Why Android Developers Need a Business Model

(cross-posted from the CommonsBlog)

Android developers are quick to jump on the Android Market’s failings, from an insufficient range of countries supporting paid apps to the weak communication and promotion options within the Market itself. Inevitably, somebody points to the iPhone App Store as being the apex of financial success for developers. After all, there’s that $1 billion check they “wrote” to app developers, right?

Unfortunately, the numbers tell a different story.

According to Tomi Ahonen’s meta-analysis of published iPhone sales statistics, the mean revenue per year for an paid iPhone app is $3,050, and the median revenue per year is $682. Here, “median” means that half of all paid iPhone apps will earn less than $682 per year. The difference illustrates the “long tail” model that most content markets exhibit, where a bunch of “hits” raise the mean.

I encourage you to read the entire post, so you can find the sources of the data. Unfortunately, the second half of the post devolves into chest-thumping for WAP (ignoring that many Android and iPhone apps simply can’t be done on WAP) and otherwise coming across like a 12-year-old (e.g., calling Hilton and Walgreens “idiots” for daring to write an iPhone app).

We do not have as good of figures for the Android Market to work from, AFAIK. We do know that there are far more free apps on Android than on iPhone, and there are fewer Android devices (particularly when you factor in the limited roster of paid-app countries). I do not get any sense that Android per-app prices are significantly higher than those for iPhone apps. Hence, the Android Market is probably generating lower results. Larva Labs thinks the Android Market is generating perhaps 2% of the revenue to developers of the App Store, and while I think that is a bit low, I’m sure the numbers are not pretty.

Even if tomorrow Google would be able to turn on support for all countries (paid apps in Vanuatu, anyone?), the best-case scenario in the near term would be for the Android Market to match the results of the iPhone App Store, which isn’t exactly a money machine for most people, based on the above-cited figures.

What does this mean?

It means that if you are trying to make money on mobile, you #$#@(#) better have a business model more sophisticated than “gee, I’ll upload an app to the App Store/Market, and the cash will come rolling in”.

Of course, you have some options, such as:

  • You can have many apps, hoping that some will significantly exceed the median, to make up for the others that don’t. For example, this gentleman is pulling in six figures across double-digit Android apps.
  • You can out-hustle the competition through marketing, which, sadly, many developers seem to ignore.
  • You can focus less on making money off of individual app sales to individual users, focusing instead on other business models, like the 49 I wrote up previously. Swype, for example, has struck enough OEM deals to get on a projected 50 handsets by the end of the year. I’ll be rather surprised if they did that for free.
  • You can write Android apps for reasons other than pulling in money, such as for public service or just to scratch an itch.
  • You can switch horses to try to find another land rush, like the early months of the iPhone App Store where just about everything made serious money. A land rush occurs maybe once a decade. So, for example, while there should be more opportunities for apps on Meego now that Nokia will be using it for more devices, the conditions are not there for a land rush result, barring some incredible sales figures for these new Nokia phones. The iPhone land rush came about because ~10 million phones were out there before you could sell apps, conditions that are unlikely to be repeated any time soon.
  • You can just upload and pray your app becomes a hit, which seems to be the default approach developers take.

What is unlikely to help you much is spending lots of time fretting about the Market limitations — it’s not like iPhone apps are pulling down big bucks on average, either. You need reasons to publish the apps that do not count upon any given app making tons of revenue.

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  • ari-free

    "The iPhone land rush came about because ~10 million phones were out there before you could sell apps, conditions that are unlikely to be repeated any time soon."

    So that's what happened. So many empty phones meant a lot of money for those who got there first. Everyone then jumps into the game only to get lost in the market.

    • Mark Murphy

      Bingo. Those who got in early made a lot of money due to pent-up demand. Some presumably turned that into brand awareness that has helped over time. However, newcomers are caught up in the 200,000-entry App Store catalog just like newcomers to Android are caught up in the 70,000-entry Android Market catalog. You have to treat those as mostly distribution points, with other marketing to drive people to purchase the app.

  • Great article and spot on.

    In my Windows Mobile days, there was no central store and marketing was up to me. I did a rather poor job of it, but still got an OEM deal that brought in some revenue later. True story: I was number one in my category in Handango and sold six (6) that week.

    While I'm working on an Android app, I've been taking classes in Internet Marketing. There is much more to be done to market an app.

    The land rush stories are exactly why your friends think all IPhone developers are filthy rich. There could be a land rush on Windows Phone 7 but I expect it will be small.

    Sure, the Android Market has its shortcomings. And yes, Google would rather have you do a bunch of free apps in hopes of ad revenue (for them). But who says what Google wants should dictate what your business does?

  • I wonder what the Android paid apps landscape looks like now from a developer's viewpoint.

    A year ago when ActionComplete went free the situation was abysmal. Now with Verizon and Sprint rocking nifty phones and customers with a regular consumer mentality it's got to be much better. Anyone has a success story to tell?

    Borys Burnayev
    GTD for Android and Web

  • I recently got my feet wet in the Android Market with publication of DroidLaw. As a law student and previous iPhone owner, I found that the abundance of legal reference apps was a valuable resource to have. When I made the switch to Android last year there was only one (1) legal reference application. That essentially generated the motivation to incorporate my small business and have a go at the mobile app market. Well, about ten months later, I've realized how incredibly time consuming and complicated it can be. The entire experience of starting up, planning and executing a plan to design, develop and publish DroidLaw was great. Even though I had no idea and never anticipating how much work can go into creating a single app, it was enlightening. While Android has reduced the barrier-to-entry and make it so incredibly easy to publish an app, there are many decisions one must make along the road that, in my mind, will determine the success or failure. Do you find that small void or niche area in the market and just quickly get something out there? Do you risk lossing that first to the market position by actually taking the time to design and publish a quality product? There are many ways to go about it. I for one have no idea what the right way might be, but I'll tell you one thing… It was fun as hell. For the two weeks of being live on the market, DroidLaw's daily installs have surpassed the day before. With a limited budget for marketing, I just focused on a releasing something with half-decent quality and plan to have a consistent flow of additions to the available add-ons. The learning experience has been great and if nothing else I now can look forward to seeing those first years walk in the door knowing that one of them probably has a Droid and eventually become wed to my little creation. 🙂

  • academic

    What about Ads?

    • Mark Murphy

      I haven't seen any figures, for iPhone or Android, about how much an ad-sponsored app tends to earn. Since I haven't tried using an ad network yet, I don't even really know the payout rates. Sorry!

  • yup they need ads and some suport..

  • Alex B

    that Meego didn’t work out so well….

  • Rhiannon

    What if you are developing a free app, and
    not using an ad network, but instead hope to gain revenue from paid
    advertising, eg by restaurants whose details are featured, the payments being
    made directly to myself. Does any of this revenue, or any revenue at all, have
    to be paid to Google ?

    Thanks very much

  • Nixit Patel

    what could be the other option to generate revenue…if the application is free and we don’t want to use ads