Tag: app business

Developer stories: Mobile Development Runs Deep

Post author By Jeff Hadfield
Post date February 4, 2016
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At VisionMobile, we believe in the people behind the numbers. While it’s important to understand numbers, trends and segments, it’s equally important to understand the people we’re trying to reach with our research. This developer profile is one in a series designed to help us get to know some of the people behind the statistics.

Developer Profile:
Levent Gurses

Company, job title and duties:
Movel: CEO, developer entrepreneur. Movel is an enterprise development company, and Levent says, “I code on a daily basis because other people are doing the less interesting stuff.”

Country/Area:
Virginia, US

Development Focus:
Movel focuses on mobile, but that’s too easy of an answer. They work on both native and cross-platform apps (iOS, Android, Windows Mobile, Phonegap, and more.) Levent emphasizes that mobile development doesn’t mean just the front-end app. The back end, he points out, is the biggest part of a mobile project, particularly one with multiple front ends. The back end includes key capabilities such as RESTful, secure APIs and identity and transaction management.

Levent explains that when building enterprise apps, most of a mobile app’s back end applies to a Web app/client’s back end as well. As he builds enterprise solutions, he’s able to build a “21st century back end.” Everything that applies to a mobile app backend applies to a Web app as well, bringing Web apps up to speed for 2016.

Languages used:
While some developers have a specific language they prefer, Levent and Movel use a mix of languages and clients. AngularJS, however, is a favorite. He’s also fond of Google’s Polymer framework and feels it’ll be a standard in 6-12 months … if Google doesn’t shut it down.

While there’s something to be said for using established frameworks and languages, when a new, promising technology comes along, he takes a pragmatic approach. If a new technology provides sufficient promise, he discusses the potential risks and rewards with the client, along with the backup plan. If the client agrees, they’ll try those less established technologies on a new product.

Favorite devices:
As with some people, Levent is frustrated with the Apple ecosystem, and frustrated by Apple. And like many of us, he says, “I can’t live without my IPhone 6 Plus.” But he uses a variety of devices for testing and exploring. He contrasts iOS devices to Android devices like this: “If I want to use a small computer, I’ll use Android. If I want to use a phone, I’ll use my iPhone.”

He also has an Internet of Things (IoT) shop with about 20 Raspberry PIs running office projects like presentations, dashboards, and temperature sensors. The Raspberry PI is his favorite of this genre for “general, light computing power.” In fact, he says, these eliminate the need for desktops in many applications with the open source Raspbian OS. Arduinos, by comparison, are more limited, but useful for training.

They don’t need any Windows computers, he says, since their MacBooks and Macs run Parallels.

Favorite project built recently:
His favorite recent project stands out to him not because of the technology used but because of the solution. Built for an educational nonprofit, the solution streamlines the application process for college. US high school students use the app to more easily apply to multiple colleges.

Favorite tools:
“Nothing can touch the power of the Chrome developer tools,” even simulating slow connections, network traffic and simulated security issues.

But Movel doesn’t lock its developers into a particular toolset. “That’s what’s beautiful about development nowadays … it’s all open unless it’s Adobe (PDF).” Some prefer no IDE at all, others love heavier IDEs. “Use whatever makes you more efficient.”

They do, however, enforce backend standards like Ansible and Docker.

Best developer-related advice ever heard
“Premature optimization is the root of all evil,” commonly attributed to Donald Knuth. He explains, we need to understand the art of creating the minimum viable product that addresses the business problem.

Best developer-related advice ever given
“Get involved in local meetups and hackathons.” He continues, “Here’s what happened to a lot of developers with the Internet. Everything became impersonal, even resumes. But it takes away the joy. Get out to talk with like-minded people to discuss tools and techniques. You’ll learn stuff you wouldn’t come across in your usual stream, be that Twitter, GitHub or other social media. Everyone you follow is likely like-minded. This takes away the coincidences – local encounters, conferences, meetups, hackathons – all give you a chance to get out of your comfort zone.”

This advice applies to not just new but to experienced developers. He counsels to not get too comfortable: instead, build a trusted network of real people you meet and spend time with. “We grow based on our environment and who we know. When we increase the caliber of people we know then we can grow in leaps and bounds.”

Tags app business, developer interview, mobile developer

Business Platforms

How to Make More Money with Enterprise Apps

Post author By Mark Wilcox
Post date March 12, 2015
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According to our latest developer research, 20% of mobile app developers primarily target enterprise apps. This decision produces a significant boost to their revenues, with 43% making more than $10K per month versus 19% of those who target consumers above the same revenue level. Similarly at the $100K+ per month revenue level we have 18% of developers who target enterprises versus just 7% of those who target consumers. Aside from selling to businesses, government or non-profit organisations rather than consumers, what are these developers doing differently?

Custom apps

Although it’s far from the only thing developers are building to sell to enterprises, 64% of enterprise app developers are making enterprise-specific apps. In some cases this will be apps that are common to a particular vertical that are either re-skinned or sold as part of a service offering. In other cases these will be entirely custom apps designed and built for one company. Automating or streamlining parts of business processes that naturally happen away from a desktop computer via mobile apps can enable significant efficiency savings that businesses are very willing to pay for. Allowing developers to do more of their work whilst mobile can also improve productivity and company efficiency. This type of development can also cover apps that are explicitly designed to help make more money, for example, sales aids, such as product visualisation or demonstration solutions.

The second most popular category for enterprise developers, at 52%, is business & productivity tools. This is likely to include typical cross-vertical apps for functions such as human resources, customer relationship management and accounting. Also, 20% are making more general utilities and 17% are developing communications and social networking apps for enterprises. In the latter case we see [tweetable]some of the innovation in the consumer apps space being brought to the business world[/tweetable].

Better revenue models

Enterprise app developers have a very different mix of revenue models to consumer app developers. By far the most popular revenue model, used by 49% of enterprise developers, is contract work. Part of this is the bespoke app development discussed above but even those selling products into enterprises will often have a significant customization component. In general, the larger the company, the more likely they are to have complex integration needs for a new software product. Subscriptions, in the form of Software-as-a-Service is the fastest growing segment of enterprise software spending and 27% of enterprise app developers are already using this model. Moving software to the cloud, where upgrades and maintenance are continuous and shared with other users, makes a lot of sense for most businesses. Once key software a business uses is in the cloud it’s often highly desirable to have it accessible from mobile devices too, giving SaaS providers with a strong mobile offering a major advantage.

It’s not so surprising that we have to wait for 3rd place in the revenue models list to find app store sales, with 21% of enterprise developers using it. Indeed, although Apple has special volume discount programs for businesses and schools, it’s slightly surprising that the percentage is still so high. For some SaaS offerings, the mobile client or extra utilities to interact with the service are paid extras. This will probably reduce as mobile support becomes the norm rather than a differentiator. App stores for businesses and education are probably still working as discovery mechanisms for some too. This is also likely to reduce, just as the consumer app stores became so full that it’s almost impossible for most apps to get noticed, so will enterprise app stores. Also higher than average in terms of preference for enterprise app developers are selling physical goods and royalties & licensing. Having an app as a component of a larger hardware product is increasingly popular. A tablet can be incorporated into all kinds of kiosk or point of sale systems. Developers can then capture some of the value of the software through higher margins on the hardware. Alternatively, high value software is often sold to enterprises on a per-seat or per-device licensing basis – mobile is no exception. For high value software where sales are typically made directly it’s entirely sensible that this is done as a licensing deal rather than sold through an app store with the store owner taking a cut.

