Android app ad revenue expected to break $1 billion in 2012

by Phil Hornshaw

In-app advertising is coming along on the Android operating system and could bring in more than a billion dollars in ad sales for app developers by 2012, according to an analyst and investment bank Piper Jaffray (PJC).

Gene Munster of Piper Jaffray released research today in which he predicts Android users will spike to 133 million by next year, and that yearly ad revenue for each user will rise to $9.85 in 2012, up from the $5.90 per user in 2010. That’ll put yearly ad revenue for Google (GOOG) at around $1.3 billion on Android, he thinks, adding to the projected $31 billion in revenue the company is expected to drag in that year.

That’s a significant milestone for Android, signalling another way that the platform can make people money -- which is good for Android users. The more money the platform generates for the people producing things for it, like app developers, the more money and effort they’ll put into making interesting products and apps for it.

Still, the $1 billion in 2012 falls well short of the $10 billion in mobile revenue former Google CEO Eric Schmidt said he thought Android would be capable of producing, although he didn’t say exactly when that could happen. But at least portions of what Schmidt talked about last year -- in-app purchases and sales of premium content that will drive up Google’s Android revenue -- are now happening. So consider that Step 1.

Step 2 is getting Schmidt’s one billion users on Android. That might not be happening any time soon, although Android is definitely pulling in a lot more users as the operating system spreads to more and more devices. Android recently overtook Symbian as the most sold smartphone operating system, shipping 33 million units worldwide in Q4 2010. That’s well short of a billion phones, but it’s still a big number -- one billion users isn’t impossible and might not be more than a few years off.

But while Android’s ad revenue project is impressive, it’s still a projection. It’s also not as impressive as the projection for iOS ad revenue for the next five years, from Media News Daily. That firm puts iOS ads at bringing in $8 billion in five years; even if Android hits its billion next year, it probably isn’t going to add an additional $7 billion more in just four more.

Android still doesn’t have a magic bullet, but it’s progressing at an extremely fast rate. The addition of the new web-based Android Market, in-app purchases, and lots more devices that carry Android are helping to expand its grip on the market, and Google’s announcement of a tablet-specific version, Android 3.0 Honeycomb, will mean more of those devices will be able to contend with the iPad.

Just the speculation that Android ad revenue is going to hit a serious uptick by next year is good for the platform. Like I mentioned above, more money to be made means more people trying to make money -- which means more apps, more peripherals, and more quality devices for Android users. Next time you see an ad in an Android app, you might want to give it a click: maybe not to buy anything, but to do your part to help make Android a more viable platform, and encourage more businesses to invest in it.