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Are mobile ads the future of mobile apps?

Consumers worldwide will download about 4.51 billion mobile applications in 2010 according to a new forecast issued by research firm Gartner, increasing from 2.51 billion downloads last year–that translates to app store revenues close to $6.8 billion, up from $4.2 billion in 2009. Gartner anticipates that free applications will represent 82 percent of app store downloads in 2010, a number that will grow to 87 percent of downloads in 2013 even as expected revenues jump to $29.5 billion: Gartner estimates corresponding mobile advertising revenues will leap from $600 million per year in 2009 to about $7 billion in 2013 as developers embrace a host of mechanisms to subsidize their efforts. Gartner contends that developers have little choice but to pin their hopes on mobile advertising, arguing that as smartphones continue to come down in price, the new wave of mass-market users will be reluctant to pay for mobile software. “Growth in smartphone sales will not necessarily mean that consumers will spend more money, but it will widen the addressable market for an offering that will be advertising-funded,” Gartner research director Stephanie Baghdassarian said in a prepared statement. “The value chain of the application stores will evolve as rules are set and broken in an attempt to find the most profitable business model for all parties involved.”

But some experts question whether existing mobile advertising concepts and approaches are on the right track. The doubters are said to include Apple CEO Steve Jobs, who believes “mobile ads suck” according to BusinessWeek, citing a source familiar with Jobs’ thinking. So Apple reportedly is exploring new approaches to mobile advertising in the wake of its recent agreement to acquire mobile ad network Quattro Wireless, plotting ways to exploit consumer data to better serve mobile advertisements. Insiders say Apple’s efforts seek to make ads more relevant to consumers, factoring into the equation data like purchases and downloads from iTunes and the App Store as well as geo-location. “[Apple] could also use the iPhone’s capabilities in creative ways–say, having someone shake the device to win a rebate the same way they do to roll dice in games,” the report notes.

Despite Gartner’s app store revenue projections for the year ahead, more than half of developers are pessimistic about their immediate financial outlook. A new Mobile Entertainment Forum study examining the state of the U.S. mobile content value chain reports that among 100 respondents from 80 companies spanning across the mobile entertainment landscape, 42 percent said they expect at least a 20 percent revenue increase in 2009, and 58 percent anticipate comparable revenue growth in 2010–app developers are less optimistic than any other industry segment the MEF polled, with only 48 percent believing revenues will increase 20 percent or more this year. MEF Americas chairman Jim Beddows theorizes developers have serious doubts about the longterm viability of current marketplace conditions: “The explosion of app stores and applications continues to feed consumer demand, but it’s still not proven whether there’s a sustainable revenue model,” he said in an interview with FierceDeveloper. Nor is it proven that mobile advertising is the solution to those concerns, but if not, then what is? –Jason

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