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War in Ukraine, Covid, and ATT: Analysing the downturn in the market

AppsFlyer delves into the state of mobile’s unprecedented decline in past years
War in Ukraine, Covid, and ATT: Analysing the downturn in the market
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Mobile remains the most profitable gaming sector of them all, but it’s not immune from decline. Although numerous reports predict a significant rise over the coming years, it’s worth looking back at the past years to analyse the past performance of the industry.

In a new report, AppsFlyer analyses the performance of the global app install ad spend over previous periods to identify the macroeconomic factors which affected the market.

Firstly, there’s the release of Apple’s ATT framework, which impacted marketers’ ability to optimise their campaigns of the app store effectively, as they were forced to shift focus from user level data optimisation to aggregate data. This move caused a downturn in ad spend, with Javelin Venture Partners managing director Alex Gurevich stating that it raised customer acquisition costs by as much as 60%, making it difficult for small merchants, online brands, and local SMBs to "acquire customers in a capital efficient way, while growing and staying independent." Although marketers have gained increased confidence in ATT following the implementation of alternative measurement solutions, activity on the app store has yet to reach previous levels.

ATT’s release during the midst of the Covid-19 pandemic, which caused an unprecedented boom in the mobile market worldwide as people increasingly turned to their phones for entertainment. Mobile apps successfully capitalised on this with aggressive user acquisition campaigns, however they were unable to maintain this momentum following the easing of lockdown restrictions worldwide. The timing may have alleviated some of the blow felt by marketers on the app store, as users actively sought out new games and apps. App install ad spend rose by 40% during this period, however without the introduction of ATT AppsFlyer estimates that this could have been higher.

Downfall and recovery

The report states that, outside of Covid, the latter half of 2022 saw a global economic downturn and rising inflation rates, which caused a significant impact on the mobile market. This forced many apps and games to cut their marketing budgets. This was compounded by the global shock caused by Russia’s invasion of Ukraine, which led to economic sanctions and market volatility, with businesses being forced to relocate and supply chains disrupted. Although the Omicron variant led to a bump in January 2022, the market fell by 5% overall compared to the previous period.

AppsFlyer reports that over the first five months of 2023, the market fell 20% compared to the same period in 2022, and AppsFlyer estimates that, with no end to the global recession in sight, ad spend will drop by 6% this year. However, the report estimates a 7% year-on-year growth in 2024, led by a strong performance throughout the year’s latter half, followed by a further 13% growth in 2025.

The report also notes that North America saw the majority of app install ad spend between January 2022 and May 2023, with 38% of the total. This highlights once again the value marketers worldwide put on North America, as well as the high average value of users in the region. This was followed by Asia Pacific - one of the most varied regions on the planet with mobile-first markets such as China, India, and Southeast Asia - at 34%, and Europe at 20%.

Interestingly, AppsFlyer's data shows that the two of the world’s fastest-growing mobile markets - Latin America and the Middle East and Africa - saw the lowest share of app install ad spend at 6% and 2%, respectively. It appears that, despite the explosive growth in these regions, marketers are still prioritising those markets which already have a significant mobile market.

Despite the downturn, the early signs of recovery are present. While 2022 saw some of the biggest companies in the mobile games space reporting year-on-year losses in revenue, the latter half of 2022 and first quarter of 2023 saw several notable names report significant growth, despite declines last year. Tencent, for example, reported an 11% year-on-year increas in Q1 2023, compared to a 0.5% increase from Q4 2021 to Q4 2022.

The report also predicted that app install ad spent will hit $94.9 billion in 2025.