Paid smartphone apps - half get under 1,000 downloads! What does this mean

So, we know that paid apps get far less downloads than free apps. No surprise there. But we have now a solid analysis of the total number of paid iPhone apps (downloaded both to iPhones and to iPod Touch's) which has been measured by Pinch Media in November 2009. They told us that the average of paid Apple iPhone App Store applicaitions was downloaded 9,300 times. That may seem like 'good news' until you understand basic math and remember, top app downlaods hit millions. The picture is extremely skewed. A few hit products get downloaded hundreds of thousands of times, and most get under 1,000 downloads. Extremely distorted picture. Like I said in my blog posting about fool's gold, this paid apps game is totally unfair, you have no chance whatsoever of winning in it.

How bad is it. Remember your basic math and stats class, the difference between average and median? That the average income is not reflective of the 'income of the average person' because it is distorted by the few millionaires and billionaires, and the reality is that the median income - the mathematical half-point, where half of total population earns more, and half less, is far far smaller than the mathematical average.

This is even more drastically so, for smartphone apps. A few super hit products get millions of downloads. Pinch Media has calculated the 'deciles' ie the break points for top 10%, the second highest 10%, third highest etc. They have released the info for four such points. And it makes for very interesting reading. The top decile, ie top 10% percentile - the most successful 10% of all paid apps, are downloaded over 75,000 times each. Obviouslyl these have a great chance to make money. The second decile or 20% most successful percentile does not come in at half that level - no no no - the second decile 'crashes' to 9,232 downloads only. Yes, the top 20 percentile break point, of all iPhone paid apps, hit only 9,200 downloads. The third decile or top most successful 30 percentile point - the 30% most successful iPhone apps, they achieve only 3,856 downloads.

And here is the kicker - the median, ie the real half point, meaning that half of all paid iPhone apps achieve this level, and half do not achieve this level - is 'under 1,000' downloads. Do you now understand when I say, this is a mug's game, its foolish to develop iPhone apps (or Google Android apps or Nokia or any other apps) today. Most will never ever ever make money.

My company, TomiAhonen Consulting, took those Pinch Media break points for top 10% decile, the second top decile, third decile, and half point, and counted the actual break points (assuming a linear progression per break point) and we get specific numbers of downloads for any percentile.

Then we have two other numbers. We have the average price of a paid download app - Chetan Sharma counted it at 1.90 dollars in 2009 and Yankee Group counted it at 1.99 dollars per paid app. Lets take the average of those two and call it 1.95 dollars earned per app.

Then we have the costs to develop the app. We used the figures given at prMac in November 2009 that the costs of an iPhone App ranged from 15,000 dollars to 50,000 dollars, and I estimated here at this blog that the average cost to develop an iPhone App was somewhat below the average point of those, at 30,000 dollars. Lets see now how friendly is the iPhone Application paid downloads marketa nd eco-system. As we know, Apple will take 30% of every dollar paid.

After our analysis we found a break-even point for annual downloads at the 16th percentile point - meaning one in six who have developed an iPhone App, will break even after a year of downloads. Note, this point is excluding all marketing expenses and all other fees and costs involved in the development and commercial launch of the paid app. We only take programming costs. Yet, only one in 6 paid apps has a chance to make money - if we give them a year. How much better are 'hit' apps - well, 13% of all apps - one in 8 - will break even its programming costs in six months of downloads. This is not a goldmine. 87% of all who made paid apps will not make money.

Now what of the others. If you can sustain the same level of downloads (without further development costs of your app) for two full years, then the break-even would happen for 20% of all paid apps. That also obviously assumes the total app space does not grow dramatically during the next two years (it would get progressively more difficult to achieve a top 20 most successful downloaded app when there are half a million apps, than when there are 150,000 apps, obivously). If you really want to take ultimate optimism, and allow for 2 years to make back your investment, then yes, one in five have a chance to make back their software development costs, if they hold onto the top 20% most downloaded apps for two full years. Very very very unlikely, but it is where your limit stands.

What of the half point - yes. If you are that "lucky", with your paid app, that your app is downloaded exactly the median level, the half point, meaning half of all apps are downloaded more than yours, and half downloaded less than yours, ie you get 'under 1,000' downloads (and I used 999 downloads as my number, so this is again the 'best case') then your customers will pay a total of $1,948, from which Apple takes 584 dollars, leaving you with 1,363 dollars. After your development costs of 30,000 dollars, you lost 28,636 dollars in your paid app project.

This is not the average, this is the median. It means that literally HALF of all who develop iPhone Apps will lose more money than this. Yes, 5 out of 6 app developers will not break even, not even after a year of downloads. And half of all paid apps will be so poorly received that they lose 28,000 dollars or more. And this all is before we even add the costs of your marketing etc. which can easily be far more than the 30,000 dollars we counted so far.

Yes, one in six can earn money if we give them a year, and one in eight will actually make money in 6 months or faster. Some super-hot apps will get a million downloads but you have honestly no chance of hitting that level. According to Appsfire, 80% of all iPhone apps get "barely any active users" (this includes free and paid apps).

So, reality check time. If you are so good, that you can develop a paid app, that passes half of the competition. That you get past HALF of all who have already developed an iPhone App, and you hit that mid-point, the median app - exactly so successful that half of all apps are downloaded less than yours, and half downloaded more than yours - then you are on schedule to lose 28,000 dollars in your project. For you to hope to break even, you have to be among the 16% of the most successful apps among paid apps passing 87% of all who have already developed a paid app, and then you're going against all global brands and major marketing campaigns with massive marketing support. Why would you want to go this way? There is easier money in mobile, not this fool's gold they call smartphone apps. 

