There is a huge buzz around mobile applications and app stores such as the AppStore and the Android Market which look more and more as a new Eldorado. Of course everybody starts dreaming when an app like Angry Birds shares that 6.5 million units have been sold generating $4.5 million for the developers after Apple’s cut. But how many Angry Birds are there?
There isn’t that much data available to really understand what average developers are making. Here are some appstore revenue stats I just stumbled upon:
Apple may have managed 5 billion application downloads and $1.5 billion in App Store revenue (through the end of June 2010), spread over some 200,000 applications—bigger numbers than anyone else can offer—but those aren’t really the important numbers.
More relevant to the indie dev wanting to make a quick buck is the stat that 50 percent of paid applications receive fewer than 1,000 downloads, at an average sales price of somewhere between $1.99 and $3.83 (depending on who’s doing the estimating). After Apple’s 30 percent cut, there’s not a whole lot left, maybe around $2,500.
$2,500 is certainly better than a slap in the face, but it’s not going to sustain a business. The problem for developers is that a few paid applications do extremely well, and the rest don’t. The top 10 percent of paid applications get about 75,000 downloads. The next 10 percent, just over 9,000. A handful of developers are doing good business on the App Store
$2,500 average per paid app isn’t enough to cover the costs of an app, especially those that require constant updates to stay ahead of the competition. Remove the Angry Birds best revenue apps from that average and I am sure the average revenue of the average paid apps will be around $500 or so.
I have discussed with many developer friends (but won’t disclose them) who told me they are actually considering dropping their paid app to focus on free since their revenues are so low and downloads numbers are too low.
Let’s have a look at mobile advertising numbers. The WSJ today shares some estimates from PricewaterhouseCoopers. We’re talking barely north of $500 million in 2010, that’s not much either across 200,000 plus applications.
The same WSJ story explains how brands seem to be struggling to meet Apple’s high quality standards in iAd as they’re not really used to be told how to design ads. Can’t really quote them either, but I know many brand managers who admit they’re basically still experimenting with the whole mobile advertising formats as much as they are experimenting with Facebook ads which, alone, has probably more advertising revenues than the whole mobile market.
I hear developers who breakeven with advertising the cost of building their apps, making 10 to 30 cents per user per month in average after optimizing the networks and finding an algorithm that displays the ads that are the most likely to generate revenue. If you have a $5k per month mobile developer dedicated to the app (it’s often much more than that, north of $10k a month in San Francisco for most iPhone developers due to scarcity) you need 50,000 users on the application to breakeven. Careful about those too, we are talking about 50,000 active users not downloads, not installs.
Stats? The AppStore gives you the number of downloads and the Android Market the number of active installs (the users who kept your app on their phones). Both don’t mean those users actually use your application and will therefore see and interact with the ads. Add to this that no developer can add too many ads risking to lose their users by cluttering the experience and the fact that some networks including the largest ones keep displaying ads which aren’t very cool in your apps such as losing weight ads, gambling if not worse…
How many downloads do free apps get in average? I have looked for the same numbers as I mentioned above for the paid apps but could not find any (thanks for any pointer). I would doubt that many apps pass the 100k downloads mark. The real question is how many active users do you get from that number of downloads and that must vary tremendously from one app to another. If you asked me to guess I would easily say you should divide by a factor of 10 to 100 (I know it’s wide!) the number of downloads to get the real active users of an app. It’s from that number that you should calculate the advertising revenues you’re hoping to get by multiplying it by $.1 to $.3 per user per month (based on some developers I talked to, not representative of all types of apps of course).
The net is that behind the buzz, it’s really difficult to get traction in crowded appstores with high download numbers, generate revenue from paid apps and the advertising revenues are still in their infancy.
Mobiles are becoming very fast our main screen though and might well prove Steve Jobs right when he said at the D conference this year “PCs (including Macs) will soon look like trucks” and the above growth chart of the mobile advertising market shows how excited we should still remain about the online mobile revenues.
If you are a developer or dreaming about making millions building apps the future is very exciting but the real revenue that can be generated right now will likely be very disappointing. Few apps can really breakeven their development cost for the time being with very few big bucks winners. Please prove me wrong and share other good numbers and sources you would have.
Don’t get me wrong, I am very excited by this opportunity and Seesmic is investing significantly on its iPhone, Android, Blackberry and soon WP7 apps but sometimes I just feel like looking at the reality of what a developer can expect right now.
update: I also think iAds is a great initiative. High quality ads and formats adapted to iPhone apps is the way to go, I am betting the brands and agencies will learn, adapt and iAds will be a success. We will have iAds soon in Seesmic for iPhone