Distilling market noise into market sense

VisionMobile is the leading research company in the app economy. Our Developer Economics research program tracks developer experiences across platforms, revenues, apps, tools, APIs, segments and regions, via the largest, most global developer surveys.

Developer Economics 2011 – Why app stores are a one-way street

[Which are the top app distribution channels for developers? Which platforms offer the highest revenue potential? In this part 2 of our 3-part Developer Economics blog series, Marketing Manager Matos Kapetanakis looks at how app stores have effectively re-written the distribution landscape]

Developer Economics - Why app stores are a one-way street

App Store Boulevard

Since the launch of Apple’s App Store in 2008, developers found a market delivery channel that greatly reduced time-to-market and time-to-payment and provided a direct channel to consumers. The result: users started buying more and more smartphones, accessing app stores and downloading billions upon billions of apps.

Today, app stores have become the a one-way street for developers. Over 45% of the respondents in our Developer Economics 2011 report used an app store as their primary route to the market, climbing nearly 30% since last year. At the same time, we found that the use of other distribution channels (own portal/website, 3rd party aggregators, via customers, Telco portals) has greatly decreased since last year’s research.

Developer Economics 2011 - Top app distribution channels

The decline of traditional challenge comes as no big surprise; Telco portals, that once upon a time dominated content distribution in the US and Europe, have now lost their allure. “Downloads through operator portals are still less than one million per month on average per operator. Compare that to one billion per month downloads from the Apple App Store”, noted an executive at a mobile app development house who participated in our research.

But why do developers choose app stores over other distribution channels? Reach is by far the most important reason behind developers’ preference for app stores as a distribution channel. More than 50% of developers distributing through the Apple, Google, Nokia or BlackBerry app stores cite the ability to sell to more users as the primary reason for app store selection. (also, see individual app store ratings in the full report)

However, the use of app stores as a primary distribution platform varies greatly by platform. As we found in our research, the use of app stores is much more pronounced for platforms that have a native app store.

Developer Economics 2011 - top 2 app distribution channels vs platform

As some of you will be quick to point out, Windows Mobile/Phone developers use their own portal/site to an almost equal extent as their platform’s native app store.  We attribute that to three factors: First, as we discussed in the previous post, Microsoft has tapped into two developers segments (Xbox, Silverlight), which are new to mobile. Second, the Windows Phone Marketplace is rapidly growing, but still lagging behind in terms of app volumes. Third, distributing through the Windows Marketplace has only become mandatory with Windows Phone.

The app store duopoly

Despite the many opportunities in this accelerating app economy, not all app stores enjoy the same level of success. Out of the 70+ app stores currently out there, only a handful have managed to emerge as winners. Out of those, the Apple App and Android Market are in a league of their own.

Together, the Apple App Store and Android Market hold over 700 thousand apps, while their cumulative downloads are somewhere in the area of 20 billion. While other app stores have also enjoyed a level of success, this huge gap means we are in effect witnessing an app store duopoly.

Theoretically, the most reasonable approach for developers would be to distribute their apps via multiple app stores. However, in practice, the app store landscape is far more fragmented than one might think; each app store has its own developer sign-up process, app submission process, artwork and paperwork requirements, app certification and approval criteria, revenue model options, payment terms, taxation and settlement terms. This implies that the marginal cost of distributing an application through one more app store is significant, contrary to popular perception.

Plus, there are added entry costs to each platform, in the form of time and money spent. Some platforms have a steep learning curve (see full report for each platform’s learning curve), while others have expensive tools or poor documentation.

Looking at Android, we see that more and more independent app stores, like Andspot, AndAppStore, SlideME and Amazon, are competing with Android Market for user attention and developer app submission. The same also applies to operator and OEM app stores. There is simply too much app store fragmentation.

We believe that the app economy needs a single entry point for application submission (one per platform), along with a million distribution channels:

– one app submission process, i.e., a single website, single contract, single approval process, single billing & settlement and a single mix of business models per platform

– a million distribution channels, i.e., a million different channels through which to retail and sell apps to consumers with a variety of prices, promos, bundles, and regional access that help developers more effectively market their applications.

