My Photo

Ordering Information

Tomi on Twitter is @tomiahonen

  • Follow Tomi on Twitter as @tomiahonen
    Follow Tomi's Twitterfloods on all matters mobile, tech and media. Tomi has over 8,000 followers and was rated by Forbes as the most influential writer on mobile related topics

Book Tomi T Ahonen to Speak at Your Event

  • Contact Tomi T Ahonen for Speaking and Consulting Events
    Please write email to tomi (at) tomiahonen (dot) com and indicate "Speaking Event" or "Consulting Work" or "Expert Witness" or whatever type of work you would like to offer. Tomi works regularly on all continents

Tomi on Video including his TED Talk

  • Tomi on Video including his TED Talk
    See Tomi on video from several recent keynote presentations and interviews, including his TED Talk in Hong Kong about Augmented Reality as the 8th Mass Media

Subscribe


Blog powered by Typepad

« First Time Ever Anywhere: International Data on Smartphone Unique Owner Installed Base - Including regional smartphone ownership analysis | Main | Enter The iFlop, What Will Be Seen as First Apple Failure After Steve Jobs - But the first edition Apple Watch will of course sell massively to iSheep »

August 27, 2014

Comments

Vesku

Tomi, you're Don Quixote fighting against the big windmill here. You quote the Juniper research number of $3.5B spent on in-app advertising last year, but not the fact they forecast this to grow 5x in the five years that follow (which I think is conservative). There's also a huge amount of revenue made in mobile apps by companies like Amazon, Groupon, Zillow, Starbucks, etc. that's not showing in your numbers as the payments do not go through the app stores. Starbucks alone turned over $1B through their smartphone app in 2013.

Smartphone owners spend more time in mobile apps than they do in mobile browser web and desktop Internet combined. It's only a matter of time before the overall digital marketing spend starts to reflect this fact. The fact that hobbyists can inflate the marketplace and not make much money in the process doesn't mean this is already a huge business for many and will eventually all digital media businesses, including TV.

Disclaimer: I work in mobile advertising, so I know something about this, but carry a bias obviously too.

New Start

@Vesku

A very good comment. The numbers would be much more interesting if we had a real and verifiable idea about how many of the app developers are hobbyists and how many of them are real professionals and working professionally.

Another strange thing I just understood about Tomi's post is that he is now speaking about profits and how the profits are shared. In the past he has been saying that it doesn't matter how much profit you make if you are profitable. Here he is however saying how Apple and Google are making that much profit out of the apps. It really shouldn't matter if the amounts of profits made by the mobile phone manufacturers doesn't matter. If one phone manufacturer makes 80% of the profits, that's away from the rest of the manufacturers just like the cut Google and Apple takes is away from the app developers.

AppleTurfer

The notion that 1 in 10 succeed in books, music or anything is ABSURD. Do a proper analysis of success monetizing apps vs success monetizing web sites. You'll find it's a great advantage having an app store and well worth the cut that Google/Apple take.

AppleTurfer

Everything said about how much harder it is to make apps over websites is true. And irrelevant. App engagement on mobile is CRUSHING the mobile web (links cited earlier). Mobile app engagement is beating web on the PC.

If you don't think the app economy is worth participating in...fine. Then neither is the music industry. Neither is the console gaming industry as both are smaller than mobile.

Texting...that's it. The only thing really larger is texting. You don't need a smartphone for texting.

But a lot of great stuff CAN'T be done by texting. Uber can't be handled by texting. Facebook can't be handled by texting. Netflix can't be handled by texting. Twitter can't be handled by texting. Artificial reality that Tomi is so big on...comes from apps, not texting.

And if you really want to make money from messaging....then mobile messaging apps have brought their inventors tens of billions.

I don't disagree with Tomi that more people need to consider MMS in their marketing campaigns and the like. It's just a blind spot he has on ecosystems as the iPhone destroyed Nokia by making ecosystems the point of competition. He'll never give due credit and sounds like a dinosaur for not doing so.

RottenApple

@AppleTurfer:

Please don't misrepresent the numbers I already took apart. The only reason apps seem so much more favorable can be summed up with a handful of names: Facebook, Twitter, YouTube. Beyond those it's a barren wasteland.

