Apps: Dream on

A long, long time ago, way before the Kardashians got involved, publishing an app was viewed as the first step to happily ever after — or at least early retirement. The app store was a beacon of hope for small developers, as many believed that publishing and selling an app could generate millions. But we have some bad news:

The dream of the independent developer building a business in the app store is over.

Please don’t kill the messengers.

The Google Play and iTunes app stores raked in a combined $23 billion in revenues in 2014 — $8 billion through Google Play, the remaining $15 billion through Apple. Looking at these numbers, it’s understandable to get excited about the opportunity to strike gold in the app business.

But take a look at the picture below. Just a small portion of players are taking a large chunk of the revenue: 64% and 48% of revenue was earned by the top 20 publishers in Google Play and Apple stores respectively. This leaves the 300,000+ developers (on each platform) with a much smaller chunk of the pie. In short, top publishers are making millions of dollars, and everybody else is left to fight over the crumbs.

User behavior indicates that this scenario will not get any easier for independent developers. Mobile users have been downloading and using roughly the same number of apps, all while the number of apps available continues to grow. From 2012 to 2014, US Mobile users downloaded 9 new apps per month and used 27. Even more disheartening for our indie developer friends is that 79% of users’ time is spent in 5 apps. (And if the average user is anything like this directionally-challenged New Yorker, 99% of that 79% is spent in Google Maps).

The fact that the number of active apps continues to grow while the number of those downloaded and used per month is relatively unchanged means that it is increasingly more difficult for an app to gain traction. It makes sense then that the cost per install (directly attributed to advertising) is also on the rise — as we can see in the chart below, it grew from $0.81 in March 2013 to $1.53 in March 2015 in the US iTunes App Store.

Freemium isn’t free.

Additionally, freemium is the prevailing business model among the top grossing apps. This presents an additional hurdle for independent publishers, as they might not have the luxury of spending money out of pocket to both develop and market an app that will be downloaded for free. And while revenues are earned via in-app purchases (both transactional and subscription), it can be difficult for smaller publishers to reach the scale necessary to break even, let alone build a sustainable business.

So what does this mean? It means that there is money in the app store — a lot of it — and that it will continue to grow. The components may shift around — for example, with the influx of OTT offerings, Entertainment may take over from gaming as the largest section by revenue — but developers and publishers will still be able to cash in. However, it is the larger publishers that will continue to earn the lion’s share.

While it is now increasingly difficult for the small publishers to establish themselves in the myriad of offerings, it doesn’t mean it can’t be done or that there isn’t money to earn. The dream of the independent developer building a business in the app store may be over, but it doesn’t mean one should quit dreaming — just dream realistically. And perhaps keep the day job.