Is It Too Late To Make Money From Apps?

We’ve often talked about the challenges of entering the app market, especially now that both the iPhone™ and Android™ app stores have over 300,000 apps available. But does this mean that it is too late to create a successful application or to make money doing it? We don’t think so.

In fact, the latest research and reports show a very promising future for entrepreneurial developers as the app market will experience tremendous growth over the next few years. However, in order to take advantage of the market, it is important to understand how each app store works and how to design and position your app for success.

App Forecasts: What the App Market Holds for the Future

Here is where the App store is headed: During 2011 app sales will rise an estimated 77% and top out at $3.8 billion in sales based on data forecasts recently released by IHS Screen Digest. This is across the top stores for mobile applications and includes Google, Nokia, and RIM (BlackBerry). This growth rate will remain fairly steady, and is estimated to top $8 Billion by 2014. But before we jump into future forecasts, let’s take a look back at the last few years.

As previously mentioned, in 2008 approximately $206 million worth of apps were sold. This is the first cross-market measurement taken, and was largely due to the immense popularity of the first version iPhone. At the time, the iPhone controlled between 60% - 80% share of all app downloads which means that with 6.1 Million original iPhones sold in the first year (according to Wikipedia), between $20 - $27 worth of apps were sold for each iPhone every month.

Not bad for the early developers since they dominated the market at the time and that helped them retain popularity since. A similar trend is also being seen on those that got an early start on Android and Windows Phone 7®, and may be similar again with HP’s WebOS when it is released this summer.

However, the advantage of iOS is its momentum. While the original iPhone only sold a little over 6 million units, the second iPhone version (the iPhone 3G) sold about 6.89 million units in the first three months after its release. To date, over 100 million iPhones have been sold, and iPhone users still purchase about $22 worth of apps each month.

From a developer perspective, one of the main selling points of Apple’s iOS platform is the ability to sell apps profitably. In fact, of the $3.8 Billion in projected app sales this year across all platforms, Apple is responsible for over 60%, even though it controls less than 30% of the entire smartphone market.

Even though it is projected that the Android app market will overtake Apple’s® App Store in terms of the number of apps by mid-2011 (Android already has more free apps than Apple), Apple will remain the largest for-sale app market through at least 2015.

This might be due in part to the propensity of iOS users to download apps. According to the market research firm Asymco, over 60 apps are downloaded through iTunes for every iOS device sold, and that number grows as devices age and remain on the market. Even more telling is that iOS users continue to download an average of five new apps every month, and this number is also on the rise. Considering the number of iOS’ that have been sold (and assuming the number of decommissioned devices is negligible) then Apple sells approximately 500 million apps every month. Not too bad.

Understanding Your Competition

Almost as soon as the iPhone was released, app developers began reporting huge sales numbers. In its first year alone, the app store was responsible for about $206 million in app sales. This brought a lot of attention to the platform and brought in a lot of anxious and excited developers. Some of those had success, some broke even, and some failed.

Now with over 375,000 apps on iTunes, many people see the number of apps as a huge competition, and a prohibitive hurdle to any new apps.

The truth is that not every one of those is a direct competitor. It is very important to understand how the app store works and how users find the apps that they purchase.

The store is broken down into categories so, for example, if your app is in the productivity category you only compete with less than 10,000 others for organic placement. However, 10,000 is still a large number and contains a wide variety of apps that all fit into the "productivity" category. Even though you are competing with them for premium or featured placement, your actual competition may be much smaller.

For example, across all the app stores, there are only three or four apps for Houseplant care, and only one or two that do medical conversions. Pick a very specific category and you’ll find there might not be any similar competition at all. The hardest category of new apps is in Games, since it is harder to segment and people’s search habits are a bit different (they tend to depend more on recommendations and organic searching rather than specific keyword searches).

In short, when you break down your app’s competition into very specific categories, there is still a lot of room for new entrants. In your app marketing strategy it is important to understand how users will find your app and turn it into a successful strategy. This can include optimizing your store description, your pictures, your keywords, and other aspects of your app that can directly impact your app store ranking, especially for specific search terms.