Take out these three alone along with the rest of social networking and there's not much left. You also make the typical mistake of thinking of apps and the web as equal media. They are not! There is stuff that's being done better as an app - and guess what: For these tasks the same is true on desktop PCs, too. On the flip side, you cannot replace a decent web presentation with an app - that's plain and simply impossible. At best you can supplement it with an app - but then the app needs to offer something the web clearly cannot do easily and more: The tighter system integration needs to make sense in the eyes of the user.

But releasing an app for the sake of releasing an app (which is what your argument boils down to) is never going to work. 90% of those attempts is just one more corporate garbage app that makes a bad impression and ultimately only hurts business. I've seen my share of those, uninstalled them as quickly as I could and never looked back.

About this:

"If you don't think the app economy is worth participating in...fine. Then neither is the music industry. Neither is the console gaming industry as both are smaller than mobile."

Well, size does not matter. Profit does. The app economy could be 10 times as big - but as long as you cannot make a profit from it (which, as Tomi pointed out, is extremely hard to achieve) you better stay away from it. We already have seen where the profit goes: Apple, Google and the larger game studios. That's it.

What I don't get is that mobile seems to be considered a gold mine where untold riches lie hidden. The fact is, most people are still using their mobile phones for the most mundane tasks: making phone calls, sending text messages, listening to music, making and showing photos, playing the occasional game, surfing the internet - but most of the things that may make some money for a content provider are a minor, minor part of the mobile infrastructure. And that's ultimately the main reason why apps as a whole can never be a profitable business. The target audience that actually bothers with this stuff is just too small - games excluded, of course.

AppleTurfer

@eCasius the music industry is sustainable evidenced by its continued existence forever. It is true that piracy has destroyed music sales as a viable money maker. iTunes saved the music industry and streaming is putting another financial blow. Basically, you put out music these days as a loss leader for driving concert revenue.

Music is also challenged by the lowered barrier to entry. Anybody can put apt heir music on YouTube and their own website etc.

So, apps are like the current state of music. Monetizing them is difficult. You want an even harder challenge...try monetizing a web site.

E.Casais

@AppleTurfer

"iTunes saved the music industry"

Wrong. Look at the graph:

https://img.qz.com/2013/02/music-sales-chart5.png?w=1024&h=643

Total music sales barely stabilized at half their highest point, and the contribution of digital music is still quite low. The following graph shows that the contribution of digital has been pitiful compared to past technologies -- in fact it is CD that genuinely saved the music industry once upon a time, when vinyl and cassettes were declining:

https://static1.businessinsider.com/image/4d5ed4b54bd7c8e612260000/chart-of-the-day-recorded-music-revenue-per-capita-feb-2011.jpg

And the hammer: sales from music downloads (i.e. iTunes & co) _declined_ 1% in 2013.

"streaming is putting another financial blow"

Actually, streaming is already _way_ more important than iTunes-like downloads in many markets. See Sweden for instance:

https://musicandcopyright.files.wordpress.com/2014/01/sweden-sales-2000-2013.jpg

Streaming actually increased sales by 51% (from a low base, admittedly) in 2013.

"you put out music these days as a loss leader for driving concert revenue."

I gave the examples of Brazil and the UK: you do not get enough concert revenue to even cover costs -- you must either get sponsorships (e.g. classical music), or sell tangible non-music items like food and trinkets on the side (popular music). Music no longer appears to be self-sustaining as an economic sector, and has been on a declining path since about 1998.

"apps are like the current state of music."

This is very alarming.

"try monetizing a web site."

I suggest we ask Tomi to provide some summary statistics there.

AppleTurfer

Tomi won't show statistics about monetizing the web because it won't support his narrative. And I didn't say that iTunes kept music sales revenue from falling, but kept them in EXISTENCE. Napster and file sharing were destroying music sales.

CD's were well before the mp3 and the internet made file sharing a destructive force. Here's an article from the Wall Street Journal telling the tale: https://online.wsj.com/news/articles/SB10001424052970204002304576629463753783594

Streaming is getting more important...but the REVENUE received from streaming is far less than music sales. https://www.digitalmusicnews.com/permalink/2014/06/26/streaming-isnt-saving-music-industry-new-data-shows

abdul muis

@Tomi

I was wondering if you have data/comparison regarding game(apps) on mobile phone compared to portable console like Nintendo DS & PlayStation Portable (PSP). How bad mobile eat the marketshare of the old gaming platform.

and if we think smartphone as gaming platform, is WP still the third ecosystem ahead off Nintendo DS/PSP.

