The focus on mobility and mobile platforms as the growth engines for the tech industry’s future is now so engrained into most people’s heads that it seems nearly blasphemous to suggest there could be faults in that thinking. But there’s a question that keeps popping into my mind—is the mobile app ecosystem really sustainable at its size and rate of growth?
I’m increasingly starting to think that no, it isn’t.
Some simple math helps with my reasoning. First, we’re at well over a million (likely around 1.2 or 1.3 million) apps in both the iOS and Android stores. Yes, the revenue numbers paid out to developers keeps growing as well, but it doesn’t seem to be growing nearly as fast as the number of apps are. So, basic division would suggest the amount of payouts per app is decreasing. In fact, I’ve seen numbers which suggest that a large majority (>50%) of mobile apps make only a few hundred dollars a month.
Now, of course, some of this could be due to the fact that many apps have moved to a freemium model, where the app is free, but in-app purchases and advertising generate the necessary revenue for developers. But in-app revenue still counts towards those revenue payout numbers that Apple and Google love to talk about, so the lower average per app still seems relevant.
With regard to advertising, mobile ads have notoriously poor click-through rates, so the amounts that ad networks, app developers and others selling advertising can charge on mobile devices is still relatively low.
So, as with many industries, it seems a tiny, single-digit percentage of applications and app developers are making the lion’s share of the revenues. Everyone else is just doing it for fun or holding onto the dream of being one of the very select few who do make it big—at least for a while—in the mobile app business.
Now, as an entrepreneur myself, I’m certainly not going to fault small businesses for having big dreams and hoping to generate a big financial windfall. More power to you.
But as a musician and someone who worked in the music business, I also know that 11+ years after the introduction of the iTunes store, we haven’t seen an explosion of new artists that have all reaped large financial gains. Instead, we continue to have a reasonable number of long-term popular artists, a few one-hit wonders and occasional breakthroughs of new artists that hit it big. Consider this, when Apple chose to release a free album to their hundreds of millions of iTunes users, they didn’t pick a relatively unknown new artist—they went with one of the most successful bands of all time. (Don’t get me wrong—I’m a big U2 fan and I wasn’t one of the people who wanted to delete their free album, but you get my point.) [pullquote]Instead of being cognizant that it’s very difficult to make it big—as most aspiring musicians know and readily accept—mobile app developers seem to think that their paths to the top are paved with gold.”[/pullquote]
The relatively harsh metrics of the music industry are widely-known, but I don’t see that same kind of thinking and logic being applied to the app ecosystem, even though—I think—they’re relatively comparable. The problem is, instead of being cognizant that it’s very difficult to make it big—as most aspiring musicians know and readily accept—mobile app developers seem to think that their paths to the top are paved with gold.
I believe some of this fault lies with tech investors, as well as the tech press, who promote the myth of mobile app millions, instead of the harsh realities that most mobile app vendors face. Of course, no one seems to want to burst the mobility bubble, for fear of what might be exposed. But it’s a story that needs to be told—and told—and told again.
The reason is, we’ve now reached a point where there are too many apps (yes, I said it) and there needs to be more focus on quality versus quantity. But if everyone involved seems to think building more mobile apps is their ticket to millions, the problem is just going to get worse. And that’s, ultimately, why I believe the app ecosystem could end up buckling under its own weight.
Until we’re all willing to take a more realistic look at both the pitfalls and opportunities in the mobile app ecosystem, I’m afraid we’re heading towards an implosion instead of the explosion that many still expect.
The apps ecosystem seems to be in the dark ages still:
1- no recurring revenues. As a salesman, I’m paid to know that your easiest customer is an existing customer. Yet there are no maintenance fees/subs on apps. I feel a little bit sorry for the guy to whom I gave less than a handful of bucks 2-3 years ago for the 3rd-party app I use most on my phone (GReader Pro, an RSS reader). Matter of fact, I’d be happy to pay for OS updates on my mobile like I do on Windows, if that helps keep updates coming.
2- no Spotify/NetFlix-like bundle subscription service. Average app spend is very low. Apps are content like music and video. A reasonably-priced App Sub ($5/mo ?) that’d give you access to a catalogue of curated best-of-class apps would help weed out junk apps and help part people with their money. Recurringly.
