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Matos Kapetanakis |
Global smartphone penetration has accelerated in the past three years from a paltry 11 percent in 2008 to a healthy 23 percent in the first quarter of 2011. The app economy is fast approaching the one million apps mark, with Apple and Google firmly lodged at the top of the app pyramid, but what does that mean for developers? Is everyone becoming rich all of a sudden?
Developers as the engine for innovation
The role of developers has changed dramatically over the past two years, from back-room engineers to the much sought-after engine that drives mobile software innovation. Everyone in the industry--from handset OEMs to platform vendors to telcos--considers developers to be the key to driving innovation around their core business. It's a pretty good time to be a developer, but there are challenges.
App stores are a one-way street
App stores have become the de facto app delivery channel, by reducing time-to-shelf and time-to-payment and by providing developers with unprecedented reach to consumers.
According to VisionMobile's newly-published Developer Economics 2011 report, which surveyed 900-plus developers, the use of app stores as the primary market delivery channel has skyrocketed. Our research indicates that 45 percent of developers (normalized respondents) use an app store as their primary channel, representing a 30 percent year-on-year increase.
At the same time, the use of other app distribution channels (including websites, telco portals and third-party aggregators) has greatly decreased. The use of some of these traditional channels declined as much as 40 percent over the past year.
There are currently more than 70 app stores out there, but only a handful have managed to actually make a difference: the Apple App Store and Android Market are in a league of their own, followed by BlackBerry App World, GetJar, Ovi and Windows Marketplace. The Apple App Store currently sells more than 500,000 apps, while Android Market has broken the 200,000 barrier. We estimate that the rest of these app stores altogether have around 150,000 apps.
App Store bottleneck
Having 500,000 apps in an app store may be good for the industry but how do developers get their apps noticed amidst all the clutter? The experience is not unlike entering a record store that holds hundreds of thousands of records. A consumer is likely to notice only the top 20 records. Discoverability is actually one of the biggest issues facing developers today.
To make matters worse, there are just too many app stores out there. Consider, for example, independent app stores that distribute apps for Android. GetJar, Amazon, Andspot, AndAppStore and SlideMe, are all vying for the attention of Android users. Add the tens of handset manufacturer and telco app stores to the mix, and the situation becomes even more chaotic.
Delivering apps across multiple app stores is no picnic either. Each app store has its own submission process and paperwork requirements; some have complex or lengthy certification and approval processes. Every app store offers a different mix of revenue models and payment terms. This suggests that the marginal cost of distributing an app through one more app store is significant, contrary to popular perception.
Show me the money
Despite the media buzz around app stores and the developer gold rush, not everyone is making money. Monetization remains a thorny issue for a number of developers. In VisionMobile's research, we found that nearly one in three developers (normalized respondents) made less than $1,000 per application in total, which means they're actually losing money, considering that an application can take months to develop. There are also other associated costs, such as tools and specific equipment. For example, you normally need an expensive computer for developing even the simplest iPhone apps.
Moreover, our research revealed a large difference in revenue potential across platforms. We compared per-application revenues reported by developers for different platforms and found that Symbian scored the lowest, while Apple's iOS topped the chart, making 3.3 times more money per app than Symbian developers followed by Java ME (2.7 times) and BlackBerry (2.4 times).
It should come as no surprise that applications developed on Java make more money than Symbian, given that Java is still the primary platform for developing games for feature phones. Feature phone apps often have higher price points than smartphone apps, so platform selection becomes an important consideration in terms of revenue potential.
At the same time, a platform's revenue per app is just one side of the coin; the other thing to consider is cost. For example, platform fragmentation is most pronounced in the case of Java ME and BlackBerry, significantly increasing the cost of developing apps for these platforms.
New opportunities
Being a successful mobile developer takes time and dedication. Despite the monetization challenges, however, the app economy presents many opportunities for developers.
VisionMobile believe that where there is a company website or a corporate intranet today, there will be a mobile app tomorrow. Thousands of global brands and local businesses are extending their websites and digital strategies into mobile apps, resulting in two phenomena. First, the rates for iPhone and Android developers--from college graduates to seasoned pros--have shot up in the last year. Secondly, as media publishers and other verticals become more mature in their mobile strategies, they are building in-house app development teams, which means more well-paid app developer jobs.
As developers become more business-savvy, they will start capturing opportunities presented at a regional level by implementing ideas that arise from the needs of local economies. Moreover, as developers connect with entrepreneurs, apps will not be monetized through app stores, but instead based on solving real-world needs supported by actual business cases.
Matos Kapetanakis is the marketing manager at VisionMobile, a leading market analysis and strategy firm for all things connected. Kapetanakis is also involved in market intelligence and leads some of the company's research projects. To download the Developer Economics report, visit www.DeveloperEconomics.com