Tag: Revenue

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Analysis

How Developers Generate Revenues

How do developers generate revenues

How businesses and developers as individuals make money from software projects is one of the most important decisions they have to make. Of all the business models and strategies available, companies and freelancers need to pick the ones that best match their market and goals. This post focuses on the popularity of revenue models among professional developers and the companies they work for.

Of all the revenue models we track in our surveys, contracted development / consulting is the most popular model. As of Q1 2022, 31% of professional developers are using this model, 7 percentage points more than the next closest revenue model – selling apps or software. Contracted development can span months or even years, allowing for developers and companies to properly plan out resources during the project. In addition, professional developers and their companies may find the clients they contract for require additional services, thus leading to additional revenue. Contracted development is tried-and-true as it’s been the most popular revenue model for the past five surveys.

Selling apps/software through an app store or their own portal is the second most popular revenue model, with almost a quarter (24%) of professional developers making money in this way. Furthermore, adoption of this model has been stable over two and a half years, despite “Epic” lawsuits against Apple and Google in 2021, which argued that these app stores had excessive fees and restrictive payment collection processes. App stores and portals are popular now, but other technologies, such as progressive web apps (PWAs), could start to impact the popularity of app stores. PWAs can work across multiple platforms, provide a native experience, and can help developers avoid high commission fees from app stores; all of which are big incentives to embrace the power of the web.

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7% of professional developers are generating revenue from selling data

Interestingly, less than a tenth (7%) of professional developers are generating revenue by selling data. Data has often been referred to as the new gold and data breaches are heavily covered in news articles as well. If data is so valuable, why are so few professional developers using this model? Regulatory measures, such as the EU’s General Data Protection Regulation (GDPR), could be hampering developers’ ability to sell user data based on the “right to be informed” principle. The California Consumer Privacy Act (CCPA) also has multiple restrictions for selling user data including an earnings cap based on a company’s total revenue. These are just a couple of examples of why selling data is difficult, which impacts its popularity as a revenue model.

Next, we will look at how the industries that developers are active in influence their revenue models. Contracted development is the most popular revenue model across all sectors, further emphasising the effectiveness of this model.

Developers active in the software products and services, data analytics, and financial services verticals tend to have the same revenue strategies. Professional developers in all three of these sectors have the same top-three revenue model choices. In addition to contracted development, app stores and selling services/APIs are the more popular methods for generating revenue in these sectors.

In-app purchases break into the top three among developers in the entertainment and media sector. 28% of professional developers in this vertical are using this method, double the percentage of the general developer population. In-app purchases are strongly associated with the freemium strategy where users are able to use/download applications for free with some features restricted to micro-purchases. This strategy has become quite popular in game development for building a base of users and incrementally generating revenue, as long as the quality of production is high. 

Contracted development is the revenue model of choice across all industry verticals

For professional developers working for companies in the marketing and advertising sectors, the advertising revenue model rises to second place, but it’s unable to unseat contracted development as the most used model. Looking across industries, there’s an apparent lack of usage of advertising as a revenue model among most other developers. On average, advertising is ranked eighth among professional developers outside of the marketing and advertising industry, being used about three times less often. Again, privacy protection may be hindering developers’ ability to use this revenue model effectively.

Finally, we evaluate revenue model usage among developers in different-sized companies. Again, contracted development remains the most popular model across every size of company. This strategy is the status quo for developers, and, with such popularity, it’s presumed to be the expectation by customers seeking professional development.

Developers working for micro-businesses are the most likely to report that they generate revenue from contracted development, with over a third (36%) of developers who work in them using this model. Professional developers in micro- businesses are also using multiple revenue models slightly more often than other developers. This indicates that companies of this size are trying to maximise their earning potential while relying heavily on the industry standard of contracted development. That being said, contracts don’t sell themselves, and micro-businesses have only 2-20 employees, so developers in these companies will likely be a close part of sales conversations.

Usage of the advertising revenue model declines as companies grow in size

Developers at large enterprises have a slightly different profile, as they tend to use the contracted development model less often than developers in other company sizes. We also see less use of the multiple revenue model, indicating that companies of this size have a more focused strategy for generating revenue.

