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January 17, 2012

According to market research firm IHS iSupply, in-app purchases are the way to profit for mobile app developers, which estimates that in-app purchases will rise to account for about 64 percent of total market revenue in three years from now, up from 39 percent just last year. IHS projects that revenue from in-app purchases will increase to about $5.6 billion in 2015, up from $970 million in 2011.

"Overall, smartphone users overwhelmingly prefer free apps to paid apps, as we estimate 96 percent of all smartphone apps were downloaded for free last year," noted Jack Kent, senior analyst, mobile media for IHS.

"For this year, it will become increasingly difficult for app stores and mobile app developers to justify charging an upfront fee for their products when faced with competition from a whole slew of free content. Instead, the mobile apps industry must fully embrace the freemium model and monetize content through in-app purchases," added Kent.

The business model of offering apps for free, then charging for in-app content, is known as "freemium." The strategy represents the fastest-growing segment of the global smartphone apps business and will soon dominate the whole market.

By the end of the third quarter of 2011, free apps already represented about 45 percent of the top-grossing iPhone applications in the United States, as well as 31 percent of the highest-earning U.S. Android Market applications.

IHS estimates that 68 percent of the top-grossing U.S. applications featured some form of additional content or functionality available via an in-app purchase.

Kent said that games have really created the freemium model. "Now the approach has proven so successful, companies building other types of smartphone apps must adopt this strategy if they are to maximize their mobile app revenues," he said.

Most in-app purchases at the end of the third quarter of 2011 in the U.S. and the U.K. involved buys of virtual currencies, such as additional chips for poker, or redeemable points in games. Virtual currencies so far have been almost exclusively employed in games, with other types of apps using in-app purchases for more specific item buys.

IHS estimates that about 63 percent of in-app purchases on the U.S. App Store at the end of the third quarter were for virtual currency.

The next most popular category of in-app purchase was for specific in-game functions or features, rather than general currency, which accounted for about twenty percent of the most popular U.S. in-app purchases.

Other popular in-app purchases include time-limited navigation services, dating and premium social network access, as well as specific functions or features for photo and video apps.

In other mobile news

Clearwire and China Mobile want to use their respective unpaired spectrum holdings in the 2.5 GHz band for TD-LTE, but there's an issue at hand-- the development of equipment and mobile devices for TD-LTE lags greatly behind FDD-LTE, the standard used in Verizon Wireless and AT&T's LTE networks in the U.S.

Clearwire and China Mobile began work in September 2011 on mobile devices that are compatible with the standard. Today, the struggling WiMAX provider and China's largest wireless operator announced that they are taking their partnership to the next level with some joint testing on their part.

The goal of this project is to make mobile devices that are currently running on Clearwire's planned TD-LTE network in the United States interoperable with China Mobile's TD-LTE network in Asia.

If successful, the joint effort will expand the potential number of users for the technology and improve economies of scale. This in turn will help lower prices for network gear and mobile handsets, making the technology more attractive to other wireless operators with unpaired spectrum holdings in 2.3 to 2.7 GHz and some other bands that are currently used today.

"Overall, close collaboration with global wireless leader China Mobile accelerates the development of multi-mode multi-band TD-LTE and LTE FDD devices, while providing the common test specifications of OEMs, ODMs, chipset vendors and other critical component manufacturers, as they need to rapidly develop and commercialize products to serve this massive global marketplace," said Clearwire Chief Technology Officer John Saw.

China Mobile wants TD-LTE to become a key global standard for unpaired wireless spectrum instead of WiMAX, which also runs on unpaired spectrum. The technology is also of special importance after the Chinese government failed to gain widespread adoption of its TD-SCDMA standard for 3G in October 2011.

Clearwire, China Mobile and a few other wireless operators participating in the Global TD-LTE initiative will set up labs next week using joint specifications on testing and interoperability.

Clearwire says that its LTE system testing will take place in Herndon, Va., and Phoenix, Az.

For its part, China Mobile will run tests in Beijing and some of the other cities where it is already conducting some trials of TD-LTE. The joint test platforms will be open to device interoperability testing by key participants later this year.

The strengthened ties with China Mobile come as Clearwire is actively looking for a new strategic investor. The company landed some much-needed funding from Sprint in 2011 but it's still looking for more cash to keep itself going and pay for the construction of its TD-LTE network.

Instead of shuttering its own WiMAX network, Clearwire wants to overlay key portions of its legacy infrastructure with TD-LTE. Sprint plans to lease capacity on Clearwire's network to add capacity to its own LTE service, and the companies are coordinating construction of their networks.

In other mobile news

Some reports are circulating that Apple is supposed to have started the production on its third-generation tablet about two weeks ago. If that's true, the iPad 3 could be on store shelves as early as March.

Production of the iPad 3 apparently started at the beginning of January and will reach full volume some time in February.

And Apple enthusiasts have a few good reasons to be excited. The iPad 3 should take the center stage once it's out in the open, most wireless industry observers are predicting.

And here are some very good reasons:

The new iPad 3 will be faster than ever. Three separate anonymous sources said to be familiar with the product also say that the new tablet will use a quad-core processor, giving the iPad increased multi-tasking power.

LTE technology will be available on the new iPad 3, sources say. Before 4G LTE comes to the iPhone, it’s coming to the iPad 3 which will get LTE (long-term-evolution) network support.

The new iPad will look better than ever. The display will be higher resolution than past models, adding pixels and graphics power. The third generation iPad is rumored to have more pixels on its screen than some high-definition televisions.

The iPad 3's graphics processor is also more powerful over previous models, rendering video faster and clearer than ever before.

The timing of the iPad 3 release coincides with the Nokia Lumia 900 release in March. So far, 2012 is once again shaping up to be the year of the iPad, not the year of the tablet as most tablet buzz continues to surround Apple’s products.

It will be interesting to see all the new buzz that will be generated in the blogosphere between now and the March release of the iPad 3. As usual, Wireless Industry News will keep you posted.

In other mobile news

Various email messages that suddenly arrived in the in-boxes of an unspecified number of Virgin Media customers on Jan. 13 and that promised much faster internet broadband services for less were embarrassingly and quickly removed by Virgin just a few hours later. Needless to day, the messages were a major snafu for Virgin's public relations department.

Virgin Media had initially sent a message boasting about Virgin Media Tickles, which apparently the company gives to "people we know and like: our customers". The overly generous memo pledged to boost connection speeds from 100 Mbps to 120 Mbps even though it was sent to customers on packages below 100 Mbit/s.

The email messages started by saying: "You're already getting the U.K.'s fastest widely available broadband, and starting this summer we'll be starting the roll-out to boost your speeds from up to 100 Mb to up to 120 Mb. We'll also be lowering the price of your broadband package in April to match the price of our 50 Mb Broadband XXL packages."

Virgin then said it would be doubling many of its customers' broadband speeds with the promised upgrade this summer. It said customers wouldn't have to lift a finger to take advantage of the upgrade of up to 120 Mbit/s that would apparently come with a discount.

Virgin Media then signed off by proclaiming: "We'll be in touch in a few weeks with more details about your price reduction, so there's no need to call us, or do any thing, except keep enjoying what is already the U.K.'s fastest broadband internet service."

However, just a few hours later it was a very different story: "Hello there. Oops! That last email, 100 Mbit/s Broadband Announcement, was sent in error! Please ignore this, we apologize for sending it in error, and rest assured that current Virgin Media Cable Broadband customers will be receiving some good news about their broadband in the next two weeks."

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Source: IHS iSupply.

    This article was featured on Business 5.0 and on Tech Blog.