AppleTurfer

Tomi took every developer divided all the money and said "see, not worth doing". Terrible analysis. Take all website revenue, divide ny the millions of web developers...and you'd conclude the web is worthless. Take all the music industry revenue, divide by every aspiring musician...again, not worh being a musician. Same for games, console games, sports...ANY endeavor practically.

And yet billion dollar companies around apps are being spawned right and left. Millions of developers making a living....not necessarily by creating apps that make money, but by being paid by corporations to create apps or by working for successful mobile oriented companies.

App use on mobile is CRUSHING the web on mobile every bit as bad as Android is crushing iOS in unit market share.

Sure, every app is not Facebook. Guess what...every website isn't Facebook, Amazon or EBay either.

RottenApple

@Baron95:

"Trying to debate that a Web site can be used as effectively as a good app on a mobile device is a losing proposition. This is settled. The experiment has been run multiple times from Facebook to GoogleMaps to games. When a good app is released to a previous Web only experience, use goes way up, attachment increases and user engagement soars."


No, it isn't. The popularity of apps is a direct consequence of insufficient interactivity that can be offered by websites, not some inherent advantage of a native app.

This stuff is being worked on, unfortunately HTML5 as a first attempt fell too short. But I see this change. From a pure technical standpoint, (and I am saying this as an app developer!) apps are the complete wrong way to go, they generate a lot of work that wouldn't be needed if there were better technologies out there.

But the fact remains: From an economic standpoint some platform independent technology is needed to reduce costs. That means it will eventually come.

Let's talk again about the long term viability of apps once the fundamentals change. That is, of course, if Apple doesn't use their power to block such advancements because they are not in their interest.

Regardless of all this, at least you got the most important thing right, the one I criticized AppleTurfer most loudly for: An app cannot and should not be a replacement for a web site, it should accompany it to play on the strengths of both media. (And a direct conclusion of this is: Once a website can do all the stuff an app can do, the need for the app will disappear.)

Also, Apps are NOT the new web, as AppleTurfer claimed. Of course I have seen apps that tried that, most of the time they just show some ineptitude by the developers, either they don't get their website design right or just suffer from some fundamental misunderstandings.


Still, Tomi's conclusions for app developers are valid: The only ways to earn a living is to make successful games or to contract work.

adi purbakala

@baron95 & @appleturfer

Would you happy to read this blog (tomi blog) on apps? Or on browser? This blog have a lot of link nit fun read it on apps.

abdul muis

@RottenApple

Baron95 & AppleTurfer use iphone. In iphone, the SMALL SCREEN ruined the browsing experience. Therefore they prefer the apps. Once the iPhone for Woman (4.7") and iPhone for Man (5.5") released, their world will be opened, and they will have different opinion compare to using the iPhone for kids (4.0")

Huber

@Baron 95: Yet the median revenue generated by those pages, again, trends to zero. So shall we conclude that developing a web page does not pay?

A lot of web pages are in dire straits nowadays. There are e.g. hardware sites which aren't profitable anymore as purely ad-sponsored business. A good example is The Tech Report. See https://techreport.com/subscriptions.x

Other sites continue to be ad-sponsored, but they need klicks. Just look at Forbes, quality journalism is something different. These sites need to create clicks to make money, quality is a second concern at best for them.

So some sites switch to a subscription-based model, e.g. nytimes.com, while others desperately try to get clicks no matter what.

With apps I see a similar pattern:

There are free apps which add new features to an already-existing product, e.g. the apps from Denon (control your receiver with your phone/ tablet), IPTV-providers (record from TV while you are away from home), or apps from BMW/ Audi (e.g. to turn on the air conditioning of your car via your phone a few minutes before entering it), or the famous Facebook-app, or apps to order a taxi (where the app provider gets a share of the revenue from the taxi) or apps from banks / insurances.

These apps do not need to make money at all on their own.

Then there are apps for news magazines and other web sites, but then the question is why you don't just use a web browser (perhaps because your screen is too small, as abdul muis correctly pointed out).

Then there are games, where you obviously can earn money with.

And finally you have apps which are worth a few bucks because they offer new features for your phone. BubbleUPNP and other DLNA-apps come to mind, as well as some tools for rooted phones like Titanium Backup and Android Tuner.

