Making money with apps is tough

A excerpt from the “Definitive App Economics Blog” by Tomi Ahonen

This is a recap of a very interesting (and very long) post I found in the Definitive App Economics Blog. We all know the app business is difficult, but the numbers are really dramatic.

The main fact: 96% of the developers lose money. Let’s start with the overall numbers:

SMARTPHONE APP REVENUE RATIOS 2013
Developer revenue . . 15.8 billion dollars [TomiAhonen Consulting]
Total apps . . . . . . . . . 3 million [TomiAhonen Consulting]
Total downloads . . . . 102 billion [Gartner]
Total smartphones . . .1.4 billion at mid-year [TomiAhonen Consulting]
Total developers . . . . 2.1 million [Vision Mobile]
Dev rev per app . . . . . 5,250 dollars
Dev rev per live app . . 17,500 dollars
Dev rev per downl . . . 15 cents
Dev rev per smartph . . 11.25 dollars
Dev rev per dev . . . . . . 7,500 dollars

If we divide total developer revenues by total downloads, the avg download is worth 15 cents. So the first conclusion is: if you promote your app with paid traffic, and you spend more than 15 cents cost per installation, you may have a problem.

But if we see how to money is distributed, things are much worse (see the original post for the full tables, I’m going to shorten them a little):

THE RICH IN APPS ECONOMY 2013
Total revenues . . . . . . 21.0 billion dollars
Top 1.3% developers . . 27,300 developers
Top 1.3 earn . . . . . . . . . 11.8 billion dollars
Top 1.3 earn . . . . . . . . . 75% of developer revenues
Average per dev . . . . . . 432,700 dollars
Left for rest of devs . . . . 3.9 billion dollars (19%)

MIDDLE CLASS IN APPS ECONOMY 2013
Revenues left . . . . . . . . 3.9 billion dollars
Next 2.5% developers . 52,500 developers
Average per dev . . . . . . 40,500 dollars

LABORERS IN APPS ECONOMY 2013
Revenues left . . . . . . . . 1.8 billion dollars
Next 7% developers . . . 147,500 developers
Average per dev . . . . . . 9,400 dollars

SLAVES IN APPS ECONOMY 2013
Revenues left . . . . . . . . 400 million dollars
Next 48% developers . . 1,029,000 developers
Average per dev . . . . . . 421 dollars

HUDDLED MASSES IN APPS ECONOMY 2013
Revenues left . . . . . . . . . . 0 million dollars
Bottom 39% developers . . 819,000 developers
Average per dev . . . . . . . . 0 dollars

So the rich class is the 1%. They earn on average about half a million dollars from their app. There are about 27,000 app developers in that group [...] Another coupla percent are able to survive on apps but aren’t visiting the car dealership. The vast majority, almost ‘the 99 percent’ or in reality 96% of developers do not recover the development costs of their app. The median revenue earned by developers is only 400 dollars per year.

So 27k developers make real money (but remember this in average, there will be a few getting most of the money). Then we have 50k developers doing some money. The rest is losing money.

But it doesn’t end here. When you split Gaming and Non Gaming apps, the result is a total disaster:

CARNAGE TABLE: SMARTPHONE CONSUMER APPS BY TYPE 2013
Item . . . . . . . . . . . . . . . . Non-gaming apps . . . . . . . Gaming apps
Developer revenue . . . . 900 million dollars . . . . . . 8.2 billion dollars

Live apps smartphones . 404,000 . . . . . . . . . . . . . . . 135,000
Smartph app downl . . . . 34.5 billion . . . . . . . . . . . . 26.5 billion
Downloads per live app . 51,900 . . . . . . . . . . . . . . . 119,800
Downloads per smartph . 16.2 . . . . . . . . . . . . . . . . . 12.4
Revenue per live app . . . 2,300 dollars . . . . . . . . . . 60,900
Revenue per download . . 3 cents . . . . . . . . . . . . . . . 31 cents

So gaming is an interesting category, with 31 cents of avg revenue per download. But the others apps have an average of 3 cents per download. This is very low!

You can see the dramatic difference. Gaming is quite a healthy app category, with plenty of profit potential. In fact the 10 biggest revenue-earning apps in 2013 were all games said App Annie. Most of the millionaires in apps are from gaming. But look at the opposite end on that table, the despair if you don’t do games or enterprise apps. Then its hopeless. 75% of apps are in this category of misery.

It’s interesting to see the split of the revenue by channel, where in-app (as expected) is the winner:

REVENUE SPLIT BY TYPE IN APPS ECONOMY 2013
Total revenues . . . . . . 21.0 billion dollars [Strategy Analytics]
App store income . . . . 17.5 billion dollars
Commission 30% . . . . . 5.3 billion dollars paid to Apple, Google etc
Paid out to developers . 12.3 billion dollars
In-app purchases . . . . . . 9.8 bln dollars (62% of dev. revenue) [Distimo]
App purchase fees . . . . . 2.5 bln dollars (16% of dev. revenue) [Distimo]
In-app Advertising . . . . 3.5 bln dollars (22% of dev. revenue) [Juniper]

The conclusion of the post is very simple: there are far easier ways to make money in mobile than apps. The author suggest SMS, MMS, HTML, Java in emerging markets (but from the numbers I would say that gaming apps still seem to be an interesting business). Anyway I just wanted to present the numbers here, how to make money is open to discussion.

Apart from the money, the post also has some interesting data regarding usage, which I’m going to attach below.

SMARTPHONE USER APP STATS 2013
Total downloads . . . . 102 billion [Gartner]
Total smartphones . . .1.4 billion at mid-year [TomiAhonen Consulting]
Downl/smartphone . . 73
Free as % of downl….. 80% [Statista]
Deleted after 1 use . . . 85% [Compuware]
Apps left to be used . . 11
Pre-installed apps . . . . 20
Of those in use . . . . . . 10
Total apps used . . . . . . 21
Apps uses daily . . . . . . 10 [Flurry]
Daily uses per app used 0.5
Monthly use ave app . . 14 times

So a lot of apps (85%) are dropped immediately after one use. The remaining apps are used 14 times per month (0.5 times per day). You should consider this when you analyse the data of your apps.

The original post has also several interesting comments. If you have time, I suggest you to read everything. This is the link