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Summary:

[qi:gigaom_icon_google-android] In this new mobile platform world, app developers are the new kingmakers. Not a day goes by when someone doesn’t introduce their own app store, but the question of whether or not they’ll actually be able to profit from their efforts remains. (See our related […]

[qi:gigaom_icon_google-android] In this new mobile platform world, app developers are the new kingmakers. Not a day goes by when someone doesn’t introduce their own app store, but the question of whether or not they’ll actually be able to profit from their efforts remains. (See our related research report from GigaOM Pro, Surveying the Mobile App Store Landscape, subscription required) In many ways, my post from last week about the potential size of the applications market has exposed what seems to be the Achilles’ heel of this new economy: a lack of money-making opportunities for small, independent app developers.

androidsales-aug095Unlike large companies such as Electronic Arts, which sell popular games such as Scrabble, some of the smaller players are facing growing pains. And these problems aren’t unique to developers focusing on the iPhone. Today, Matt Hall, who runs Larva Labs, a startup developing games for Google’s Android platform, emailed to let me know that the $5 million in Android apps sales outlined by AdMob was way too high. “We have some of the better-selling games, but it doesn’t seem to us that Android can even get to $5 million a month based on our numbers,” he let us know.

The company makes two top-ranked games — RetroDefense and Battle For Mars — that sell for $4.99 each. They were promoted by Google quite heavily, so much so that you’d think they’d be flying off the shelves. Not so! The company is selling only a handful of them — $62.39 worth, on average, a day. Hall, on his company blog, points out that Trism, another game, sold fewer than 500 copies to bring in just $1,046. An Apple iPhone developer with a top-ranked game, in comparison, could easily make about $3,500 a day.

So let’s imagine for a moment that we’re a typical Android developer in terms of earnings, even though I think it’s more likely we’re on the high end of the curve. Assuming we are the average though, there would need to be over 2,500 other Android developers to get to $5M total sales. The last estimates I heard put the number of applications at around 12,000, so there’s probably around 4,000 developers total. That means over half of the developers need to be earning what we do to reach $5M a month. However, we know from experience that below position 25 on the top selling games the earnings drop off to almost zero so it’s very unlikely that anyone below that position is earning much money at all.

If Hall is raising reasonable doubts about AdMob’s numbers on behalf of Android developers, David Barnard of App Cubby is working hard on behalf of iPhone developers to clear the air.

In the back-of-the-envelope calculations Barnard shared with me, he noted Apple’s claim that the App Store had 1.5 billion downloads in its first year. Multiply that 1.5 billion by the $2.50 average price for an app and you get a total of about $3.75 billion. However, Barnard points out that if you used AdMob’s metrics that users download free apps at a ratio of at least 5:1, the “actual sales are somewhere in the neighborhood of $150-$300 million.”

He also points out that while the overall ecosystem continues to grow, the price of apps themselves is falling rapidly. When Apple’s App Store launched, the average price of an app was around $5.50, but has since declined to $2.50. “At an average price of $2.50 per app, my estimate of $250-$500 million is looking even more dead on,” said Barnard.

According to him, it takes about 400 sales per day to break into the top 100, and about 10,000 sales per day to hit the very top of the charts. Assume the average sales in the top 100 to be about 1,000 a day. If the average price of an app in the top 100 is $3.18, that’s about $116 million per year for the top 100 apps. “Most apps sell in the single digits per day, and quite a few don’t sell at all,” Barnard says. “There is a long tail, but it’s a very skinny one. I wouldn’t be surprised at all to learn that the top 100 grosses as much as all other apps combined.” As Barnard told The Cult of Mac blog: AdMob had responded to these charges by app developers last week by saying:

“Perhaps the average $ per month or the % of people who purchase paid apps is higher than actual figures, but those are the results we obtained from our user survey and we thought that others might find the monthly estimate useful.”

In the words, they waffled a little from their original stance.

At this point, I’m open to hearing from anyone who can share information that will essentially help me (and the readers at large) figure out the real size of the application marketplace.

This article also appeared on BusinessWeek.com.

  1. I recently posted this perspective on Todd’s blog

    Very informative post. Thanks to Todd for sharing. When speculating whether this situation will get better for developers over the medium to long term, I think the relevant data point is the difference in commercial motivation between Google and Apple.

    Apple is in the iPhone and AppStore business to make money on every transaction. In order to maximize their success wrt this goal they understand that they have to extend this profit capability to their ecosystem partners. Because the profit motive aligns Apple and its partners, the system works.

    Google is in the search business. They play in other areas but only make significant money on search. This is unlikely to change anytime soon. Google execs have publicly stated that the Android project (I can’t call it a business) is all about creating “locked in” Google search sockets on more internet enabled devices. They do not have to make a dime on the phone, the OS, or the app store to get a respectable return on their investment. All they need is more queries. It’s no surprise that free apps are favored by Google. Hello. They made the OS free. It’s all about maximizing the number of devices that are feeding their advertising machine. Free apps are an excellent facilitator of that objective.

    Moat developers want to make money on their apps. They do not exist simply to enable Google to grow query volume. As long as this fundamental misalignment exists, the probability that things will get better in the medium or long term is very slim. One needs to get past the hype and realistically assess the commercial potential of each new app store that apprears. I recommend alignment of strategic business goals as one of the primary considerations for developers that want to make money. For enthusiasts that develop apps as a hobby perhaps other criteria are more relevant.

    News flash, it’s unlikely to improve significantly.

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  2. “At this point, I’m open to hearing from anyone who can share information that will essentially help me (and the readers at large) figure out the real size of the application marketplace.”

    Anyone? Anyone? Bueller? Does anyone know what Vice President Bush called this in 1980? Anyone? Something-d-o-o economics. “Voodoo” economics. OK, Can anybody help Om to discredit the App Store? Bueller? Bueller?.

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  3. Short time ago i found interesting blog: http://unmaskedandroid.blogspot.com

    In it author calculate android market money share… it does not reach $5M after year of existence. Only 26 applications and there developers potentially got sufficient money to cover budget of development.

    Google sux in marketing. They need better marketing strategy for Android.

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  4. Om,

    The best way to do this is to learn for yourself. Build a mobile app called Om for the iPhone. Sell it for .99 cents and track all the details from beginning to end. You will see in short order that mobile marketplaces are NOT the place to build sustainable revenue models. All they are is distribution points – you could just as easily leverage the Internet (although not in Apple’s case.) There are way too many mobile app stores, and it’s way to confusing for the consumer.

    The numbers I read everyday are over inflated by an order of magnitude because they are written about by people who have zero understanding of what it actually takes to ship an application that provides “meaningful value”.

    IMO the money to be made in mobile by the developers is in the Enterprise. Mobile SaaS is the future so you can leverage one set of business logic for all web based applications and access is via the browser which is both OS and device agnostic.

    Cheers,

    Peter
    5o9 Inc.

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    1. quentin hobbs Monday, June 21, 2010

      Hey pete do you kno any app developers?

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  5. Given the issues distributing and monetizing apps, does anyone find the tools/support given by carriers very helpful? E.g. AT&T’s devCentral?

    Does anyone have an opinion on the pros and cons of devCentral?

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  6. Om,
    How many Android phones have been sold? (or are active)? compared to the millions of iphone/ipod touches. Is this a scale issue that will be corrected as more android phones are launched by more carriers?

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