A Note on App Purchasing Behavior

A recent study by The Nielsen Company showed that 40% of users found apps through a keyword search and 36% through personal recommendations. This is much higher than the number of users who use the "featured app" section to find apps, and more than double the percentage from any other source.

We’ve talked specifically about mobile app marketing in other posts, but the good news for app developers is that keyword searches and personal recommendations can be extremely powerful in marketing, even if you aren’t immediately listed among the top apps for each category. This also correlates well with a previous post on using social media in app marketing.

In terms of differences between platforms, it is also important to understand the difference in behavior, demographics, "culture" and marketability of your app. This impacts many factors of your application, including how you provide demos of your app to reviewers, how you write your app description for the app store, which keywords you use, and how you integrate social media and other marketing efforts.

The "culture" of each store also impacts many aspects of your app. This can include pricing, or even whether or not you charge anything for your app at all. It can also impact in-app purchases, advertising rates, the ability to integrate affiliate marketing, and many other aspects of monetization.

Understanding the different potentials and possibilities of each store can help you plan for cross-platform app development and successfully launch your app.

Additional Monetization Options

This probably deserves its own discussion, but aside from just app sales there are many other ways to make money from your app. There are a few main points that are worth considering when designing your app.

First, some of the top grossing apps (on every platform) are actually free apps. They make their money through in-app ads, in-app sales, or through affiliate marketing. The benefit is that this model provides a reoccurring revenue stream, meaning that each app continues to make money even after it has been sold.

Secondly, each market and app store has its own personality and flavor in terms of consumer expectations. In many cases, developers have run into trouble by treating the Android store just the same as the Apple or BlackBerry stores.

It is also important to note that each app store has its own traditions in terms of what is considered an "acceptable" paid application, as well as different pricing structures. For example, average prices on the BlackBerry® stores for top selling paid apps are much higher than the average prices on Android and Windows Phone 7.

Notes about Other Operating Systems

This post largely focused on the iPhone and Android, but it’s important to note that there are other options out there. Specifically, Windows Phone 7, BlackBerry and WebOS.

Windows Phone 7 still has a lot of growth potential, and a lot of room for innovative developers. We’re very optimistic about the potential for Windows Phone 7, and we still think it has the possibility of outgrowing the iPhone by 2012.

That’s not to say that BlackBerry or HP’s WebOS are bad, but they have a few unique qualities that deserve additional consideration.

WebOS is the latest iteration of the Palm platform, which HP purchased early last year. WebOS is unique in how it operates and how it will integrate into desktop computers as well. It is a really neat platform that looks impressive and has a very strong heritage as well as a lot of new features. Unfortunately it does not come out until later this summer, there’s more uncertainty in terms of user adoption and device specifications, though there will be both phone and tablet devices this year.

But with no current user base, it makes it a little bit of a risky bet for new app developers, although early developers of the iPhone, Android, BlackBerry and Windows Phone have usually all done well.

BlackBerry is also a bit different, though for the opposite reasons as WebOS. BlackBerry is really the only operating system that survived the transition from "smartphone" to "super smartphone." Palm, Symbian, and others have mostly died off or been massively reformed. But BlackBerry is still working out the transition. It’s updated OS (version 6) and upcoming version 7 are a great improvement over previous versions, however the company is still bleeding customers as most are opting for Android or iPhone models when they upgrade their phones.

This creates a catch-22 scenario where developers are hesitant to invest because of declining market share, and customers are not loyal to the brand because few developers are creating apps for the platform.

Both BlackBerry and WebOS will hold a lot of potential as they prepare for a new lifecycle in the super-smartphone market, but may not hold the same initial promise that other platforms can provide.

The Final Word

The app markets are still rapidly changing, but there is still a very great potential for success. Careful design, good planning, and a little bit of ingenuity and creativity can go a long way towards making a very winning application.

If you are looking for a very talented mobile app development company or help marketing your app, don’t hesitate to contact us and learn how we can help.