3- The barbarians are *inside* the gates. There are so many apps, the overwhelming majority extremely bad, so few external reviews, and ratings don’t often fit *my* wants and needs. I dread having to look for a new app, because I typically have to install 3-5 before I find one I like. Thankfully, Google Play allows for some time (2hrs now, used to be 15 mins which was a rush especially if the telephone rang during testing ^^) to get your money back if you don’t like a for-pay app, but iOS doesn’t even do that. I still think listing an app should cost a yearly sum of money per app, so zombie apps disappear. And curation should be more aggressive: what counts is not the number of apps, but how good the top 2-3 are. Give them breathing space !
Your zombie idea, obarthelemy, is a good idea. Another is the free slimmed down version that can be pre-tested before purchase. Better yet is the 15 minute trial of the full version. I am seeing fewer purchasers entering comments which used to give a fair idea of an app’s quality.
I do not mind paying for Apps when they are astoundingly good. I wouldn’t even mind paying a couple extra bucks if the app is further improved. The Shakespeare Pro app is an example. Having all the bard’s work in one app with so many features is a treasure.
Namaste and care,
mhikl
I agree to every single point that you bring up, except the last; I don’t think there will be an implosion.
I think of App development ultimately being very similar to web development. Web developers are also faced with a proliferation of websites (competition) and very low click through rates. The number of indie web developers who manage to make a living through their own websites or web apps alone is probably very low. They tend to earn money by building websites for other businesses.
The thing is, this hasn’t exactly resulted in a an implosion for the web.
There might be some dynamics that make web development and app development very different, and may cause only app development to implode. I am aware of any, however.
Fair enough, but I still see things as being way out of whack and I don’t seem many people addressing that issue. Instead everyone seems to keep hoping for the instant millions…human nature, I guess but something that needs to be looked at with a more realistic lens.
I think it may have to my not being in Silicon Valley. I don’t sense the “out of whack” stuff too much and I don’t think many people expect instant millions.
If that is the case though, yes I agree, a more realistic lens needs to be applied.
As has been discussed in some other comments, it will be a good thing if young programmers stopped dreaming unrealistic dreams, and helped companies like IBM to create quality apps for real businesses.
It should ultimately be a good thing. And I think that is the state that web development is currently in.
If you where here you would see some of the same insanity that happened during the dot com days of the late 1990’s. But it is a bit more reasonable this time around.
As for people expecting instant millions, well I know some do and when you see silly ideas like Yo! get funded you can see why they think they can.
Yes. I do hope that the good programmers of all ages help out companies like IBM and others to build quality apps that are need for the economy to continue to grow. Just think of how many more tablets, iPads and ChromeBooks can be sold once they have the software to make them useful for business.
I am quite optimistic about the future and see positive things ahead for the tech industry. All we need to do is built it!
No.
Apple will not last forever.
The End Date, however, is not clear.
The path that the app ecosystem has exhibited so far is not surprising at all. New industries or markets always start with a proliferation of sellers, then it goes through a shake out leaving a more or less stable set of sellers. The only difference is that compared to automobiles, PCs, oil exploration, and what have you is that the cost of entry in mobile apps is extremely low (even lower than shrink-wrapped software because of the market access provided by Apple’s App Store) and so seller proliferation is particularly profuse. In the end, the mobile apps industry will be like any other major consumer industry in an advanced industrialized country. –Dominated by a handful of very large companies.
Exactly! Also by having a look around Apple’s App Store and other app stores we can see that not every app is of the highest quality as many app developers rushed in to make apps just like people moved to California to strike it rich on the gold rush. But in both cases the easy money either has dried up or is soon drying up. Now comes the hard part and that is maintaing the apps and increasing their quality as Apple and others release newer devices and OS updates that require updates to the apps.
Where I think we disagree is that the difference between the desktop application market and the mobile app ecosystem is that I do see many more smaller software vendors being able to stick around because of the lower costs for app development versus building a full desktop application.
Maybe we don’t disagree. When I say dominated by a handful of very large companies, I didn’t mean that the smaller, mid-sized companies that lie between the majors and what I called, for lack of a better term, ‘hobbyists’, will disappear. It’s the persistence of this vast reservoir of independent, individual app developers, like particles in the void popping in and out of existence, that will be unique.
And a lot of what determines who grows into a major developer is not just app quality, but the ability to rise above the seemingly generic mass of apps in the app store and direct attention to one’s products. So it’s the usual thing, advertising, promotions, and publicity outside the confines of the app store, and the willingness and wherewithal to spend money to generate such will be critical.