More platforms, much more web

Enterprise app developers are more likely than average to support each of the major platforms. The majority of them support Android and iOS. Most also support at least one other platform too, with the mobile browser and Windows Phone being the top candidates for that. When we look at priorities though, the picture is slightly different. [tweetable]Enterprise developers are slightly more likely to prioritise iOS than average[/tweetable] (with 33% doing so versus 31% for all developers) and slightly less likely to prioritise Android (39% versus 42%). When we consider only full-time professional developers though, these differences are not significant. The major differences are further down the platform mindshare list, with enterprise app developers being significantly more likely to target and prioritise the mobile browser. Also, whilst they are slightly more likely than average to target Windows Phone, they are less likely to prioritise it. Overall the platform picture is one where more platforms must be supported to serve enterprise clients and there’s a heavier emphasis on the web.

Heavier tool users

In order to support more platforms, enterprise app developers turn to cross-platform tools much more frequently than their consumer app developing peers. 41% of them are using cross-platform tools to reduce the cost and complexity of supporting multiple platforms. However, it’s not just cross-platform tools that are more frequently used to create enterprise apps. Other important tools are push notifications (28%), crash reporting (28%) and mobile Backend-as-a-Service (18%). User analytics, at 46%, is still the most popular tool amongst enterprise app developers, as it is in the developer population as a whole, although used slightly less than average. Heavy use of user analytics and crash reporting tools suggests a greater emphasis on quality. Push notifications are key workflow and efficiency enablers, providing access to timely updates and the latest info available at a glance. Last, but not least, mobile Backend-as-a-Service lets developers rapidly build out cloud services to accompany their apps. The features of these BaaS solutions for enterprise apps are likely to become increasingly differentiated from those designed for consumer apps. Most legacy backend systems were designed before mobile access was even a consideration and they often aren’t very suitable for direct interfacing. We expect to see significant growth over the next 5 years or so for solutions that can simplify the integration of legacy systems whilst enabling rapid development of mobile apps. Where we’ve seen consolidation in the consumer tools sector giving rise to mega-SDKs for solving multiple needs, it’s not surprising that several enterprise focused tools vendors are already covering most of these developer needs in a unified package.

Enterprise developers clearly have slightly different tools and tactics from consumer app developers for good reasons. Consumer app developers looking to switch their primary audience in search of better revenues should re-evaluate what they build, how they build it and how they sell it.

Tags app business, app developers, app monetisation, app revenues, Business models, enterprise app

Tools

21 tools behind the success of King and Halfbrick Studios

Post author By Dimitris Michalakos
Post date February 25, 2015
No Comments on 21 tools behind the success of King and Halfbrick Studios

King and Halfbrick Studios are some of the most successful mobile game developers. Their best-selling games, i.e. Candy Crash Saga (King) and Fruit Ninja (Halfbrick), rate in the 100M – 500M download tier on Google Play and rank among the Top 100 on iTunes. Did you ever wonder which tools they use and how they compare? Do they use the same SDKs available to the rest of us mortal developers and what can we learn from their tooling choices?

We analysed 39 apps (iOS and Android) from King.com and Halfbrick Studios to determine which SDKs they are using and what tools makes them tick. We ‘ve broken down the results by tool sector for easier comparison. Note our analysis technology is still in beta, so let us know how we can improve it.

	Halfbrick Studios	King
Ad networks and exchanges	Google Ads Apple iAd InMobi Native Ads Platform Millennial Media MoPub Vungle	Google Ads Apple iAd
Game development	Apple GameKit Amazon Game Circle Google Play Games Services	Apple GameKit Google Play Games Services
MV* frameworks	Angular
Crash analytics and bug tracking	ACRA	ACRA Crittercism
User analytics	Google Analytics Kontagent
App monetization	Amazon In-App Purchasing Google Play In-app Billing Google Wallet	Amazon In-App Purchasing Google Play In-app Billing Google Wallet
Social Tools	Facebook Google+ Twitter4J	Facebook Google+ KakaoTalk

Let’s consider these tooling choices one sector at a time.

1. Ad networks and exchanges

Starting with Ad Networks, you can tell HalfBrick Studios employs a handful of tools, while King uses only the major networks of each platform, i.e. Google Ads (Android) and Apple iAd (iOS). This is indicative of the reliance of the two companies on ad revenues. King has long abandoned advertising as a revenue source with a clearer focus on in-app purchases.

Bear in mind it is quite common for app developers to use multiple ad networks. If demand is not met by the first network’s supply, you move to the next network and so forth until you find a medium to display. That is why Halfbrick Studios uses multiple ad networks, and indeed they have chosen high performance networks.

2. MV* frameworks

Halfbrick Studios using AngularJS, a popular JavaScript MV* framework, might strike as a surprise. What does JavaScript have to do with Fruit Ninja and Jetpack Joyride? Digging a bit deeper we discover Halfbrick is using web technologies to implement BrickNet – a service that allows transfer of scores and saves across multiple devices. The BrickNet service is bundled with all the company games we examined.

This strikes another chord: there has been a lot of talking on how web technologies are not suitable for mobile apps due to mainly performance reasons. Well, this case is a testament that technologies are not good or bad per se – it all depends on the use case.

3. User analytics

Regarding user analytics, we were unable to detect any SDKs on King’s games. They could be using a custom in-house solution, or an unknown-to-us tool.

Halfbrick Studio uses the notorious Google Analytics in combination with Kontagent (rebranded as Upsight), which is better positioned for mobile games. The takeaway here is that the most popular tool of the category, i.e. Google Analytics, works perfectly for top as well as indie developers. [tweetable]The difference is in not in which tool you use, but how you use that tool[/tweetable], i.e. how do you interpret the analytics data and use it to grow your company.

4. Social tools

While Halfbrick Studios uses all the popular western social networks, King is more picky. They don’t seem to like Twitter, at least on the apps we found in the US stores. They do however use KakaoTalk on the iOS version.

Anything we missed?

So, this wraps it up. What did you learn from the tooling choices of King and Halfbrick studios? Is there anything we missed? Want to see more of these tooling deep dives? Leave a comment below and let us know.

Tags app business, Business models, developer tools

Business Community

Developer corner: Lessons from a one-man app business

Post author By Andrea Bizzotto
Post date February 9, 2015
No Comments on Developer corner: Lessons from a one-man app business

For the last two and a half years I’ve been building and selling apps directly on the iOS App Store, however only in 2014 I committed to some substantial effort on this. I’d like to share some numbers about my experience last year and draw some insights about what things went well and which ones didn’t.

Hopefully this analysis will be useful to others and will give me some insight about where to focus in 2015 to grow my app revenue.

How do you monetize your apps? Take the Developer Economics Survey and let us know. You may win awesome prizes and gear.