Categories
Business

The European App Economy 2014: Europe is losing ground to Asia

We have just published a research note with an update to last year’s an European App Economy report. The good news is that Europe’s app economy still accounts for 19% of global revenues and is growing strongly at a 12% annual rate. The bad news is that the rest of the world, particularly Asia, is growing much faster. The global app economy is growing at 27% annually and the share of revenues captured by developers in the EU28 is falling. We estimate that around 1 million European jobs have been created by the app economy so far. If policymakers want to see this job creation continue then there’s a lot more they could do to support developers attempting to create businesses.

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A $16.5 billion market

In our App Economy Forecasts 2013-2016 report we estimated that apps and app related products and services would generate $86 billion in revenues globally in 2014. The 19% share of this generated by European developers will contribute $16.5 billion to EU28 GDP this year. This is many times more revenue than is generated directly in the app stores. However, the EU is home to the top 2 app store earners globally in Supercell (Finland) and King (UK) – masters of the Free-to-Play games market. At the same time, European policymakers are some of the most vocal in attempts to enhance consumer protection with respect to the Free-to-Play model. So far there is only strong encouragement to reform practices around cost transparency but this could (justifiably) lead to regulation if insufficient voluntary action is taken. Significant changes in this area would undoubtedly impact the revenues of Europe’s most high profile app market success stories.

1 million jobs

We estimate that the number of direct European app economy jobs is up 26% from 2013 to 667,000, this breaks down as 406,000 professional developers and 261,000 non-technical roles in app-related business. Using a conservative multiplier we also estimate another 333,000 jobs have been created indirectly by the app economy in the EU28 for a total of 1 million jobs. A large fraction of these jobs are in software services companies taking the low risk route to profitability building apps on a contract basis. Contract software development is the most popular revenue model in Europe, favoured by 31% of developers. This may be partially due to the relative lack of seed capital for startup ventures in the region along with a relatively high cost of living versus most global competitors, making bootstrapping products more difficult.

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Slower growth

Although the European app economy is growing at less than half the global rate, some loss of share was unavoidable. Europe was very quick to reach high levels of smartphone penetration and most of the device sales growth is in developing markets. A significant fraction of demand for apps will always be filled by local developers with better market knowledge. As smartphone penetration increases in developing countries their local app economies are growing rapidly. European developers are well placed to export to English-speaking markets and South America but it’s not so easy for them to succeed in Asia. It’s likely that developers based in the EU will need specialist support or local partners to maximise app export opportunities in some of the fastest growing markets.

The enterprise opportunity

As smartphones reach saturation, businesses will play an increasing role in the growth of the app economy in Europe. In our Business and Productivity Apps report we forecast that this sector would experience rapid growth, reaching $58 billion globally by 2016. We have identified 5 areas where app developers and startups can add value in the business & enterprise app sector:

  • Vertical market specialisation
  • Productivity/BYO apps
  • Mobile SaaS
  • Bespoke enterprise apps
  • Mobile application and device management

While European developers are well placed to win bespoke enterprise app development business, they may struggle to compete with better funded rivals from other regions for the larger opportunities. Starting a technology business has never required less capital but scaling an enterprise software business is incredibly expensive to do quickly. The biggest mobile SaaS, application management and vertical market opportunities are likely to be venture capital fuelled land grabs. To ensure that Europe makes maximum gains from the future growth of the app economy, policymakers need to do all they can to keep app entrepreneurs from relocating to Silicon Valley in order to access the expertise and capital they need to compete.

Categories
Business

7 things you need to know before developing a car app

Are you bored with the same old smartphone apps? Why not try developing for cars?

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Which tools do you use to develop apps? Have your say in our Developer Economics survey and you could win awesome new gear.

