Entertainment Apps are Now Driving Consumer Spending Growth Globally

The lifting of COVID-19 restrictions, Apple’s IDFA changes and macroeconomic headwinds, including stubborn inflation and rising interest rates, have had a profound impact on the mobile and digital ad industry in 2022. Last year marked a turning point for mobile games, app spending, and brands’ readiness to invest in digital advertising.

Some app developers are addressing these challenges by focusing more on single in-app purchases and post-IDFA strategies. Others - particularly apps that rely more heavily on advertising - are eyeing new revenue streams, with the launch of subscription services a growing trend among Social Networking apps. 

Our Mobile Economy and Digital Ad Space in 2022 & Beyond report provides an overview of the latest market trends and how app developers are responding to the challenges arising in this space. 

Global Installs have slowed, but Emerging Markets will Continue to Drive Adoption

Global downloads have decelerated following the surge led by the outbreak of COVID-19 but have remained markedly above pre-pandemic levels. The U.S. and emerging markets, including India, Brazil and Indonesia, were the largest countries by mobile adoption in 2022. 

Europe accounted for nearly 19 percent of global downloads, with the region’s share declining in recent years in favor of emerging markets.

While a push in adoption may soon arrive from China amid the easing of its tech crackdown, signs of waning gaming regulations, and the end of its zero-COVID policy, Africa will drive relative growth in the medium term. African countries, most of which are outside of the top 20 markets by installs today, will rise in global download rankings in the next few years, owing to a young and growing population and some of the fastest-growing smartphone penetration rates globally. 

Android Spending Fell for the First Time in 2022, Renewing Focus on Single IAPs 

2022 marked the first time global consumer spending on Android fell, declining by 7 percent year-over-year amid rising inflation and Apple’s anti-tracking rules, the latter making it harder to target ads and measure their effectiveness. The plunge in Android revenue was driven by a slowdown in mobile game spending worldwide, with Japan seeing the largest decline in spending among the major economies.

In an environment of stubborn inflation and weak consumer spending, app developers are testing out new monetization strategies: Some apps, including Tinder and Duolingo, are now devoting more resources to boosting single one time in-app purchases, which may have been sidelined in the past in favor of higher-value subscription services.

Entertainment Apps Continued to Drive Global Spending Growth at the Beginning of 2023 

While global Game revenue remained weak at the beginning of 2023 YOY, spending on non-Game apps hit a record high in January 2023, driven by Entertainment apps. Entertainment has been growing fast across markets in recent quarters, with spending in the U.S. twice that of the next-largest category for the first time ever in 2022. 

The surge in Entertainment spending and the concurrent decline in Game revenue raises the question of whether Game users are moving towards Entertainment apps, particularly those that are making a push into the gaming space, such as TikTok and Netflix.

Data from Sensor Tower’s App Overlap module confirm that TikTok and Netflix are among the apps that users of top-grossing Game apps worldwide, including Coin Master and Pokemon Go, are most likely to spend time on.

TikTok Becomes the Fastest-Growing Ad Channel, Challenging Digital Ad Leader Meta

While brands have cut investment in digital ads at a time of rising inflation and as a response to Apple’s anti-tracking rules, TikTok is challenging the status quo, with the app becoming the fastest-growing ad channel across North America and major European markets. 

An increasing amount of digital ad spend is moving to TikTok, owing - among other reasons - to a growing active user base, high levels of engagement (TikTok was the fastest-growing app by consumer spending in 2022) and reportedly lower advertising costs.

Brands’ slowdown in ad investments (despite TikTok’s record growth in recent quarters) is pushing apps that rely more heavily on advertising to look for new sources of revenue, with Meta, Twitter and Snapchat all launching their subscription services in recent months.