App revenues and monetisation

The single most important aspect of any business is monetisation. But, in this gold rush of apps, not everyone is making money.

Around 30% of our respondents make less than $1,000 USD per application in total, which means they’re actually losing money, considering it takes months to develop an app and that some platforms have expensive tools.

Which platforms have the largest revenue potential? Monetisation differs from platform to platform, with Symbian having the lowest revenue potential, as our research indicated. Taking Symbian as having a revenue index of 1, we can compare its revenue potential with other platforms. iOS topped the chart, making 3.3 times more money per app than Symbian developers followed by Java ME (2.7x) and BlackBerry (2.4x).

Developer Economics 2011 - Platform revenue index

Another interesting aspect is how the actual revenues compared to the expectations our respondents had. For example, while Java ME offers relatively high revenues per app, Java ME developers did not necessarily respond positively when we asked about their level of satisfaction with revenues (i.e. whether revenues were above or below their expectations).

Developer Economics 2011 - revenue expectations

The previous graph is quite telling. The good news? One in three developers see the level of revenues they expected. The bad news? On average, there are five times more developers who are dissatisfied with their mobile application revenues than there are satisfied developers.

To see the top revenue models, download the full report.

The big picture

What does it all mean? First and foremost, apps have irreversibly changed the way we discover, monetise and distribute content. Second, it’s not Android Market vs. the Apple App Store, but app stores as a whole that have become a one-way street for distributing apps, leaving Telcos, aggregators and OEMs in a diminished role as distribution channels. Third, monetisation may still be a pain point for a significant portion of the developer base, but at the same time 1,000s of companies are after commissioned iPhone or Android work and salaries are on the rise.

One last note: We have yet to see the potential of handsets as app retail outlets, but we believe that OEMs will soon be leveraging on their potential to bundle apps anywhere on the handset real estate and to any region. And, as we know, there’s a higher profit margin in real-estate than in the manufacturing business.

– Matos

For more Developer Economics updates, follow us on Twitter (@visionmobile).

…and for those of you who still haven’t done so, download a free copy of the Developer Economics report.

  • Lot of difference in the overall numbers. Its for sure that Apple is slowly loosing its share after the Launch of iOS 5. At the same time Android is picking up a lot. Its a amazing to see such in-depth reports which give us so much info. Thanks

  • As you indicated App Stores are too fragmented. I believe that consolidation will naturally happen as the market matures. We'll end up with one virtual winner per platform and a number of "also rans." I wrote about this as a guest on this same blog here: http://www.visionmobile.com/blog/2010/01/the-mobi

    • @Francisco
      There's bound to be some consolidation. Question is, what happens to big, independent app stores, like GetJar. Also, it'll be interesting to see if Amazon will manage to make a difference.

  • I believe that consolidation will naturally happen as the market matures. We'll end up with one virtual winner per platform and a number of "also reins…
    Thanks for post..

  • Chinese Android User

    Thanks for the detailed report. Do you have a view on how this varies in Non-US/Europe geographies? IE in China, native android app store is buggy/unstable.

  • J M

    From my experience, it is extremely difficult to generate a decent amount of revenue on the App Store:

    – Apps are undervalued. The average app price on the AppStore is $2.50. Price your app just a couple of dollars higher than that and your sales plummet, no matter how valuable the app is! That's because the App Store is full of free and $.99 apps that have already set the price expectations.

    On the price level, serious productivity apps have to compete with cheaply priced app that tend to either be simple apps developed in one afternoon by teenagers, such as apps that make fart noises, or good apps developed by companies (Apple, CNN, etc.) that make their revenue from other sources.

    There might be a few good apps that generate decent revenue, but those tend to be rare apps that appeal to a large audience and become instant hits, such as Angry Birds.

    – The cost of advertising a cheaply-priced app is usually higher than the revenue the ad campaign generates.

    – Relative to the desktop market, the portable device market is still small and more difficult to target.

    – App developers incur many expenses. The development cost includes spending considerable time writing and updating code for different devices and OS releases, buying several devices for testing, developer license fees, etc.

    – Apple takes 30% cut from every App Store transaction.

    – The revenue generated from displaying banner ads inside the app is negligible.


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