Car makers have started a major offensive to get more apps in their vehicles and open up to outside developers. Their efforts have sparked an interest in the developer community. “A year ago there was very little interest from mobile developers because the automotive market was perceived as being too insignificant,” says Linda Daichendt, Executive Director of the Mobile Technology Association of Michigan, a trade organisation for the mobile/wireless industry located in the heart of automotive country: Detroit. “In late 2013 there was a tremendous surge in vehicle manufacturer outreach to mobile developers with extensive marketing programs. Now there is a much higher level of interest from developers in trying to understand the needs of the automotive companies and how they can profit from working with this market segment. As a result, 2014 is seeing a large number of Connected Vehicle conferences and training programs that are very well attended by the mobile developer community.”

According to Linda, education will be the key to unlock developer engagement and creativity. We thought we’d put in our own 2 cents with our latest report: “Apps for connected cars? Your mileage may vary””. In the free report we describe the state of automotive developer programs in 2014. Here are already 7 things you ought to know before getting into car apps. Many more details inside!

  1. [tweetable]There are 4 ways to develop a car app[/tweetable]. If you want to build an in-vehicle infotainment app, you can run it either on the car’s head unit (the dashboard) or run your app on a mobile device (smartphone or tablet) that is linked with the car. In the latter case, your app’s UI can be mirrored on the dashboard screen using APIs like Mirrorlink or CarPlay. If you want to make an app (in the car, in the cloud or on any device) that uses data from the car, you can use a car maker’s vehicle data API or access the On-Board Diagnostics port (OBD-II) using a bluetooth dongle.VisionMobile-Connected_Car_Apps-02-4_ways_to_develop
  2. [tweetable]There are 3 routes to market for car apps. Two of them are painful. The third is very early stage.[/tweetable]
    • Partner with car makers to get the app pre-installed in the vehicle or featured on a car maker app store. This process takes 2-6 months in the best case. You’ll have to audition with car makers to be allowed to distribute your app, and you’ll be at their mercy for much of the UI design.
    • Distribute apps on major mobile app stores (iOS, Google Play). Still, the approval of car makers is needed to distribute apps using their APIs. You’ll need to sign a distribution contract with the car maker in most cases.
    • Distribute apps on major mobile app stores (iOS, Google Play) while using an OBD-II dongle to get vehicle data. In this case, you need to convince your user to buy and install a hardware dongle. Platforms like Dash and Carvoyant that allow you to access data from an installed base of dongles have only recently launched, and don’t have a large user base yet (in the tens of thousands at most).
      VisionMobile-Connected_Car_Apps-07-3_routes_to_market
  3. [tweetable]The addressable market for car apps is in the lower millions of app installs[/tweetable]. If you were to produce a car app today and push it in the market with all your might, you can expect at most a few million installs across all platforms. It will probably take you several years to get there. Consider the example of Pandora, one of the most popular car apps around. It took them 3 years and over 30 partnership agreements to reach 4 million unique users. Nokia HERE, the navigation platform, claims to be behind 4 out 5 in-car navigation systems. They have sold 10 million licenses in 2013. Compare this to a potential of hundred of millions of installs on iOS or Android for the top apps. (Apps like Gmail or Facebook will probably count billions of installs when adding up all the platforms.)
  4. [tweetable]…but you’ll face much less competition in car apps than on the mobile app stores[/tweetable]. In our Developer Economics report series, we talk about millions of individual mobile app developers on each major platform. There are hundreds of thousands of app publishers on an organisational level. Based on data from analytics firm Priori, we estimate that each distinct app sub-category or use case has on average 1,500 apps competing for the user’s attention.
    In contrast, VisionMobile currently estimates the amount of car app developers at around the ten thousand mark, based on reported figures from car makers that have developer programs. It is still possible to “ride the wave”, i.e. to have an early-mover advantage on car apps just like it existed on smartphones in 2008 or tablets in 2010.
  5. [tweetable]Revenue opportunities for car apps are fuzzy and unproven at best.[/tweetable] Most car makers and car app platform players have not thought through the revenue model question. A common answer is: “the developer can use whatever revenue model he chooses or he is already using”. As we know from mobile apps, it’s not that simple. If you’re relying on an App Store based app for revenue generation, then paid downloads are all but dead in terms of revenue (except navigation apps perhaps), display advertising seems like a no-go and an in-app purchase during normal use seems pretty unlikely, or at least high-friction.
  6. [tweetable]You must design an app that can be operated at 65 mph / 100 km/h without crashing (not your app! your user!).[/tweetable] Safety concerns around driver distraction are absolutely paramount for the car makers you’ll be working with. This is the single biggest difference between car apps and the mobile apps you’re already familiar with. The feeling among car makers is that developers tend to underestimate the importance of new UI paradigms quite a lot – and you’ll be thoroughly scrutinized on it. Expect a learning curve.
    This of course doesn’t apply for car apps that are not used while driving or don’t require user interaction – by no means a niche area! Think insurance, fleet management, car sharing, maintenance and reselling: the list is endless.
  7. [tweetable]Things are moving fast. Your life is about to get easier as platform plays similar to iOS and Android are set in motion[/tweetable]. The introduction of Apple’s CarPlay and Google’s Open Automotive Alliance (and to a lesser extent Windows in the Car) seems to herald a tipping point in the industry. Here are two players that have a deep expertise in solving fragmentation, in building developer communities and in enabling developers to add value. There is now a realistic and acute possibility that these new entrants will sweep away the existing car app platforms with a dominant, over-the-top solution, just as they did in the smartphone world. You can find an overview of all the important platform contenders in our report.