Very true. The mistake many vendors make is think that just by putting their app in the App Store that is all they have to do. That could not be more wrong. Marketing still is needed. That means getting your app features on blogs, Internet Broadcasts and even in some cases on TV as well. Much of the tech media is looking for new and cool apps to feature on their shows.
Of course app quality is important but it does depend on what the competition is doing.
I do think that we are in an App Ecosystem bubble but just for consumer apps. There are lots of apps for business that either have not been written or are badly done and could use to be updated. These apps are not ones I expect to sell for $0.99 but be more expensive. Businesses as we have seen over the decades is willing to pay good money for working tools that help them get their jobs done. The thing is that these sorts of apps are ones that take a much deeper understanding of how the business operates. So the low hanging fruit in having the next camera or calendar app of course are going to get done 1st.
For the business apps they will not only need to be cross platform but they might also need to tie in to existing back end systems as well. This is why I expect that they are going to be slower to be built and have a lot higher cost. But in the end the good app developers who learned how to make apps for consumers will soon also be finding work taking care of business customers.
Hence the Apple – IBM alliance.
Exactly! But there is more to it than that of course as IBM is not going to build all the apps for every business need for every sector. This is why we need to keep going as we have decades of desktop software that will need to be reworked for mobile and the web so there is still a lot of work to be done and opportunities to be had.
But do most business apps fit to the vc funding model ? i believe the answer is no.
I am not sure but I would have to guess no. However that does not mean that they do not need to be funded and built. There are other ways to fund things and in some cases it will be the revenues from the desktop software that can be used to fund mobile and web versions of the apps. The thing that I am sure of is that the funding will be found as there are opportunities to make money.
As an IT Consultant and having worked in corporate IT I can see many examples where mobile and web software is being requested. I am seeing more iPads and ChromeBooks that people would like to use for more things to help them control their IT costs. Desktop computers are overkill for many situations where the user only needs to run one or two applications. The people I talk to and the trends I am watching in the industry show that many are ready to make the change as soon as the software is ready.
I wonder , if businesses are interested in apps and willing to fund them, than where’s the problem ? enough programmers will be willing to help for a decent fee.
I agree. But remember that normally it is not the end customers aka businesses that directly fund the development of the software. Of course there are many software projects that are run totally in house and behind the firewall that is not visible to the outside world. So I can totally see some of the good talented mobile app developers getting hired on either as contractors or employees to complete internal projects. But that normally is only going to be the case for medium to large businesses.
For the small businesses they will need the funding to come from elsewhere as most of them buy and use pre-built software that is for their industry. So you could consider them consumers but they are more likely to sign up for software as a service where support, updates and customization is part of the sale price.
I agree that the biggest problem is in consumer apps and that was my focus for this column. The issue with business apps is that many of them are done in-house as custom applications for that organization, but most of the in-house programmers don’t have much experience writing mobile apps or working with mobile platforms. And while there are plenty of younger programmers with skills in this area, attracting them to work for a big company is going to be pretty tough. I mean think about it…if you’re a 25-year old programming hotshot, are you going to work for Coca-Cola or some startup that offers the allure of hitting big, as I referred to in the article. That’s one of the many reasons why I think it’s time for a reality-check in this area.
While I agree with you that there is no quesion that we do need to have a reality check in the app ecosystem. How many camera apps do we need?!
I do think that it is going to be a mix and when the easy money dries up in consumer space they will have to make a choice if they wish to continue to develop apps and use the skills that they have worked hard to learn they will choose to work for whomever ends up paying them. If any big business has problems hiring people they need to make sure that the salary that they are offering is right for the marketplace as I have seen too many times that employers lowball employees and that is why they do not get the right talent for the job.
Or they will be really smart and look at the marketplace, see a need and fill it by running their own business. At the end of the day the bills do need to be paid and they will go where the work is. If they do not someone else will.
“But as a musician and someone who worked in the music business, I also know that 11+ years after the introduction of the iTunes store, we haven’t seen an explosion of new artists that have all reaped large financial gains. Instead, we continue to have a reasonable number of long-term popular artists, a few one-hit wonders and occasional breakthroughs of new artists that hit it big.”