Apps Summary

January 2014 brought along my most successful app so far: My Oyster. This app has been in development since October 2013 and even though it had a rough start on the first few months of the year, it is now my most consistent app in terms of downloads and revenue. Along with it, I started selling My Oyster Pro as a 69p ad-free alternative as I wanted to evaluate how well the freemium and paid pricing models would work for the same app. As it turns out, this paid version contributes to sales figures comparable to the ones of the freemium app.

Alongside this, I have been working on improving Camera Cube, which has been live since 2012 and takes the second spot for this year on revenue. Most notably, I released a major update with iOS 7 compatibility in July and added support for iPhone 6 and 6 Plus in December.

In August, I also released Perfect Grid as an iOS port of a simple puzzle game I previously made for Android.

Finally, in November I launched Pixel Picker, my first app written in Swift!

Alongside these new entries, my two old apps Puzzle Camera and Camera Boom are still live on the App Store, however I have not been updating them this year.

My App sales numbers in 2014

Total Revenue	Paid Downloads	IAP Revenue	Ad Revenue
£ 584.23	£ 151.80	£ 199.21	£ 233.23

App Annie Yearly Revenues 2014 – Source: Musevisions blog

The first important observation is that 86 % of my total revenue comes from the My Oyster and My Oyster Pro apps which both went live in January and brought in 504.86 £ by the end of the year. Overall the freemium version accounted for 70% of these sales (fairly equally split between in-app purchases and ad revenue) and the paid version for the remaining 30% of sales.

This shows that the choice of differentiating my revenues across advertising, in-app purchases and paid downloads has paid off and I plan to keep all these streams going for My Oyster in the future and try them with my other apps as well.

App Annie 2014 Revenue Graph – Source: Musevisions blog

The graph above shows how my revenues have changed over time during this year. For various reasons, I had to remove My Oyster from sale during the January, February and April timeframes, and this shows clearly in the revenue graph.
For the rest of the year, revenues have been varying between 1.5 to 2£ per day on average and peaks of 4 to 6£ per day.

Expenses

In 2014, the costs of running my app business have been as follows:

Apple iOS Developer Program: 60.00 £
Domain Hosting: 102.47 £
Facebook Ad Campaign: 200.00 £
Outsourcing services: 408.69 £
iOS icons pack: 16.10 £
Total Expenses: 787.26 £
Total Revenue: 583.86 £
Net Loss: 203.40 £

The biggest expense has been some outsourcing work I’ve done to create UI artwork for my apps, however this was necessary to create some high quality UI elements and I’m happy with it.

Marketing

This year I have tried a few marketing strategies to give my apps more visibility. These three have been the most effective:

Keywords optimisation Particularly for My Oyster, the number of downloads has had a high correlation with the ranking of the keyword “Oyster” in the UK App Store. The app has been ranking third for this keyboard through the whole year and averaging 50 to 70 downloads per day.
On one occasion it jumped up to second spot due to one of the competitor apps being temporarily removed from sale and the downloads spiked to over 300 a day as a result. This shows that direct search ranks are fundamental for user acquisition on this app.
Facebook advertising In an attempt to get My Oyster to the top of the UK Travel rankings, I ran a Facebook Ad campaign in the London area for 10 days, allocating 12£/day initially and spiking this to 40£/day towards the end. The campaign succeeded in boosting the app from position 200 to the top 50 in the UK Travel category, however as soon as I stopped the campaign, the ranking dropped again to its previous levels. With a cost per mobile app install of 0.12£ and an average revenue per download of 0.01£, I would have had to generate 12x more revenue per download, or decrease the cost per install by 12x in order to break even with this strategy.
Hacker news I have promoted Perfect Grid and Pixel Picker by sharing the apps’ iTunes links on Show HN and asking some friends to upvote them. I did this for Perfect Grid on the day after launch, managed to get 14 upvotes and stay on the Hacker News front page for a few hours, but this only resulted in 180 downloads on that day, which I presume could be attributed evenly to Hacker News traffic and the app just having gone live.
Pixel Picker fared much better and managed to get 2200 downloads in one day, largely attributable to Hacker News traffic.

My Oyster UK Travel Ranks 2014 – Source: Musevisions blog

My Oyster Facebook London Ad Campaign May 2014 – Source: Musevisions blog

My Oyster Downloads May 2014 – Source: Musevisions blog

Pixel Picker Downloads generated by Hacker News traffic, November 2014 – Source: Musevisions blog

Additionally I have been spreading the word about new releases of my apps on Twitter and Facebook, however I haven’t noticed an increase in downloads as a result.
Writing to bloggers to request a review for My Oyster also proved ineffective and a big time drain so I’m not going to invest more effort on this going forward.

Overall, I have been quite impressed at the number of downloads that a high traffic site like Hacker News can generate, however in my experience this only helps in getting a spike in downloads. I haven’t yet found a way to sustain high download numbers over time, other than through paid advertising which is an unsustainable model given my current ROI.

Going forward I’d like to share my apps on other high traffic sites such as Product Hunt and Reddit, as well as trying other advertising platforms.

User Engagement

So far, My Oyster is the only app that shows promising engagement metrics with around 5000 MAU and good retention rates:

APP	Period	AVG session duration (min)	Monthly active users	Returning Users (%)	New users per month
My Oyster	November	6.47	5441	94.4	2116
Pixel Picker	December	2.06	738	41.1	575
Camera Cube	November	1.18	681	50.0	N/A
Perfect Grid	November	3.05	98	86.1	N/A

Having around 640 daily active users and an average session duration of over 5 minutes, My Oyster performs much better than my other apps in terms of ad impressions and revenue.

My Oyster Ads Report 2014 – Source: Musevisions blog

As outlined in the graph above, My Oyster received 3000 clicks at a cost per click of 0.06£. Next year I plan to experiment with Ad Networks other than AdMob to determine if a higher CPC is achievable.

Customer Support

To facilitate user feedback, all my apps have a help/about screen with an option to contact customer support via email.

One peculiar aspect of the My Oyster app is that it lets users check their Oyster card data which comes from a 3rd party website. As the content can be unavailable at times and users sometimes have issues with their accounts, some time is required to answer customer emails, so the revenues from this app aren’t completely passive.
The positive side of this is that a lot of customers get in touch with me directly and their feedback helps me improving the app over time.

As download numbers and engagement metrics are not good for my other apps and I very rarely receive emails from customers that have downloaded them, I can infer that those apps are not as discoverable as I’d like them to be and they don’t generate much interest from customers. From a business perspective perhaps I should focus on My Oyster instead and try to grow its user base and functionality.

Conclusions

As many others have noted, [tweetable]bootstrapping a consumer app business on iOS is hard[/tweetable]. My personal experience so far has been that from a purely financial standpoint this is unsustainable and I should be investing my time in something more lucrative like consulting, which at the time of writing brings in 30x to 50x more revenue per hour worked.

However, I believe there are a lot of intangible benefits in making and publishing apps:

They make for a good portfolio Prospective clients will be able to assess the quality of my work and my apps always help me getting jobs and consulting gigs.
I keep acquiring new skills Making apps is by nature a creative process, and I have the freedom to choose all the latest tools and technologies for the job at hand.
Full product lifecycle Making apps forces me to think about the whole product: development, UX, support and marketing.
Flexible workload I get to choose how much or how little I work on my apps, as well as choose what I want to work on. For me this is very valuable as I can enjoy working on these side projects without having too much pressure.
I get to talk at events Sometimes I feel it’s worth sharing my findings and experiences as an app developer, and this also is beneficial for building my brand and network.

