The monetisation fetish

App stores, so it is assumed, will allow developers to forge a direct link to consumers, which causes consumers to directly pay developers for their hard work. Thus they’re secretly seen as a shortcut for the hard work of a start-up, that (ideally) also forges such links.

This monetisation argument is the fetish of the current age. Unfortunately it is utter and complete rubbish. The fundamental problem, as I calculated months ago, is that there’s just not enough money in the app store economy to support a meaningful number of independent developers.

Not enough money

The real question is not how developers will receive their payments, but whether consumers are willing to pay. The answer seems to be “not enough.”

Back in June Tomi Ahonen calculated that the average iPhone user spends about $16 on apps. That’s $16 over the lifetime of his phone, and not per year. This generated 1.43 billion in total since the app store’s release, which means about 6,500 per app — in total, not per year. That’s way too little to maintain a development ecosystem.

Uncharacteristically, Tomi may have made a few mistakes in this calculation. It’s unclear whether the 1.43 billion includes Apple’s 30% cut of the pie. On the other hand, back in February Distimo found that only 25% of the apps in the Apple app store were paid.

So we divide 70% of 1.43 billion = 1 billion by 25% of 225,000 apps = 55,000 or so. (These are June figures.) That yields 18,000 dollars per paid app — in total, not per year. Significantly more than Tomi’s 6,500, but still too little to support a development ecosystem.

148apps reports that there currently are about 67,000 publishers for Apple’s app store. If we divide the 1 billion among them, they’d each get about 15,000 over the past two years. That comes close to the 18,000 we found earlier.

But still it’s not enough money, especially not when some apps are created by development shops with more than one developer but only one publisher’s account.

The birds are angry

The most interesting data comes from Rovio, the makers of Angry Birds. Angry Bird has been downloaded 30 million times, of which 12 million on iOS and only 7 million on Android. Despite the lower number of downloads, Android is more important to Rovio’s bottom line than iOS:

The iOS version of Angry Birds was launched as a paid application with a wallet-friendly price of 99 cents. The Android version was launched with an ad-based model. The application is available for free, but generates revenue from in-application advertisements.

Though both models generate revenue, the ad-based model is preferable to the paid app model, according to Rovio. One deciding factor is updates which are necessary to keep fans interested in the game. With iOS, updates are available for free to those who already purchased this app. All revenue for Rovio is generated on this first purchase only. With Android, revenue is generated throughout the life of the game — from the original version and through all future updates advertising is present.

In other words, the paid version is too cheap. Angry Birds sales cannot maintain Rovio as a company even though the app is a runaway success in the largest, most active app store in the world that targets the user group that is most likely to spend money on apps.

The Android Market seems to suffer from a similar problem. Recently Google announced that the refund period, which used to be 24 hours, will be restricted to 15 minutes. Apparently too many people request a refund, maybe developers complained about it, and Google vainly tries to stem the tide.

The money just isn’t there.

App store economics

As far as I can see apps for app stores, whether native or HTML5, obey the same economic laws as websites. Fred Wilson nails it:

I think it means the mobile is slowly but surely moving to a web model. And as that happens, it is important to think of it as one big web and lots of devices and software accessing it. Lots of devices means billions of devices accessing largely free content and applications with advertising and freemium and commerce and virtual goods and many other business models generating trillions of dollars for developers. Just like the web, but even bigger and more exciting.

In other words, you create an app for an app store because:

  1. you get paid by a client
  2. you hope to make money through ads
  3. you need one as part of your start-up strategy
  4. you want to create an app; for testing purposes or for sheer geekiness

And that’s it, really. The same reasons that we create websites for. Move along now, nothing to see here.

This is the blog of Peter-Paul Koch, mobile platform strategist, consultant, and trainer. You can also follow him on Twitter.
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