I also have some experience in the industry. I don’t think we’ve yet seen the App Store model applied to artists, yet. The major labels are still the gatekeepers and rights holders, and the industry as a whole is corrupt. But I do think this is changing. I expect the Beats deal to yield a more structured model for artists re: discovery, distribution, and payment. I have called this Apple becoming a label, but that’s not quite right, it would be Apple providing a mechanism for artists. You and I both know how significant a change it would be for artists to receive 70 percent of the revenue they generate. I think where we are now with the music industry is more like apps before the App Store with individual developers dealing with all aspects of discovery, distribution, payment, on their own. As much as iTunes can be used in the manner I speak of the complete package is not as easy as it needs to be, and probably for good reason, Apple cannot pull the rug out from under the rights holders, not right away, but I think that is on the horizon.
Good points. I was trying to using the iTunes/musician story as an analogy to the AppStore/developer case I was arguing–and I think there are some very interesting similarities–but I wasn’t trying to comment too heavily on the iTunes/music industry impact. As you point out, that’s basically another story for another day.
That would be an interesting article. I think a lot of normal people simply aren’t aware of how corrupt the music industry is and how artist percentages/royalties actually work.
You are more optimistic than I am about the end result of what is in effect, the adoption of a form of free agency in the music recording industry.
As the passage you quoted says, the iTunes store hasn’t ushered in an explosion of new artists. ( Or I should qualify that with ‘successful’ new artists.) But why should it? Why should a change in the distribution and compensation model for musicians’ recorded work, if it doesn’t significantly change the cost faced by music consumers, result in a drastic change in the volume of recorded music bought? What the iTunes store addressed was recording sales that was being lost to piracy, I don’t think it could really do much to boost the public’s underlying appetite for recorded music. My kids just aren’t into collecting albums and extended plays as much as I was. Admittedly that’s anecdotal but don’t you think that recorded music has sort of gone the way that comic books have? I.e. it didn’t transition that smoothly to the next generation?
So greater free agency in the recording industry, the emasculation or complete cutting out of the labels, will just further change the distribution and compensation model for recording artists. As in professional sports, and movie actors, they will get paid more, and good for them, especially the big concert and broadcast viewership draws. But as in professional sports and movies, we didn’t see a proliferation of professional athletes and movie stars that could be directly attributed to their free agency. And those who aren’t good, or somehow manage to get famous without being good, just like in the system before free agency, will remain starving artists.
For musicians, athletes, actors, authors, and basically all people in professions where you basically sell yourself, until you become famous and develop your own fan base, you are a commodity. And you will be priced as a commodity is priced, free agency or no free agency. Oh and by the way, musician, athletes and movie stars might not admit it, but it’s in their economic interest to limit new entry into their fields. Why else do you think it’s so hard to get your Actors Equity card?
“Why should a change in the distribution and compensation model for musicians’ recorded work, if it doesn’t significantly change the cost faced by music consumers, result in a drastic change in the volume of recorded music bought?”
It probably won’t change the total amount of music purchased (at least not immediately), but I should be clear, there has not been (yet) a significant change in the distribution and compensation model for musicians. The industry is corrupt, the major labels are the gatekeepers of what becomes successful and what does not. I’m sure you’re aware of payola. That still goes on today through various loopholes.
“And you will be priced as a commodity is priced, free agency or no free agency.”
Another point I should have been more clear on, a recording artist typically receives a very small percentage of the revenue their work generates, as in single digit percentages. The record companies put the artist in debt and make sure he or she stays in debt to the label, often cooking the books to ensure the artist receives almost none of the money generated by their work. The label takes most of it, along with managers and others above the artist in the ‘value chain’.
If Apple can enable artists to connect with consumers directly and also enable the artist to receive 70 percent of the revenue, that will bring about major changes throughout the industry. This is beginning to happen here and there, artists that are their own labels and do take 70 percent or more of the money they generate. But this is not a significant part of the industry (yet).
Imagine two scenarios. One, an artist records an album which sells a total of 100,000 units over the course of a year, an average of less than 2,000 units per week. In the traditional record industry that is a flop that will not even enable the artist to pay back the debt created by the record company (the artist would be doing very well to get a few thousand dollars in his or her pocket), and the artist will likely be dropped. Two, that same artist records the same album, and is able to sell the same 100,000 units over a year through a kind of App Store for Music, generating 100K with the artist keeping 70K. Now the artist has made a living, he or she isn’t rich but they can continue to record and make a living. Of course this kind of thing is possible now, but there is a lot Apple could do to make it more of a turnkey operation for artists.