Goals for 2015

In 2014 I was hoping to hit and maintain 100 £ in revenue per month. I have missed this mark by about 50%.
As most of my revenue came from the sales my My Oyster, I plan to focus on further developing this app and try a few more marketing channels to improve its visibility.

While I plan to do some more independent app development in 2015, my app business so far has struggled to take off and I feel that I could invest more of my time in other relevant activities, including:

Open Source development I’d like to focus more on creating small and reusable iOS libraries and components and share them with the community. I find that such projects are very well suited for giving presentations of technical nature. Additionally, I’m reading a lot of stuff on functional programming and I can’t wait to share a lot of functional stuff on my GitHub page.
More consulting work I see consulting as an opportunity to see what challenges companies face and work on problems that I would not have the chance to take on as an indie developer.
Write technical material, courses and seminars This could be a new exciting venture for me and I feel that there is a great community around iOS development and software programming in general. As I become a better developer, I’d like to share some of the lessons I learnt in a format that can be most useful to others. Further down the line, I would like to start running my own courses and seminars.

Time will tell how things will go, but I feel very privileged to be an iOS developer in 2015 I can’t wait to build more products and awesome stuff this year!

Which skills do you want to develop? Take the Developer Economics Survey and we will compare your skills to the global average. You can work on those skills and maybe get your lucky break.

Tags app business, app marketing, app revenues, hacker news

Business

Are Freemium Apps Killing Game Developers?

Post author By Ted Nash
Post date December 2, 2014
No Comments on Are Freemium Apps Killing Game Developers?

The rise of freemium games has been ferociously quick and it continues to accelerate at an incredible pace. It’s estimated that adults now spend, on average, 5 hours and 46 minutes online and on their mobile devices. Time spent online has now surpassed time spend watching TV.

With more consumers than ever playing games on their mobile devices, developers have had to “evolve” to find the most efficient ways to monetise their potential customers and, from a revenue perspective, [tweetable]the ‘freemium’ model has almost completely killed ‘paid-for’ games[/tweetable].

Putting morals and ethics aside, the freemium route is absolutely genius. Freemium, especially on mobile, can generate vast amounts of profit for developers who manage to create popular applications.

When we ask the question, “are freemium apps killing game developers?”, it always generates an interesting debate. Let’s understand why.

What are freemium apps?

The term freemium can be defined as:

“A business model that provides a game to players free of charge, but charges a premium fee for special features, powers, or content.”

Take a look at the App Store whilst reading this post and you will see the overwhelming majority of top grossing applications are free to download.

To developers, these applications would be classed as “freemium” apps, but the majority of users who download these type of applications believe the developer is making it as difficult as possible to progress within the application in order for you to purchase ‘upgrades’, ‘coins’ or ‘power-ups’ that allow you to progress within the application.

Freemium applications started as an experiment, but very quickly became mainstream. In fact, it was reported last year that 76% of all iPhone app revenue came from in-app purchases.

From a developer’s perspective, freemium games are the preferred route. It’s where the majority of download volume exists and the highest earning revenue streams can be found. Most importantly, their prospective customers’ mindset has shifted. If you are not a ‘free’ game or application, you will have a much harder time selling yourself.

When you speak to independent game developers, they will tell you that more and more revenue could be generated from a free-to-download application. Take an example of a subscription-based game which might charge $20 a month to play. Only a few people might ever be willing to spend that – but far more would be willing to spend 10% of that on a freemium type game. The reality is, when you look at the metrics, there is little to no comparison. Free apps with in-app purchases are potentially much more lucrative.

On the other hand, there may be customers who, even if they were spending $20 a month on a game, would be willing to spend even more if they had the opportunity to. Legacy games never offered that type of flexibility, but things have changed and the top games developers are reaping the rewards.

The thought of ‘what if?’ really did start a new line of thinking. A line of thinking that eventually took the freemium model mainstream.

Why is Freemium seen as bad?

When you look at games from a hardcore gamers point of view, with the above scenarios in mind, you soon realise that the freemium trend is a real negative for them and their style of playing.

[tweetable]The core underlying aspect of freemium games is that you have to pay to continue playing[/tweetable]. Rather than pay a one off fee for a game which would take even the most dedicated gamer a while to complete, there are now deliberate parts of a game or application that force you to spend money in order to overcome a problem.

Roadblocks deliberately placed by a developer force a gamer to spend if they want to continue progressing. It’s this understanding, which has led to many negative reviews of freemium games and the mobile gaming industry in general.

When it comes to developing, freemium games are, arguably, easier for much larger game publishers to make, because these types of games require much more iteration than a traditional paid-for game might demand.

This means that the true independents have a higher barrier to entry than they did before. People expect a lot for free, and if you are not monitoring your audience with a deep level of detail, it’s very difficult to understand when the best time to monetise might be.

Example of the freemium model

Examples of the freemium model taking place inside a game can be found in many different scenarios:

Energy bars are everywhere. The new ‘World of Warriors’ game and ‘Clash of Clans’ from Supercell are good examples of energy meters. In both games, you have ‘food’ and various other ‘elixirs’ which are essentially energy meters. If you have ‘0’ food, you can’t play until it recharges. Regardless of what shape these roadblocks come in, they all serve an identical function: to slow down a player’s progress.

Mobile games would also appear to be getting easier and easier. The majority of these games would not work if a gamer could engage with them and play them for an hour at a time.

Energy meters and time constraints mean that you can only really play an app in small chunks. Unless you pay.

Naturally, a percentage of all users don’t want to wait for their timers to be refilled, so they will pay to get passed what was intended to be a roadblock.

In older, more traditional games, if the player was stuck at a specific part of the game, they would work hard to try and find a solution to the problem they face. However, now if you run into a problem, no matter the quality of the gamer, to get past what might once have been a complex problem – you can pay.

Another very common freemium model is charging for virtual items.

It’s difficult for game developers to understand what is a fair price to charge for various virtual items, but developers are now moving towards simpler monetisation tactics. For example, skipping a level or buying a considerable item which gets them past what was supposed to be a difficult level.

The problem with this is that items like ‘level skipping’ could be free, because it doesn’t actually cost the developer anything to offer hints.

If you compare this with a game we all know, Call Of Duty, giving a player the opportunity to buy new weapons or customise a character has cost the game developer/designer time and money.

Are freemium games killing developers?

Whilst consumers have obviously voted with their wallets that freemium games and applications are what they want to buy, some of us at Tapdaq believe that this has squeezed independent developers into a corner they might not necessarily have wanted to end up in.

There is no doubt about it, I think it’s harder to devote time into creating a game which is long and complex simply because of the natural shift to more casual gaming.

As with all markets, there are two sides to it. In this particular market, you have developers and you have players. If game players are so anti freemium games, then they need to do their bit. They need to start spending money on items which actually cost the developer resources to make, as opposed to buying hints and level-skipping upgrades which defeat the object of playing the game in the first place. They need to value the mobile gaming experience.