Do you consider car apps part of our future? Have your say in our Developer Economics survey and you could win awesome new gear.

Categories
Business

4 Reasons Not to Build Enterprise Apps

In an earlier post we showed how enterprise app developers make 4 times the revenue of those developing consumer apps on average. Targeting enterprises with apps can be very different from building consumer apps and not all developers prioritise revenue, so it’s not for everyone.

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Do you want the indie developer lifestyle, or to build a company? What sort of contact do you want to have with your customers? Do you like consulting work or do you prefer to build your own products full time? Do you have a strong development platform preference? Depending on your answers to these questions you might find one of the 4 reasons below keeps you focused on consumer apps for the foreseeable future.

1. You like to work alone

The creation of the app stores enabled vast numbers of individual developers to create and monetise their own apps. Amongst the revenue earning developers targeting consumers, almost 43 percent are in one person companies and practically all of those don’t involve anyone else in development. Of the developers building apps for enterprises, only 13.3 percent are in one person companies and those are almost exclusively doing contract work. The one person enterprise development companies earn 24% more revenue than the equivalents building consumer apps but it’s definitely not the independent developer lifestyle they’re living. In general the enterprise developers earn more than those developing for consumers at every team and company size, with the difference increasing with team size up to the 500 employee mark. Above that revenues from app development per person drop significantly, although on both sides a lot of large companies developing primarily for reasons other than earning revenue are included here.

2. Direct sales repels you

As you can see from the charts above, enterprise app developers tend to work in larger companies than those targeting consumers. There’s also a bigger company size to team size ratio. The difference here is likely to be sales, marketing and support teams. In general, larger customers need more direct contact. In the consumer apps space it’s possible, although unlikely to be successful, to launch an app and sell it without ever having contact with anyone that uses it. However, although the costs of direct sales staff may seem high, consumer apps with large revenues and user bases typically pay to acquire a decent fraction of users (e.g. via in-app ads, Facebook app install ads, cross-promotion networks). We don’t have any data to compare the cost of sales for these developers but I wouldn’t bet that the average cost of sales as a fraction of revenue for the successful consumer app developers was significantly lower.

Whilst subscription revenue is by far the best earner for consumer app developers, it is one of the worst revenue models for enterprise developers. In the enterprise market per user/device licensing and other sales outside of app stores is a key revenue component for most successful businesses. This aspect of a business can often be very unattractive to developers.

3. You want complete creative control

On average [tweetable]enterprise app developers earn a much greater fraction of their revenue from contract work[/tweetable] (consulting). The most successful enterprise app businesses earn 25-75% of their revenue in this way (we only have 25% bands). It’s likely that there’s a lot of custom integration work involved in selling to larger enterprises. Even those selling to SMEs often offer customizations.

Developers who consider their apps an art-form and build them primarily to earn a living doing something creative they love will probably want to stay away from areas where a lot of contract work is involved. Those same developers are also not very likely to be inspired to help automate business processes or other similarly mundane but useful enterprise app functions.

