Can developers make money in Android Market?

Jason Ankenyeditor's corner

Google's (NASDAQ:GOOG) Android mobile operating system powers 52.5 percent of all smartphones sold worldwide during the third quarter of 2011, more than doubling its global market share over a year ago, according to data issued last week by research firm Gartner. Sales of Android smartphones topped 60 million during the last quarter, more than tripling sales of Symbian-based products at 19.5 million (translating to a market share of 16.9 percent, down from 36.3 percent a year ago). Apple's (NASDAQ:AAPL) iPhone follows with sales of 17.3 million, up from 13.5 million a year ago; its global market share nevertheless dipped to 15.0 percent from 16.6 percent in the third quarter of 2010.

Despite Android's extraordinary worldwide growth, device sales have never corresponded with significant consumer interest in Android Market's application catalog--at least not in comparison with customer fervor for Apple's App Store inventory. But new Piper Jaffray data suggests the disparity between the two storefronts is even wider than most of us realized. In a note to investors, Piper Jaffray analyst Gene Munster estimates that Android Market has generated just 7 percent of the revenues the App Store has raked in since its inception. Based on numbers publicly disclosed by Apple as well as data from Android application discovery tool AndroLib, Munster believes Android developers have been paid a combined $239 million to date, compared to the $3.46 billion paid out to iOS developers.

"In other words, it appears that Apple has roughly 85-90% market share in dollars spent on mobile applications," Munster writes. "While Google has closed the gap in terms of app dollars spent over the last year and we continue to believe Android will grow smartphone share faster than Apple, we believe Apple is likely to maintain 70%+ share of mobile app dollars spent over the next 3-4 years."

That isn't promising news for developers looking to tackle the Android opportunity, and calls into question whether Android Market will ever become a reliable moneymaker. Although the emergence of the freemium model continues to transform app store economics across all platforms, it's clear developers believe Android Market is no place for conventional paid apps: Munster calculates that just 1.3 percent of Market apps carry a price tag, compared to 13.5 percent in the App Store. "With 6.75 billion total [Android Market] app downloads to date, we believe roughly 90 million of those were paid apps," he writes. "As a comparison, we estimate that Apple has generated $4.9 billion in gross sales since inception through the September quarter and that 14% of total app downloads on the App Store have been paid apps."

Developers can build thriving businesses based on in-app purchases and advertising profits, of course, but there's a troubling absence of consumer enthusiasm for all types of Android apps, regardless of revenue model, which goes far in explaining the lack of developer excitement around the platform as well. Munster notes that the average Android device user has downloaded about half as many apps (34) as the average iOS owner (71). And although the U.S. market leads the globe in total Android app downloads with about 3.5 billion installs, Americans appear relatively indifferent towards building a well-stocked app library--Western European consumers far exceed their U.S. counterparts on a downloads-per-user basis according to new data issued by Research2Guidance.

Android device users in Sweden download more than 5.0 applications per month, more than any other nation, Research2Guidance reports--by comparison, Android owners in the U.S. install fewer than 2.5 apps every 30 days. Eight other international markets also lead the U.S. in monthly Android app downloads, including the Netherlands, Germany, Switzerland, Spain, South Korea, Portugal, the U.K. and Italy. Research2Guidance adds that the average user in major Android markets installs two or three apps each month; consumers in Russia, Japan and China rank among the most passive app downloaders. Those are numbers that make it extremely difficult to run a flourishing business on Android--and explain why so many developers aren't even trying to do so. -Jason