New freemium games come out every week in today’s quickly evolving mobile gaming market. This is a business model that, for the foreseeable future, will impact the games we all play. Therefore, game players need to go out and support games that are fair as well as fun to play. Players passionate about game sustainability must vote with their wallets as well as their words.

Looking at the graph below, freemium is proving to be great for developers, but it might have adverse effects, and who knows when we might start to see diminishing returns.

Freemium still has a large share of the market, but it’s unlikely to make you rich.

I think we’ll continue to see larger game developers dominate the top grossing in various app stores for the foreseeable future, and I don’t think freemium as a business model for games gives a fair platform for genuine independent studios to thrive. However, individuals and small studios who create games are usually far more dynamic and should adapt to evolution faster than larger corporations.

So, is freemium killing developers? The answer is, we can’t be sure yet. One thing is certain, though,the industry will continue to be driven by its customers and customer perceptions of “free” games. Recent events have shown that there is a split between those who are happy to pay for games and additional content within them, and those who expect the game or updates to be free.

A winner for preferred business model has not yet emerged on the mobile platforms, and it is very possible that mobile gaming will evolve in a similar vein to its desktop/console brethren – with games adopting different monetisation methods based on their audience, content and personal preferences.

Let me know what you think in the comments below.

Tags app business, Business models, freemium, in-app purchases

Business

How to make money with apps

Post author By Mark Wilcox
Post date November 17, 2014
No Comments on How to make money with apps

A major theme in our State of the Developer Nation reports is an increasingly gloomy picture of typical developer revenues. [tweetable]The vast majority of developers make very little money from their apps[/tweetable]. However, there are a lot of developers out there and a decent fraction of them make a good living, some are building thriving businesses on the app stores and a few at the top are even creating multi-billion dollar companies. So, what’s different about the developers that are succeeding financially versus those that are living in app poverty?

Are you making money from your app? Let us know and you might discover new tools that can make you even more profitable. Start here.

There are two major risks when analysing groups of successful individuals or companies to try to work out why they succeed when others fail; the first is survivorship bias – ignoring the many failures that may have done exactly the same things, the second is confusing correlation with causation. In the latter case there are many things that developers do because they have a successful app, like porting it to lots of other platforms, that are completely unrelated to how they became successful in the first place. [tweetable]There isn’t a magic formula for success on the app stores[/tweetable] but we can try to avoid falling into these traps by looking at factors that might increase your chances of success.

In our last report we showed two major factors that correlate with higher revenues, targeting enterprises rather than consumers and using 3rd party tools. The former is almost certainly a direct cause of financial success, the later is probably indirectly related, tool use indicates a more sophisticated approach to app development as a business. There are many more factors that can make quite a significant difference to the chances of financial success with apps, so lets take a look at some of them.

As our benchmark we’ll use the rather modest (but challenging) goal of making more than $5k per app per month. This is a revenue level that would allow a single app to support a developer in the US or Western Europe but is below a typical employed developer salary in those places. In some countries it would support a whole team living very comfortably. How much more likely are developers to be earning above this level depending on which platforms, categories and device types they target or what revenue models they use?

Platforms

It’s been widely reported that iOS is still ahead of Android for revenues but there are suggestions that Android is closing the gap. Looking at overall revenues from the platform or the earnings of the very top developers, this may be the case. Some even earn more on Android than iOS. However, revenue is more concentrated at the top on Android than iOS, so the chances of earning above the $5k per app per month level are still much higher for those who primarily target iOS. Despite the decreasing popularity, targeting the mobile browser is quite far ahead of building Android apps too. In this case though, many targeting the mobile browser may already have successful desktop web businesses, so this might not be so easy to replicate for those starting new businesses. Windows Phone and BlackBerry 10 are both offering very low chances of a decent financial return as primary platforms. Note that this doesn’t imply that there’s no revenue available on either of these platforms, it could all be going to apps that succeeded on other platforms first and then ported.

App categories

It’s no surprise to see enterprise apps and business and productivity software at the top of the high earning app category charts. What’s more interesting is the “other” category between them. Developers who seek out and dominate niches outside the standard app categories are doing very well; it’s not the route to a billion dollar company but it’s a smart strategy for a small business. Despite the many reports of fitness trackers ending up unused in drawers after a few months, health and fitness related apps are doing quite well. It’ll be worth watching how the major platforms health and fitness data platforms impact this category. The success of the communications and social networking category at this revenue level is slightly counter-intuitive, this is a category with significant network effects favouring a few big winners. It seems that this is such popular use case for mobile devices that there’s room for a lot of developers to add value. To contrast with these, the categories at the bottom of the list are Kids (16%), Games (17%) and Education (17%). These bottom categories are pulled down by their popularity with hobbyists, giving full-time professionals targeting these categories a lot of free competition.

Device types

Smart TVs and set-top boxes are a surprise leader in terms of device types to target first. Only a tiny fraction of developers in our survey had these as their primary target, so this isn’t a reliable sample. It’s hard to get visible on TV platforms and you usually need content, so this might not be a strategy to emulate. The Internet of Things is also unexpected at number 2 considering how immature the market is. It may be the case that hardware sales are involved in many of the higher revenue earning businesses here, in which case there are much higher costs associated than for pure software businesses. While smartphones are a massively more popular primary target than tablets, the chances of an app earning above the $5k per month level are quite a lot higher on tablets. There are likely to be several factors involved here; less competition, more tablet apps targeting enterprises and with the reliance on free apps making most of their money from a small fraction of users, it can pay to provide an optimum experience for the heavy users on a larger form factor. This last point is valid right up to the highest revenue levels – Supercell have built their games tablet first with a scaled down experience on smartphones.

Revenue models

At the top of the revenue model tree is per device royalties or licensing fees.This is likely to be a mixture of enterprise apps and successful apps that have managed to get pre-installs on devices. This is a highly desirable revenue source but certainly not available to all apps. The next best is contract work at 30% of developers earning more than $5k per app per month. Contracting gives a decent chance of making higher revenues but of course the app belongs to whoever it is built for, so the upside is also very limited. At the same time this is by far the lowest risk model, with twice the chance of making more than $5k per app per month than the worst model, advertising. Subscriptions and e-commerce are tied for third place at 29% and affiliate and CPI programs are not far behind at 28%. These models are often harder to implement but our data suggests that the effort is likely to be worth it if they can fit the app concept.

Finally, an interesting comparison towards the bottom end of the revenue model scale is paid downloads (18%) versus free apps with in-app purchases (19%). There is very little difference between the two revenue models at this level of revenue. This is a very strong contrast with the total amount of revenue earned through each of those models. This probably reflects the fact that getting a freemium model with in-app purchases to work is difficult – there’s a very big risk of just giving a free app to a massive majority of users and getting no more paying users than for an equivalent paid app.

Conclusion and warning

There are a number of different ways you can target your apps and select your revenue model to increase your chances of financial success. What we haven’t analysed here is how these combine. Some of them probably won’t, for example, tablet first and iOS first is a good combination, but tablet first and Android first probably isn’t. Our analysis in the State of the Developer Nation report has also shown that some of these combine in an additive way, for example, building enterprise apps for iOS has very high chances of financial success.