But even for such tools a lot of people don't seem to want to pay for their additional features - Titanium Backup has 10 Million downloads, but only 500,000 for the Pro version.

But that's about it, I think.

Tumbleweed

Tomi, agree with most of your articles, but I'm not sure what point is being made here.

That apps overall arent profitable apart from to the casino owners? Well, so what, that is no different to music books etc. And when you say "thats different", well, no it isn't! You contend the music, book etc industry has a 1 in 10 "win rate" I'd dispute that (see below*), I would be confident that its similar to 1 in 100 or whatever it is for apps.

Other than the actual size of the market, which is irrelevant to the logic, people could have made the exact same argument about music 50 years ago, that only 1 in 100 bands make it big time and therefore in 10 or 20 years time there will be a shakeout and the industry will die. It didn't happen then and it wont happen 50 years from now either.

Same with books, how many people spend months or years writing book that gets self published as an eBook and sinks without trace? Does that mean book writing will go away?

To answer another of your points, so what if the cost of the app development s/w outweighs the revenue for most, that's no reason to abandon app development any more than the money a fledgling band doomed to disappear into obscurity spend on an old van and petrol, or an author spends on extra heating at home whilst writing their never to be seen again Kindle book.

So, whats the lesson here? That if you want to get rich you shouldn't set out to write an app? Probably true. But you could say the exact same to your 15 year old strumming their guitar. Or the budding actor, or the author scraping a living so they have the time to write their block buster. Its not going to stop them. And as and when they stop there are pleny more taking up the reins.

As for the purchasers, well its of no concern to me that when I paid $1 for Angry Birds, that there were 99 other developers who had an app that I didnt buy. Same as when I buy a Pop Idol winners CD** I shouldn't because there were 249,999 entrants who didn't make it??

As for the casino Owners, its a great business.

* Just how many people do you think sign up for Pop Idol or X factor? And how many long term winners, eg those with long term future even after they got through the ? Its probably 1 in 100,000 let alone 100, and 1 in 10 is laughable.
There are 2.5 million books on the Kindle store,how many of those make any decent sales? Maybe a couple thousand? Even if its 25,000 tahst only 1 in 100.

** this is hypothetical, for the avoidance of doubt I would never do this.

Tumbleweed

p.s. I think its also worth reiterating the point a few others have made that apps in many cases are enabling a business and so its a wholly false picture to determine that the "free' app doesn't make any money and therefore is a failure and therefore so are apps.

My bank provide an app. I use it occasionally, it was free. For the bank its part of the cost of keeping me as a customer,and no doubt its cheaper than having me phone them up or call into a branch. Your analysis though would show this app as a failure because it didn't bring in any directly measurable money either directly or from advertising.Almost every web forum I am on persistently annoys me by suggesting I download its app. None of these make money either.

So when you say "the business of smartphone apps is a total disaster." you miss multiple cases where the "business" of mobile apps is not in the mobile app its in the business.

Most businesses will be driven to develop an app not as a separate revenue stream but in the same way they would have a website, a call centre or a bricks and mortar store.

In this area, and in the area of comparison to music and books, and with the nickname "peak apps" then just like "peak oil" and despite (or because of?) the mass of statistics that i think disguise an underlying missing of the point I would reuse a quotation.

"you're not even wrong"

E.Casais

@Tumbleweed

In the traditional (paper) publishing industry, 1 book out of eight is extremely profitable, 1 is a disaster, and the remaining 6 at best break even. It is therefore a delicate industry: miss too many best-sellers in a row, and your firm is in peril. This is why large publishing houses diversify in many genres, make sure the minimum number of copies to break even is as low as possible, and start to really like e-books (the absence of printing and transport costs increases the margins).

Self-employed publishing businesses (coarsely comparable to independent app developers) have low sales, but they frequently seem to be genuinely profitable (though insufficient to make a living): https://fonerbooks.blogspot.ch/2008/07/statistics-on-self-employed-authors-and.html.

Based on the figures provided by Tomi, it indeed seems that the commercial app economy is considerably more skewed than other content industries -- which are themselves quite skewed.

As I already commented, the music industry is in a 15-years downward trend. iTunes never managed to compensate lost sales of physical media (CD, tape, vinyl), and is not even longer slowing down the fall, as sales of iTunes and similar services are now going down as well (streaming is the new hope). The economics of concerts is itself in doubt. Actually, the economic situation of music is quite worrisome.

