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*App store and in-app advertising revenue estimates are net-to-publisher and inclusive of all mobile app stores, including third-party Android stores. This forecast does not include gross spend by advertisers and consumers.

The potential for revenue growth in China is huge. The $1.7 billion in iOS revenue achieved this quarter was only the first of their industry milestones. With a projected 32% five-year CAGR, China isn’t slowing down and will continue to drive a large portion of the global app economy in the years to come.

Explore China’s performance in Q3 2016 along with global app economy trends in our App Annie Index: Market Q3 2016, available for download here.

 

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Yujia Zhu is a senior manager for Business Development at AppLovin.

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