Take the Developer Economics Survey, test your skills and compare them to the global average. You can work on those skills that need improvement and become more competitive. Cool, right?

Tags app business, app monetisation, app poverty, app revenues

Business

Is the Indie App Opportunity Gone?

Post author By Mark Wilcox
Post date September 3, 2014
No Comments on Is the Indie App Opportunity Gone?

The app stores created an opportunity for any developer to build their own products and reach a global audience with them. For some developers this offered the promise of an independent app business, giving them creative control of their work and hopefully a comfortable income. Recently there have been lots of posts (great summary list here) from current and former independent app developers about the state of the market and how much harder it is to earn a living from your own apps. If it’s tough for established indie developers then is it still possible to get started? We’ll look at how the market has changed and share some data on the revenues of over 500 solopreneurs and small indie developers versus their bigger rivals.

The indie developer gold rush

[tweetable]A key advantage of small indie app developers is their agility[/tweetable]. They can shift their strategy to take advantage of new opportunities incredibly quickly. The success story that may have started the iOS app gold rush was built before there was an official SDK or App Store. Steve Demeter was working on ATM software for a bank and built the game Trism in his spare time, initially releasing it for free to the jailbreak community. When the App Store launched it was initially a $5 paid download that earned $250,000 in profits in the first two months. Demeter quit his day job to become one of the first full-time iOS indie app developers. Trism was reduced to $3 to stay competitive but went on to sell around 3 million copies. Four months of evenings and weekends, just a few weeks equivalent in full time development, earned a life-changing amount of money.

It’s the overnight success stories like these that continue to drive lottery-like behaviour from some developers. Playing for the outside chance of winning big. Even the media coverage at the time noted the increasing competition with more than 1500 iPhone games available in the App Store! Today’s developers would love so few apps to compete against; there are now hundreds of times as many.

Raising the bar

By 2011 life-changing solo developer success on the app store looked rather different. A $5 app created in a matter of weeks wouldn’t stand a chance. Andreas Illiger is a gifted musician, artist and coder. His Tiny Wings took 7 months of full time effort to create and sold for just $0.99. The increased scale of the platform meant he was able to sell more than 10 million copies. In 2014 it’s debatable whether a solo developer will ever repeat the feat. Monument Valley looks like the modern benchmark for a chart topping paid game title but developer UsTwo primarily serves clients in three countries and has over 100 staff in the London studio that created the game. Sirvo’s Threes! is a better comparison yet it was created by three people over a 14-month period (not full time). Threes! was almost immediately copied with numerous free alternatives to the $1.99 original springing up. Whilst Tiny Wings enjoyed a year as a top 10 game and another two inside the top 50, Threes! is already in danger of heading out of the top 100. [tweetable]There’s just so much free-to-play competition[/tweetable]. Making a more complex game to differentiate from the crowd is just beyond the scope of most small independent developers.

Not just games

Those examples have focussed on games and it’s tempting to think non-game apps might be a different story. However, consider that our data shows only 33% of developers are making games. Those developers collectively earn over 80% of store revenues across iOS and Android. So [tweetable]67% of developers are competing for less than 20% of store revenues[/tweetable].

Lets take a look at what Hunters (our name for developers that are aiming for direct revenues from their apps) can expect to earn at different company sizes.

As you can see, iOS is still a much healthier place for an indie app developer to be than Android but unless your cost of living is very low then the chances of making a comfortable living aren’t great. The bigger developers are taking over the top charts. [tweetable]If you’re outside the top app charts then it’s incredibly hard to get noticed[/tweetable]. Some of the successful smaller developers in our survey already have established apps with a strong history of downloads and ratings that keeps them high in the search results. If you’re just starting out, is it still possible to join them?

Find the right sized niche

The key difference with non-game apps is that they don’t all compete for the same attention. If your indie developer dream is to build the app you really want to use and be richly rewarded for it, you’d better have a fairly unusual problem that you want solved. Jared Sinclair’s Unread is the cautionary tale for those wanting to build for other technology lovers like themselves. An RSS reader (or client for any popular internet activity), however beautifully executed, has to compete with a vast array of free alternatives. Many of those other apps will have been built by hobbyists with no need to make any revenue at all. Anyone wanting to succeed as an indie developer today needs to think like a small business. Trying to compete with hobbyists is as futile as trying to compete with Google.

The right sized niche for an independent app is one that’s small enough not to be interesting to much bigger competitors but big enough to earn a living. Even winning the niche is not going to support a big team. The best niches will need specialist knowledge or intellectual property that make them both unattractive to hobbyists and defensible. Ben Thompson provides a great case study of Pleco, a Chinese dictionary app with some high-value in-app purchases. This example has two key advantages worth replicating: unique licensed content and a natural channel to market outside of the app stores.

What about getting rich?

If that sounds more like hard work than the indie developer dream of becoming an overnight app millionaire, it is. It’s also many, many times more likely to succeed. [tweetable]If you want to be an app millionaire then build contract apps for businesses and grow a team[/tweetable]. Then build some products for enterprise customers in niches that won’t attract immediate competition from much better funded rivals. Or get some venture capital and think really big! If you prefer the dream of being a millionaire, stick to building apps in your spare time. Better yet, buy a lottery ticket, it’s much less effort for about the same odds.

Tags android, app business, app developers, app revenues, Business models, ios, pleco, profits

Business

Emerging developer opportunities in Enterprise & Productivity apps

Post author By Andreas Pappas
Post date April 7, 2014
No Comments on Emerging developer opportunities in Enterprise & Productivity apps

Andreas Pappas shares our latest findings, from our Business & Productivity Apps report which takes a look at developer opportunities created by emerging trends in enterprise mobility (such as bring-your-own policies and mobile SaaS) and professional and vertical app markets (e.g. healthcare apps). This market was worth $28 billion in 2013 and is set to grow to $58 billion by 2016.

[Want to help us with data for our reports? We’ve just launched our latest Developer Economic survey – take the survey and have your say on the latest trends]

[tweetable]Apps are changing the way people communicate, work and play[/tweetable]. App development has grown into a huge industry, that we estimate to be worth $67 billion in 2013. We expect the app economy to more than double in size by 2016.

Most of the publicity and media spotlights currently fall on superstar consumer apps like Angry Birds or Candy Crush Saga and communication apps like WhatsApp. These success stories have certainly highlighted the massive scale and revenue potential of mobile apps, reaching from zero to tens of millions of users in record-breaking time.

At the same time, a growing audience of prosumer and business users depend on Box, Evernote and Trello to help them be more productive in their work. Enterprises are now allowing employees to use the apps they love at work, inside the corporate Intranet. Organisations of all shapes and sizes are integrating mobile apps within their business processes. This mobilisation creates a demand for off-the-shelf or custom mobile apps and services, translating into new and bigger opportunities for mobile app developers.

Most app developers currently target consumer app markets (think games and lifestyle apps) but they could be missing out on opportunities in the enterprise (aka business & productivity) market. Our research indicates that the business & productivity app market, is not only growing at approximately the same rate as the consumer app market but is also less congested, and offers better revenue potential, for more developers. Read the report to find out more.