4. You love Android development

There are some very major differences in the revenue models and revenues of enterprise app developers depending on their primary platform. The really big revenues are currently being earned by HTML5 developers (> $100k per developer per month). Next highest revenues are for iOS developers (a little over $50k per developer per month) but it seems that [tweetable]a lot of iOS app enterprise development is currently outsourced[/tweetable], since more than 70% of these earn >75% of their revenue from contract work and 40% earn 100% of their revenue in that way.

Compared to these two, the Android developers are the poor cousins. Despite having a much wider range of revenue models, their average revenue per developer is much lower (about $14k per month). Enterprise development still pays very slightly better on Android than building consumer apps but given the other trade-offs discussed above, it might seem like a relatively poor deal.

Running out of excuses?

When we published the last article, showing that enterprise developers make 4 times as much revenue as those targeting consumers, a lot of responses suggested that this difference was all in the large enterprise sales market and required large direct sales teams. While there is definitely some advantage to scale, this is certainly not the case. Not all enterprises are large and there’s a very big market of SMEs looking for mobile software to make their businesses more efficient or convenient. Although the most profitable enterprise app development companies are in the 51-500 employee range and solo developers are only marginally better off targeting enterprises, a 2-5 person company makes more than 4 times as much revenue on average by choosing to build enterprise apps. The 2-5 person enterprise app business is much more likely to be building HTML5 hybrid wrapper apps rather than the native iOS or Android apps of a similar sized consumer focussed business. They are also likely to be spending more of their time (although far from all of it) doing contract work. If neither of those things bothers you then it might still be worth considering the enterprise market for your next app.

Categories
Business

Why are you still building consumer apps? Enterprise pays 4x more!

Consumer apps are the focus for all the excitement and media attention in the industry. Enterprise software is dull and boring, right? Not if you care about making money! Our data shows [tweetable]enterprise developers generate 4 times as much revenue as those targeting consumers[/tweetable]. Besides, what’s so dreary about reinventing the way people work in a mobile and connected world?

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“Wait”, I hear you cry, “what about BYOD and the consumerization of IT? Surely the future is all about selling computing tools directly to professionals?” Well the data from our April-May 2013 Developer Economics survey says that future isn’t here yet. In any case, if you’re going to collaborate with colleagues then you all need to be using the same tools, so most of the time the company still has to choose and buy them.

We asked developers which type of customer they primarily targeted from a selection of Consumers, Professionals, Enterprises, Other and Not Sure. Using this data we can compare the fortunes of developers serving each of those audiences.

It’s entirely natural that a new consumer-focussed computing market for smartphones and tablets spawned a large industry of consumer focussed app development organisations. The market is rapidly maturing now, with smartphone penetration above 50% in all developed markets and tablet adoption not far behind, yet still almost 75% of companies involved in app development are focussed on consumer apps. Traditionally software spending has been much higher in enterprises and although there is a shift towards employees selecting their own technology and tools it is surely not happening as fast as the shift to mobile computing. This leaves a gap in the market for developers focussed on apps for the mobile enterprise to fill.

A little over 12% of the money-making developers in our survey were targeting the enterprise yet they made on average almost 4 times as much revenue (per person involved in development) as those targeting consumers and typically had more than 4 times as many people involved in app development. Developers targeting professional users rather than their companies only made about 50% more revenue per person than consumer focussed developers and had about twice as many people involved in development. So, while this is a promising market, [tweetable]independent app developers are not replacing the enterprise IT department just yet[/tweetable].

At the bottom of the revenue pile it’s no big shock to see that developers who aren’t sure about their target market make by far the least money. How do you build a great product without knowing who it’s for? The small number of respondents who felt their audience didn’t fit one of our categories, selecting “Other”, may possibly be targeting too small a niche since their revenues are not far above half those of developers building consumer apps.

