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Which apps make money?

[Which apps make money - and how? Andreas Pappas takes another look at the results of VisionMobile's Developer Economics 2012 survey and comes up with interesting new insights on app monetisation: how does app revenue vary by app-category and by country? Is there a correlation between time spent developing an app and they money it makes?]

VisionMobile - which apps make money

In Developer Economics 2012 we discussed app revenues and how they vary across platforms. We found that overall, around half of all app developers that are interested in making money did not earn a sustaining income, i.e. they were below the “poverty line”, which we drew at $500 per month per app. Of course the real poverty line will vary widely across countries and regions: while $500 per month may not be enough for a San Francisco-based developer, it could be more than enough for a developer based in Bangalore where average living cost is less than a third, according to Numbeo.

But what are those factors that determine how much money an app will make? In Developer Economics 2012 we looked into revenue breakdown by platform and revenue model and identified those platforms and revenue models that generate the highest average revenue per app per month. We are now revisiting our analysis to go a bit further and see what other factors matter when it comes to generating revenue. Throughout this analysis we have excluded statistical outliers, in this case the top 5% of revenue earners.

Solo developers earn a lot less than those working for clients

There are significant differences between developers that work on their own projects and those that work for clients, either as direct employees or contractors.

Developers working on their own projects reported average app-month revenues of just 30% of revenues reported by commissioned or employed developers. The caveat here is that developers working for clients may not have visibility of their clients’ app revenues so it may be the case that they reported estimated figures or that they, instead, reported their own revenue, which may be coming as a salary, irrespective of app revenue.

Looking into individual client industries and excluding those developers that work just on their own projects, we see a large variance between different industries and sectors. IT services & games have an average app-month revenue around $1,500, less than half of the average app-month revenue generated in banking/finance or real-estate, which is over $5,000.

average revenue per app month by client industry

In the games and software/IT industries, revenues are, to a large extent, generated by app sales which is a core business activity. In other verticals, such as banking & real-estate, apps are just complements to the business, so developers’ revenues are not directly tied to app revenues.

It is worth highlighting that average revenues are significantly inflated by top revenue earners, i.e. they are not representative of typical revenues. However, they work well for comparisons between different industries.

Communication & Social networking apps lead the revenue table

We also looked at revenues across different types of apps. Again we removed outliers, i.e. the top 5% in each category. The clear winners here are comms & social networking apps such as Skype or WhatsApp for example, generating – on average – 20% more app-month revenue than the next best category, medical and fitness apps.

average revenue per app-month by app category

This can be attributed to the added value that comms and social services provide as the user base increases, i.e. the strong network effects specific to this app category. Utilities, on the other hand, exhibit very weak network effects as their utility is dependent upon user base, which seems to be quite fragmented, i.e. utilities mainly address the long-tail, niche user needs.

Spending more time developing apps can be very rewarding

Next we looked to see how revenues per app-month are affected by the time it takes to develop an app. More development time could indicate rigorous testing and better app quality so, not surprisingly, the more time developers spend on their apps, the better the revenue potential. Apps that take 7-12 man-months make on average 11 times more money than apps developed in less than 30 man-days.

average revenue per app-month by development time

All the above graphs do not take into account platform effects, i.e. they are based on data across all platforms. This means that there may be variations by platform not shown here. For example, looking at development time vs. revenue for iOS and Android, we observe that there are quite a few differences in the relative values. To some extent, the particular distribution could be the result of our statistical sample, but it indicates that there are variations among platforms.

In the iOS vs. Android comparison, for example, we observe that once iOS developers overcome the 1-month limit, their revenue increases 6-fold while on Android the increase is about half, just a 3x increase. This may have to do with the revenue potential of each platform, which is clearly higher on iOS.

However, if we look at the 1 to 6 man-month period, we observe that there is no increase in iOS revenue but a huge increase for Android. This effect could be related to the fragmentation of the Android API and hardware, requiring more effort and development time in order to reach a larger user base.

Revenues vary significantly by country

There are significant differences in revenue potential between countries. Developers in the US generate 40% more revenue per app-month than developers in the UK and almost 5 times as much as developers in China.

These differences have a lot to do with smartphone penetration per country, but also with regional socio-economic factors, familiarity with smartphones and consumption habits. However, developers based in a given country do not only target that country’s population. For example, 40% of developers in South America see high demand for their apps coming from North America. So there are other factors that come into play here, such as app pricing: developers in countries with lower per capita income may price their apps more competitively than developers in richer countries with higher living costs.

Apart from the factors presented here, there are multiple other variables that could affect app revenue, such as target markets, development experience and marketing channels used. We’ll continue digging into these factors and report our latest findings in the next report in the Developer Economics series and through our blog. The next report will be out in late January - so stay tuned!

We’d also like to hear your views on this. What do you think really matters when it comes to generating app revenue and what do you think we should look into next time?

Andreas (@PappasAndreas)

  • guiguito

    Very interesting article !

  • http://www.buzinga.com.au Logan Merrick

    Hey Andreas,

    Awesome post man, very informative! Sounds like you've done a fair bit of research, and in that case I admire your persistence.

    You say that developers in the US make more money. I just want to clarify, do you mean that they make more money because they are located in the US or are you saying that apps released in US territory on the app store are prone to making more money, for the reasons stated?

    Regards,
    Logan

  • http://www.visionmobile.com/blog Andreas Pappas

    Hi Logan – glad you found this informative.

    The graph shows revenues by region where developers are based, not region targeted. So it should be read as "developers based in the US make more money". Of course the reason why this is so, is not that they are physically based in the US, but because they are more likely to target the US app market compared to developers based in other regions. So while the root cause is not the developer's physical location, there is some correlation between revenues and physical location.

    Another graph that would probably make more sense to show is "revenue by region targeted" – will have to see how this works out and, time-permitting, will update this article or write another one.

    Cheers,

    Andreas

  • http://www.appriva.com/ android privacy

    The most used aspect of your smartphone is the talking, texting and e-mails. These can lead to huge monthly bills and all companies would like to control these costs while leaving their staff on a plan. Viber and Skype are both applications that use the data network to make calls and have chat sessions, without impacting your call minutes.

  • http://www.androjar.com James

    Nice informative post Papas. Big companies with deeper pockets can hire team of developers and create complex Apps, which are sold more than smaller app developed by solo developers. Big companies also have enough money to market their apps. May be these are the reasons big clients can pay more.

  • http://www.ringcentral.com/phone-system/index.html BusinessPhoneSystems

    US countries are really spending money to buy applications that's why there are a lot of android developers are onto creating application that really help a lot

  • http://www.allmobilespec.com/ lilyjoin

    So it should be read as "developers based in the US make more money". Of course the reason why this is so, is not that they are physically based in the US, but because they are more likely to target the US app market compared to developers based in other regions.

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