Consumer vs. Enterprise & Productivity apps: how do revenues compare

App publishers that target business and productivity markets have a much better chance of generating sustainable revenue than those targeting consumer markets, with just 32% of them below the “app poverty line” ($500 per app per month) compared to just under half of consumer-focused publishers (48%). At the same time, [tweetable]publishers that target businesses or professional users have a much higher chance to generate very high-revenues[/tweetable]: 16% of those targeting the business & productivity market generate revenues exceeding $500,000 per app per month, compared to just 6% among consumer-focused publishers.

While consumer apps and particularly games (e.g. Angry Birds, Candy Crush Saga) can generate extraordinary revenues, it is quite clear that this is not the case for the vast majority of developers that target consumer markets. Business & Productivity apps allow developers to build a sustainable business around more solid business models with recurring revenues from a loyal customer base.

As bring-your-own policies and enterprise app stores become increasingly popular among businesses, the market and the opportunity for developers is likely is set to expand in the next three years.

Which platform should you prioritise if you build business and productivity apps?

While Android is dominating the consumer market in terms of market share, iOS maintains a healthy lead among professional and business users. Data provided by enterprise cloud content platform Box, indicates that 94% of their tablet users are on iPads, while enterprise mobility management services provider Good Technology indicates that 54% of enterprise smartphone activations came through iPhone devices in Q4 2013. It is clear that Apple has an edge in the business device market and this is also reflected in revenues generated via iDevices: VisionMobile estimates that revenue generated via iOS devices accounts for at least 60% of the total revenue in the business and productivity market.

For developers that target the business & productivity sector it makes sense to prioritise iOS for development over the other platforms they develop for. However, there are several considerations to take into account such as integration with existing enterprise services, which may call for an HTML approach or the specific market that you target.

Where are the opportunities in the enterprise app market?

There is an inherent unpredictability associated with the future use of apps and it is exactly this unpredictability that empowers developers to create innovative apps that continue to redefine whole markets and industries. Nevertheless, we can still identify a number of areas that currently attract considerable attention among businesses and where we see future value being unleashed in the business & productivity market:

Vertical apps
Specialised industry apps such as healthcare, real estate, finance or automotive. Vertical specialisation provides a great opportunity for differentiation and for building strong brands as the app economy diffuses into every single industry. Existing industry stakeholders can leverage apps as a differentiation strategy against “un-apped” competitors, integrating apps and exposing APIs across their product offerings. For independent developers, specialisation is a means to capture a niche and survive the discoverability labyrinth.

Productivity/BYO
Apps that cross the boundaries between private-use and work-use, such as storage, lists, calendars, office-type apps are key drivers behind the consumerisation of enterprise IT. Once into an organisation or an enterprise app store, such apps can spread rapidly within organisations.

Mobile SaaS
Software-as-a-Service, delivering CRM, HR, ERP, BI services to small businesses and large enterprises is a booming sector. Mobile apps extend these capabilities much further by allowing anytime/anyplace access to these core business services.

Custom apps/services
Bespoke mobile solutions delivered outside of app stores will continue to take the lion’s share of revenues within the business and productivity app market. As we discussed, the dominance of this model will erode during the next few years as app store purchases increase among enterprises.

MDM/MAM
Apps and services that tackle security and complexity of the decentralised IT department are already essential for any enterprise that adopts BYO policies. More sophisticated app & device management models, that tackle some of the key issues associated with this trend (e.g. managing private/work services, remote deletion of work content) will continue to be hot areas in the next few years, catering to an increasing number of use cases.

Download our free “Business and Productivity Apps” report to find out more about the developer opportunity in this market and the reason you should be developing business and productivity apps.

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Tags app business, app economy, Enterprise, forecasts, productivity apps

Business

A guide to building your app business

Post author By Mark Wilcox
Post date April 3, 2014
No Comments on A guide to building your app business

So you want to start a business developing apps? Or maybe you have an app business but want some advice on how to grow or improve it? [tweetable]Simply building an app and publishing it on app store as a paid download is extremely likely to result in disappointment[/tweetable]. This shouldn’t be news to you if you’ve been following the industry in the last few years but what should you do instead? In this article we’ll look at some strategies to increase your chances of building a successful app business.

Risk versus reward

Building a product to sell is exciting and full of creative possibilities but it’s also always a risky approach. If your primary interest is in designing and building apps and solving problems then a far lower risk app business is a software services business. Developers who make most of their revenue from contract development work have the highest median wages by far, in other words, very few of them can’t pay their bills! That said, if you’re planning a software services company it makes sense to use any downtime from client work to build your own products. It can not only generate some additional income but also gives you something you can show potential clients publically (a lot of clients won’t let you publish the fact that you built their app). In our previous surveys, developers who’ve earned a small fraction of their revenue from app stores and the rest from contract work have done significantly better than those doing 100% contract work.

Of course the trade-off with a services business is that the upside is very limited. Global competition makes it hard to charge significantly in excess of typical developer wages. On the other hand, there are several examples of small teams with a hit app that has made them millions of dollars. Our survey data consistently shows that these successes are very much the exceptions. [tweetable]Only a small minority of app development projects are significantly profitable[/tweetable]. Even if you think you’ve got a great idea and a great team then, unless you’re spending your investors money, seriously consider balancing your product development work with some contract development.

Businesses versus consumers

If you’re building products, consider your audience carefully. [tweetable]Who you build your apps for has a massive influence on how successful you’re like to be[/tweetable]. In general businesses are much more willing to pay for software than consumers. As I’ve written before, developers targeting enterprises make four times as much as those targeting consumers on average and yet the latter face much greater competition. Don’t think that targeting organisations rather than individuals means you’re limited to automating business processes. There’s lots of complex and interesting software that businesses need, for example visualization tools to help sell product and projects, or even to help construct things in the real world. There are also extremely simple but valuable pieces of software that can make a positive difference in the lives of lots of people; I’ve met one entrepreneur who’s made a small fortune selling eye-testing software. Additionally, you may be able to target your product idea to an enterprise rather than consumers and have significantly greater success. There have been some relatively small scale successes for developers selling educational software on Apple’s App Store but most of the big successes in educational apps are selling to schools instead of or as well as direct to consumers.

If you’re determined to build consumer apps or your category of choice leaves you with little option (e.g. games) then go big or go home. [tweetable]The app stores only consistently reward the best[/tweetable]; an occasional viral hit may do very well for a short while but they’re impossible to create reliably and they rarely last. If you don’t truly believe you can make an app worthy of the top ten in your category of choice then you should probably relegate this particular passion to a side project or hobby. You don’t really need to make the top ten to earn a decent living (although doing so isn’t sufficient, you’ve got to stay somewhere near the top) but it’s best to allow for some overconfidence!

Be creative with business models

Whether you’re building games for consumers or productivity apps for businesses, design your business model along with your app or service. If you design and build the product first then try to bolt a monetization scheme on top, you may find yourself with relatively few options. A large fraction of developers are still using paid downloads or advertising as their primary revenue model despite the fact that these are the least successful options. There are exceptions where other models are not suitable (e.g most kids apps really ought to be paid download only) but [tweetable]much less than 10% of all revenue paid out by app stores comes from paid downloads[/tweetable]. Developers relying entirely on advertising rarely do much better either.