It’s important not to get confused by the similarity of the increased development team size and higher revenue figures – the chart shows revenue per person, so the effect multiplies. That is, the average enterprise focussed app development organisation is making around 16 times as much revenue as the average consumer focussed one in total. That makes the total revenues of the enterprise developers significantly greater than those of the consumer developers, even though there are around 6 times as many of the latter. Averages hide a lot of detail though. You don’t have to build a large company to be extremely profitable in the enterprise mobility market – smaller development teams actually have much higher revenues per developer. More details on that and important differences between consumer and enterprise app developers will be the subject of a future post.

Agree with our figures or disagree? Drop us a comment.

– Mark (@__MarkW__ )

Categories
Business

Are you using the right app revenue model?

The most popular revenue models appear to be those that are easiest to implement. The developers using them tend to have lower revenues. This may be due to greater competition or it might just be a result of less sophisticated app businesses producing less valuable apps. There are some interesting differences between platforms but [tweetable]subscriptions appear to be a relatively untapped gold mine everywhere[/tweetable], although maybe not for everyone.

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Revenue models versus average revenues

Our research shows some significant variation in average developer revenues depending upon the revenue models being employed. An investigation of the relative popularity of revenue models versus revenue generated across the major platforms produces some useful input for app development strategy and planning. Unsurprisingly, the simplest revenue models to implement, like paid downloads and in-app advertising, tend to be the most popular. The often repeated stereotype that “Android users don’t pay for apps” also leads to a strong preference for ad-supported apps on Android, while iOS developers prefer paid downloads. Slightly more surprising is that although Android has a larger user base who seem less inclined to pay up front for their apps, freemium and other in-app purchase schemes are less popular than on iOS. It would seem that on average [tweetable]iOS developers are more sophisticated in their approach to the app business[/tweetable].

Revenue distribution

When considering revenues it’s important to note that the distribution of revenues in the app business is highly concentrated at the top and there are a lot of hobbyists who earn nothing. We exclude most hobbyists, those who’ve not started earning revenue yet, the mega-rich chart toppers and large publishers from our analysis by only counting developers with between $1 per month and $5 million per month in revenues here. Even so, there is a fairly large “middle class” of smaller independent developers with a lot of users and high revenues. As such there’s a massive difference between mean and median revenues even in this subset.

The revenues shown in the chart above don’t necessarily all come from the platform or revenue model they are linked to – [tweetable]developers use multiple revenue models and multiple platforms[/tweetable]. For example, amongst developers who target iOS first the in-app advertising model appears to do much better than for those who target Android. Although iOS advertising rates are higher, this isn’t the primary cause, since very few of our iOS respondents derived most of their revenue from ads. The actual reason is that many of those using ads also used a freemium upgrade model (presumably paying to remove the ads and possibly add features) and derived a significant fraction of their revenue from that also. The same strategy does not appear to work as well on Android. Although not entirely accurate, we’ll refer to revenues by platform and revenue model as a shorthand in the rest of this post because it’s a reasonable approximation in most cases.

Less popular, more people, more revenue

Interpretation caveats aside, one thing that seems clear from this data is: [tweetable]the more popular the revenue model, the less successful the developers using it[/tweetable]. The exception here is contract work, which shows much higher revenues on iOS and lower on Android relative to its popularity. Although there’s some evidence that contract development rates for iOS are slightly higher, the difference is mostly due to where the platforms are most popular with developers. Otherwise, most revenue models show slightly higher mean revenues on Android but significantly lower median revenues. There’s also a link between the average number of people involved in app development in an organisation and the revenue model. More people involved, may signal more complex development for the associated apps. The fact that this is also associated with increased revenue is possibly related to using the extra development complexity (or team size) on a more sophisticated revenue model. It is not the case that more people involved results in higher average revenues per person in general. In fact, there is a very strong peak in mean revenue per person for organisations with 6-10 people involved in development – there are probably some significant efficiency losses above this size.

The subscriptions gold mine

Across both Android and iOS, [tweetable]subscriptions generate by far the highest mean revenues[/tweetable]. Median revenues for subscriptions are also higher than every revenue model except contract development. At the same time, only just over 10% of developers use a subscription model and the average number of people involved is lower than for all but the simplest revenue models. Mean monthly subscription revenues for Android-first developers are 3 times higher than for their iOS-first counterparts. It seems that Android users not paying doesn’t apply to subscriptions. However, median monthly subscription revenues on Android are less than half those on iOS, so there are a smaller number of very big winners with Android-first subscription businesses.