Obviously Apple has to move slowly here since the major labels are the rights holders and there are deals in place re: iTunes and selling music. I’m not sure exactly what is going to happen but my gut tells me Apple will plod forward and eventually provide better mechanisms that could (I hope) disintermediate the major labels.
Agreed 100% that the size of the app store is out of control, and there needs to be something more than a $100 per year per developer fee to weed out the abandoned, zombie apps, the rip-offs and clones of successful apps, and so forth. Maybe switching to a per app per year fee? Or requiring that all apps must be updated at least once a year with bug fixes and new features in order to remain in the store?
The elephant in the room when it comes to talking about the sustainability of the app store(s) is the distorting (and I would add corrosive) effect of freemium games on the store’s quarterly sales, and thus on the average revenue per app. CF http://www.bloombergview.com/articles/2014-04-30/how-google-can-steal-facebook-s-candy
Freemuim games are not really games, but rather cleverly disguised slot machines. The people who pay to play them are gambling addicts. Even an app with only a modest number of users can rake in incredible amounts of money if it attracts a handful of addicts who will pay and pay and pay for the in-game currency.
Insert obligatory rant about how freemium games industry is a vicious immoral money grab built on the backs of its victims which is degrading the ability of the store’s ethical developers to make a living, tarnishing the reputation of Apple, and making the world a worse place to be in.
The rush to crank out new freemium games is a bubble. There’s a limited number of gambling addicts and they have limited income. It’s also possible that some state governments will realize that these games are essentially digital slot machines, and they will introduce taxes and regulation of freemium gaming just like they have of casinos. One way or another, the party will end, although a lot of developers, users, and addicts will be hurt before then.
The question I have is, if we exclude the game section of the app store, is the average revenue per app still falling, or is the rest of the store in a more healthy state if we remove the distorting effects of the freemium juggernauts on sales and income figures?
I would agree with you 100% if alternate stores were allowed.
Remember the shareware explosion in the ’80’s and ’90’s and all the innovation that brought (yes, along with the junk)? There should be minimal barriers to entry (as a platform) with individual retailers deciding what THEY will offer. A customer should be able to buy and install a program directly from the developer if they choose.
“It’s also possible that some state governments will realize that these games are essentially digital slot machines, and they will introduce taxes and regulation of freemium gaming just like they have of casinos.”
Or more likely, as in state lotteries, they will come up with their own freemium games and partake of the revenue bonanza. There is no happier taxpayer than the voluntary taxpayer.
I wonder whether Apple’s refusal to allow for time-limited free (of course) trial versions is what’s driving the race to the bottom in the app store. I’ve bought three 10 dollar non-Apple apps and all of them I regretted buying. A one or two dollar app, you can shrug off the cost if it turns out to be crap. More than that, then you think twice. It will be a long time before I buy another $10 app. There might be some really good ones there but how am I to know if I can’t try them out?
How about the free, ad-driven versions as the trial version? This is where human nature comes in. Yes, the ads can be annoying but it’s free and I can use it in perpetuity so if and when the day comes that the ads become unbearable, then I’ll spring for the ad-free version. Guess what, for a lot of people, that day never comes.
Im pretty sure, if you can objectively show a pareto chart of the most successful companies who have written apps for consumption, productivity, leisure, etc.. we can deduce, that top 20% of these companies are actually lording over the 80% market share of the revenues paid or earned by the app developers.
And as long as there are these great ideas, and great conceptsfor monetizing these ideas to apps that are meaningful and relevant to consumers who have tendency to pay for such services, and there is also still a great majoriy of groundswell of people willing for the services/leisure these apps provide, then I posit that it will still be sustainable in the near future at the very least, barring any new form of disrupting technologies.
A few years back, Bruce Sterling started using the term “Favela Chic” to describe things like the music business. It’s possible to be very good, and even have a good sized following, but barely getting by financially.
It seems like this fits many different parts of the entertainment industry. You can be 90 percent as good as the best, and be making 10 percent as much money as the best.
I agree that there are a whole lot of people making and financing apps who have unreasonable financial expectations. These people will fade away before too long, but the basic cost of making and distributing an app will remain low. There will be enough casual developers to keep the ecosystem going. It will look more like other branches of the entertainment industry: music, youtube videos, etc.
This was beautiful Admin. Thank you for your reflections.
Great information shared.. really enjoyed reading this post thank you author for sharing this post .. appreciated
Superb post however I was wanting to know if you could write a litte more on this topic? I’d be very grateful if you could elaborate a little bit more.