As for accusing Tomi of missing the case of free branded apps (for banks, retailers, etc), I suggest you have again a look at his table entitled "HUDDLED MASSES IN APPS ECONOMY 2013":

Beggars failed to earn . . . . 400,000
Hobbyists don’t care . . . . . 250,000
Branded utility app devs . . 170,000

So he at least attempted to take that aspect into account. Perhaps your criticism is that the statistics should be tabulated by apps and not by app developers?

Jouko Ahvenainen

Thanks again for a good article, and comments above have also brought more insight to this. One aspect is also customer acquisition costs. I have been told that they would be something like $5 per new user for an app, but of course this varies a lot, and some success stories make it without marketing money, but then they have something very unique or strong viral effect.

Then, of course, an important aspect is the strategy of each company or individual who makes an app. Some want to make money with it, some make it for fun, and more many it is actually a part of another service and app itself is not the money making machine. And I actually believe the last one is just coming more important, i.e. mobile is an important part of any service, but the service and earning model have much more element than an app sale.

Digiterium

@RottenApple

"Yes, the app economy really is that bad. If you don't have a title with some genuine demand or some good brand recognition or the ability to cross-promote from other apps with any of these properties, it's a complete waste of time to offer them. Nobody will find them in the flood of garbage that gets submitted to the app stores. My former employer which I left two years ago, thought, just by making a good product, they'd automatically make money. They failed spectacularly because they were unwilling to advertise.

In order to create awareness you have to spend money on ads. And these spendings will eat a good part of your revenue and if your product fails to become a huge hit you lose - and most developers cannot survive that. I see a good part of the app economy imploding over the next 2-3 years because the smaller outfits simply run out of money."

How is that any different with games though? You seemed to be saying that games are different but where's the difference? that overall the gaming mobile sector makes more money? but that's just the same situation with non-games all over again, i.e a tiny percentage make a huge amount and everyone else makes next to nothing, it's the exact same situation as non-game apps just on a bigger scale, and the bigger scale doesn't mean there's more "space" available for more people to make money it just means the tiny minority that do make money just make more money.

RottenApple

@Digiterium:

Spending money on advertisement must lead to a return of investment. And with the low revenue in the app market (discounting the top 1%) you may easily spend more on development and advertisement than you ever may get in revenues. I have seen it happen.

The comments to this entry are closed.

Available for Consulting and Speakerships

  • Available for Consulting & Speaking
    Tomi Ahonen is a bestselling author whose twelve books on mobile have already been referenced in over 100 books by his peers. Rated the most influential expert in mobile by Forbes in December 2011, Tomi speaks regularly at conferences doing about 20 public speakerships annually. With over 250 public speaking engagements, Tomi been seen by a cumulative audience of over 100,000 people on all six inhabited continents. The former Nokia executive has run a consulting practise on digital convergence, interactive media, engagement marketing, high tech and next generation mobile. Tomi is currently based out of Helsinki but supports Fortune 500 sized companies across the globe. His reference client list includes Axiata, Bank of America, BBC, BNP Paribas, China Mobile, Emap, Ericsson, Google, Hewlett-Packard, HSBC, IBM, Intel, LG, MTS, Nokia, NTT DoCoMo, Ogilvy, Orange, RIM, Sanomamedia, Telenor, TeliaSonera, Three, Tigo, Vodafone, etc. To see his full bio and his books, visit www.tomiahonen.com Tomi Ahonen lectures at Oxford University's short courses on next generation mobile and digital convergence. Follow him on Twitter as @tomiahonen. Tomi also has a Facebook and Linked In page under his own name. He is available for consulting, speaking engagements and as expert witness, please write to tomi (at) tomiahonen (dot) com

Tomi's eBooks on Mobile Pearls

  • Pearls Vol 1: Mobile Advertising
    Tomi's first eBook is 171 pages with 50 case studies of real cases of mobile advertising and marketing in 19 countries on four continents. See this link for the only place where you can order the eBook for download

Tomi Ahonen Almanac 2009

  • Tomi Ahonen Almanac 2009
    A comprehensive statistical review of the total mobile industry, in 171 pages, has 70 tables and charts, and fits on your smartphone to carry in your pocket every day.

Alan's Third Book: No Straight Lines

Tomi's Fave Twitterati