Should more developers be trying to build subscription-based businesses? Almost certainly yes, but they’re not for everyone. While 53% of developers using the paid download model and 45% of those using in-app advertising are in 1-person companies, that’s only the case for 20% of subscription businesses. In fact 53% of the subscription businesses in our survey had more than 5 people, not all of which are directly involved in app development. This is because many popular subscriptions include continuously updated content and there’s significantly more work (and cost) involved in providing ongoing content for subscribers. Our survey has also shown that money is not a primary motivator for lots of developers and managing the content side of the business may not be something they’d want to be involved with. For entrepreneurs looking to build successful app businesses, the subscription model is definitely worthy of further investigation.

– Mark

Categories
Business

App monetisation: Games vs. Enterprise and Business Apps

The mobile apps business is maturing and while most of the media attention is still focussed on the latest app store success stories, developers are finding lots of better ways to improve app monetisation. Considering all revenue sources, which categories of application are generating the most money and what’s the competition like on each platform?

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App Stores not the answer?

In our last developer economics survey we asked developers to give us a breakdown of their revenue from different sources. Of the 1,695 developers earning between $1/month and $5 million/month who reported their revenue breakdown to us, 55% generated some of their income from app stores. There is a negative correlation between the fraction of revenue an organisation earns from app stores and the total revenue they earn per person involved in app development. That is, the more you rely on app stores for revenue, the less you are likely to make any. By excluding those with revenues above $5 million/month, we’re ignoring the very top of the store charts where the bulk of app store revenue is made. However, this is just a handful of developers, who would otherwise have an extremely disproportionate effect on the average. It’s also worth noting that [tweetable]there are limited costs involved in app store publishing but it produces the lowest average revenues of all sources[/tweetable] in our survey – it’s clearly not the easiest way to build a profitable app business.

Is there gold anywhere but games?

With games accounting for around 75-80% of all app store revenues it’s possibly not surprising that they were the most popular category of app amongst the developers in our survey. Given the chart above it shouldn’t be surprising that they are far from the most profitable (~$2,500/person/month more than the lowest mean income and the lowest overall median income). So [tweetable]which were the most profitable app categories? Business Productivity and Enterprise apps[/tweetable]. However, there are some significant differences between platforms so it’s worth playing with the interactive chart below to spot any opportunities that might be of interest.

[tweetable]Median developer revenues are higher on iOS than Android across all categories[/tweetable], but in some categories mean revenues are higher on Android. This shows that there are some developers managing to exploit the much larger market on Android successfully but most developers are still financially better off on iOS, including revenues from outside the app stores. Where average revenues across all platforms were higher than either iOS or Android, web developers were usually making the most revenue in that category.

The averages in the charts above still hide a lot of potentially interesting detail on where the best opportunities in the apps market are. Those wanting a more complete analysis should look at our App Economy Forecasts report.

Categories
Business

How to price your app

To matter on the App Store, your app needs to be priced at 99¢, right? Or does it?

Making money from your app is really difficult. Pricing is intuitively an important part of the potential of any app. Price too high, and you price yourself out of the market, but price too low, and you’re leaving preciously needed money on the table.

Michael Jurewitz comes to the rescue! In a five part blog post series, the Apple veteran explains the ins and outs of app pricing, tackling crucial issues like differentiation, pricing power, price elasticity and a practical plan to optimise prices based on your app’s data. Our favorite take-away? Solve a difficult and important problem. Then charge what your software is worth. A must read for every developer who seeks to rise above the app poverty line.

The posts are based on a talk  from the Çingleton and NSConference events.

Michael Jurewitz – Çingleton 2012 from Çingleton on Vimeo.

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Business

Engagement drives In-App Purchases for games, says Apsalar

Today’s most successful developers are giving their apps away in the app store for free, and, if done correctly, it’s an effective monetization model. At the end of October, of the top 15 grossing apps in the Apple app store, 14 of them are completely free.