The ideal business model is some kind of subscription or annual license that produces recurring revenue. This is relatively common with services aimed at businesses but certainly won’t fit every consumer app. Most apps that are aimed at consumers need to be free to download.
There’s simply too much competition. Whether you then get paid through in-app purchases or selling some related product or service is still an area open for experimentation. We’re seeing some games developers experiment with physical toys that unlock content. Amazon wants developers to sell their products and earn a commission. There are plenty of unexplored possibilities and new technologies create new ones all the time. You’re not limited to one revenue source either, mix and match! Whatever you do, don’t copy the strategies that aren’t working for most other developers unless you have a very good reason to believe you’ve got a special case. Either copy strategies that are working or try new ones.

First balance your risks according to your finances. Select your audience carefully. Then design the business model to maximise your chances of getting the audience to part with their cash then. Do all three and you’ll have a much greater chance of success than the vast majority of your peers. Now all you need is excellent execution and a bit of luck.

Tags app business, Business models, revenue model

Business Platforms

Mobile Gaming And The Pyramid Of Scarcities

Post author By Sameer Singh
Post date January 21, 2014
No Comments on Mobile Gaming And The Pyramid Of Scarcities

According to Distimo’s latest report, apps with “freemium” business models, i.e. free apps monetized by in-app purchases (IAP), have dominated revenue charts in 2013. This spurred me to take a deeper look at the “economics of free” and explore new opportunities for innovation in these business models.

The Economics of Free

Let’s begin by taking a brief look at the “Economics of Free” or the “Economics of Abundance”, as described by Mike Masnick. Here’s a short, 2 minute video introducing the concept:

Economics is essentially a social science that examines the best possible way to allocate “scarce” goods or resources, i.e. ones with meaningful marginal cost and limited supply. However, digital goods like apps are abundant because the marginal cost of creating an additional copy is zero. Given the nature of near-efficient competition in the digital world, price naturally approaches the marginal cost of zero.

This explains the decline in popularity of paid app downloads and the decline of numerous traditional business models. However, cheap or free content allows developers to reach a much wider audience which consequently increases demand for related scarce goods or resources. In the music industry, the advent of digital music precipitated a steep decline in US recorded music sales from $14.6 billion in 1999 to just $6.3 billion in 2009, but concert ticket sales grew from $1.5 billion to $4.6 billion over the same timeframe. In other words, digital music converted a scarce resource (recorded music albums) into an abundant resource (cheap, easily downloadable singles), which then increased demand for a related scarce resource, i.e. concert tickets.

Marginal Cost – Cost of producing an additional unit
Efficient Competition – Participants do not have the market power to set prices

The Pyramid of Scarcities

This particular study focuses on scarcity-driven monetization opportunities available to developers of free-to-play (F2P) games like Candy Crush Saga, Angry Birds, etc. As shown in the image below, the scarcities created by F2P games can be segregated into 3 categories, in order of increasing scarcity (or decreasing availability)

Induced Scarcity
Scarcity of Goods
Scarcity of Time or Access

1. Induced Scarcity

Induced scarcity is one that does not exist in reality, but is created artificially — for example, in-app purchases of digital goods. The availability of these goods isn’t really in question and therefore, the value placed on each purchase or transaction is quite low. Consequently, effective monetization depends on maximizing transaction volume from these low-value digital goods, i.e. micro transactions. This strategy is most effective when scarcity is induced because of direct player engagement, and not when it is forced onto players. Game design plays a critical role here as in-app purchases need to be naturally blended into gameplay elements. King’s games like Candy Crush Saga are perfect examples as players pay for boosters to help them progress through difficult levels. In fact, King’s revenue is expected to top $1 billion this year, almost exclusively driven by micro transactions on Facebook and mobile games.

However, exclusive use of this monetization strategy also brings up some challenges. King’s “Games Guru”, Tommy Palm, recently said that 70% of the players on Candy Crush Saga’s final level “haven’t paid anything”. While this is a great sign for consumers, King seems to be losing out on monetizing their most engaged players and biggest fans (excluding a minority population of “whales”). The only reason these players haven’t become paying customers is because they don’t consider digital goods to be scarce enough. The solution isn’t to create “paywall” equivalents, but to explore additional monetization opportunities with even scarcer products.

2. Scarcity of Goods

Scarcity of goods refers to physical products that have a tie-in with an F2P game — for example, branded or licensed merchandise. Since physical goods aren’t as abundant as digital ones, the value placed on each transaction is automatically higher. However, this comes with the trade-off of lower transaction volume. Rovio’s Angry Birds franchise is a great example of a successful merchandising strategy. Led by sales of Angry Birds plush toys, merchandising and IP sales made up 45% of Rovio’s $195 million revenue in 2012. This year, Hasbro sold over one million “Telepod” figures within a month of Angry Birds Star Wars II’s launch. This year, King also dipped its toe into merchandising with a range of Candy Crush themed candies and socks.

These products are likely to appeal to fans of F2P games even if they have never purchased digital goods. However, the biggest fans and most engaged players may be looking for something even scarcer.

3. Scarcity of Time or Access

Scarcity of time or access can be leveraged through a direct connection with the most ardent fans — for example, events like gaming competitions or conventions. Conventions tap into scarcity of time from key personnel like game designers, while social gaming competitions tap into scarcity of access to exclusive benefits and direct competition with other “superfans”. The monetization opportunity from events is likely to be immense, even though the actual frequency may be low.

So far, very few game developers have utilized this particular strategy — a related example from the non-F2P space is Mojang’s Minecraft Convention or MineCon. 7,500 tickets to the event sold out in roughly 5 minutes, generating roughly $1 million in revenue. This may seem like small change for large gaming companies, but it’s important to keep in mind that Mojang may view MineCon as more of a promotional event. Expanded ticket sales and advertising partnerships could easily make gaming events a significant revenue opportunity. Given the competition in allied industries like mobile hardware, there will certainly be no dearth of advertisers.

Opportunity for Innovation

The monetization opportunities outlined in this post show that the free-to-play mobile gaming industry still has a lot of room for growth. Most publishers have focused on just one of these strategies and I have no doubt that we will see more business model innovation from these companies as we move forward.

Having said this, these strategies are only useful for companies if their games remain popular. The gaming industry has proved again and again that companies cannot rest on the laurels of a single mega-hit. Therefore, developers need to focus on continuous innovation across a wide catalog of games. What’s most important is to ensure that players have fun. After all, isn’t that the entire point of playing games?

– Sameer

This post was originally posted in Sameer’s Tech-Thoughts blog – you can find the original article here.

Sameer is a business strategy professional with expertise in mobile ecosystems, asymmetric business models and disruptive innovation. Over the last 6 years, he has held various roles in strategy consulting, investment management, M&A and venture capital. During this time, he has developed a keen interest in the intersection between technology, innovation and business strategy. You can follow his work on his blog at Tech-Thoughts, on Twitter @sameer_singh17 or on LinkedIn.

Tags app business, app marketing, app monetisation, game development, gameplay loop, mobile game marketing, pyramid of scaricities