This model can be both lucrative (when done correctly) and nerve-wracking, since companies are spending time and resources developing and marketing a product that they subsequently give away for free.

Fortunately for developers thinking about making a game, Apsalar’s Big Data Lab has gathered insights on some 400M unique active devices to help developers make better decisions and figure out what genres of game app developers should be making more of in order to maximize revenue.

For this report, we examined data on millions of in-app purchases. Our goal is to try and inform developers with knowledge on which game categories are most effective at driving in-app purchases and how engagement correlates to purchase events.

Strategy, Trivia & Adventure most effective at driving IAP

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Our data shows Strategy, Trivia, Adventure, Family, and Role Playing games have the highest propensity for in-app purchases. Also noteworthy is the significant drop-off between the top 5 and the bottom 5 categories, as the “Simulation” category has generated about half as many in-app purchases as the “role-playing games” category. One more interesting data point on the above is how low “Action” games rank in terms of in-app purchases. The shift from predominantly casual games on mobile to more hardcore games (i.e., Infinity Blade, Rage of Bahamut, etc.) has driven some companies, who previously pioneered casual games to consider building a hardcore, action game. This data suggests that companies looking to expand beyond casual games should actually consider strategic, role-playing games as viable alternatives.

The next piece of data we looked into was average daily session length by app category. This data shows us how long users have been spending on average per day inside these games.

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The sweet spot in terms of engagement is around 2 minutes. Interestingly, while arcade games have an extremely high average daily session length (as seen in the previous graph), they generate a relatively low number of in-app purchases.  One possibility may be that these games actually monetize best not by the freemium model, but by a business model known as paymium. In the paymium model, developers have users download free versions of their games then generate revenue by upgrading their users to, for instance, a $.99 or $2.99 paid product.

Strong correlation between IAP and engagement

The graph below presents a consistent picture between engagement and monetization, except for 2 game categories:

  • Arcade- High engagement with low monetization
  • Trivia- Relatively low engagement with very high monetization

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The graph shows almost a straight correlation for all the data points, except for Arcade and Trivia, noted above. Trivia doesn’t appear to be an outlier though. That category generates a healthy level of in-app purchases but is still in a high engagement quadrant. The outlier is Arcade. This category has similar engagement to Trivia, Role-playing and Family (three categories that are high in in-app purchases), yet is at the bottom of in-app purchases.

A key observation is that there is no game category falling in the top left quadrant (i.e. low engagement + high in-app purchases). Which means that game developers have no chance of generating in-app purchases without high engagement.

So the key takeaway for developers using the freemium model is that it’s still critical to first focus on building a great, engaging game in one of the categories where in-app purchases are highest. Once developers have managed to do that and have engaged users, offering in-app purchases such as special items and unique gifts is a great way to take a free app and turn it into meaningful revenue.

This post first appeared on the Apsalar blog.

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Business Tips

How to beat 2/3rds of app competitors

Our mission here at Developer Economics is to help developers create a better app business. A recent survey from App Promo highlights the pain points once again, and offers some hints about the solution.

Let’s start with the bad news…

4 out of 5 developers admit that their app doesn’t make enough money to be considered a standalone business. 2 out of 3 doesn’t break even. This confirms our results from the Developer Economics 2013 report, where 67% of developers who want to earn money live under the App Poverty line (revenues of less than $500 per month).

Despite these disconcerting numbers, and despite developers indicating discovery, making money and turning the app into a business as the main challenges, most developers undervalue the importance of marketing their applications. According to the App Promo survey, 2 out of 3 developers don’t have a marketing budget, and a quarter of developers doesn’t market their app at all.

And yet there is hope. A full 81% of developers said that they would not abandon their app. App Promo found that the survivors (experienced developers with apps that are over 3 years in the market) have succeeded in creating an interesting app business. They report revenues earned to date of over half a million, 100% of them breaks even and 78% considers their app successful enough for a standalone business. And yes, they do market their apps: over half of the respondents in this group has marketing budgets of over $1000 per month.

App Promo’s results also include differences between platforms, the use of various revenue models and marketing techniques, and more. The full results can be downloaded here.

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