You have to understand the difference between 'average' and 'median' to really understand this issue. So, for example if you are a marketing dude, you think 'that's easy, I'll double my price and get past this problem Tomi discussed'. No you don't. If you charge 1.95 you have to be in the top 16% to recover the costs of your software development. If you double your price to 3.99 - it won't get you 32%. No. Doubling your price gets you only to 19% level - meaning you still have to be better than one in five of all apps by downloads. And what of that half-point stage? ie the Median point, where half get more downloads than you, and half get less downlaods than you? Well, you'd need to get 999 people to pay 43 dollars for your app to break even at that level. Thats a tall order for a smartphone app price, haha. One might suggest, that your app will then need to have so much more 'value' that it probably would cost more than the 'average' 30,000 dollars to develop it - pushing you still into losses. This is not going to work out for you.

And the same pattern is true if we cut the development costs in half. Again it will not 'double' your opportunity, due to the skewed shape of the success of hit apps. So take the same exampe, you have the exact mid-point, median, app that exactly half of all apps are downloaded less than yours, and half are downloaded more than yours. Your cost was 1.95 but now lets use the low end of the prMac development cost - 15,000 dollars for your app. At what percentile point do you start to recover your development programming cost? It will move you from the 16th precentil to the 19th percentile. Still more than 4 out of 5 developers would never recover their investment, even if we assume that at the half-way point - for essentially half of all apps developed, the lowest end of the prMac reported number of app development cost has been used.

Let me make one last point. The apps development hysteria is now at fever-pitch. Because of it, all sorts of brands and companies are rushing to make their one app. In terms of paid apps - branded, paid apps - these tend to be brands that are not typically involved in the software development space, but rather are mass market consumer brands like a hotel chain or bank or retailer or restaurant. They will go and try to find the competence to make an app. I would argue that one - they are in a poor position to use the best and most cost-effective skills. They may be tempted to have their own IT department do it - 'how difficult can it be' - which is usually far more expensive than hiring specialists for it - and for the specialists, if there is a big demand right now, it means a shortage of competence and thus to hire the right skills will create shortages in the programmers with the experience, pushing up costs - either you hire programmers who have done smartphone apps before - whose salaries have been jumping a lot recently - or else you hire programmers who don't have smartphone skills and then suffer the costs of trial-and-error and any delays that using competent programmers who are not familiar with this particular need. I would guess that most who develop paid apps for major brands today, 2010, (and who often will have a brief that their app needs to 'stand out' and thus offer some unique-seeming benefits) will find the development costs nearer to the 50,000 dollar cost than the 15,000 dollar cost. Am happy to take comments on those to test these hypothesis of mine haha.. 

ADDENDUM - A day after this blog posting I just spotted a brand new blog that gave a bit of the marketing cost numbers we'd also like to have. Quoting Admob prices for App Store related 'burst' ad campaigns, Click Z reports that the cost to buy the visibility or your App to try to get into the Top 25, would cost you 10,000 dollars in October 2008 soon after the App Store had launched. It shot up to 20,000 dollars just half a year later by March 2009 and today costs 250,000 dollars. We'd need to add those costs to the model - and now you won't make up your investment even if you're in the top 10% bestselling most downloaded apps on the App Store. The truth gets ever worse by the day. This is not your economic golden opportunity, please understand that. It won't get you your eyeballs, it won't get you satisfied customers and it won't make you money. Undestand mobile, and while SMS, MMS and WAP are not as 'sexy' - that is honeslty where the money is.

Comments

[Andrew Seftel]

Whilst I think you're pretty much correct, I think you've made some fairly flakey assumptions in your analysis. You've assumed that th number of sales is independent of both the price and the cost of development. I don't think it's too controvertial to suggest that cheaper apps are, all things being equal, going to sell more. We can probably also make a case for a causal relationship between development cost and quality, and hence sales. I think it's therefore a bit of a stretch to make any inferences about how many developers break even.

P.S. You've confused percentile and decile in the third paragraph.

[Peter Cranstone]

Congratulations, the math is "good enough" for most. Building apps is a zero sum game. There's no money to be made because Apple is already taking it all. The only solution is to skate to where the puck is going to be - web apps which work across platform. I know, SMS and MMS are players but they're not rich enough (SMS) and lack context. Web apps will do it simply because they scale to all devices that have a browser. It just gives you a far larger market to monetize across.

[AAMP]

I've got to question your thinking and your figures. How can it cost $30,000 to develop an app that makes farting noises!

Seriously though, if you're saying that you have to look at the percentile figures for app sales/downloads then you also need to look at percentile figures for development cost. The apps that sell a lot also cost a lot and the apps that haven't sold much are usually those where the developer has worked at home, during 'spare time' to knock-up something 'cool'. The cost of spare time and hobby time is low.

[Romain Criton]

@Peter
Sure, webapps are cross platform and all,but how do you monetize them ? Tha App store at least offers a monetization Platform
@Tomi
i think that the reason why so few AppS are profitable is because the barrier to entry is very low so basically anyone can go and try selling their App, no matter how bad it is

[Rumsa]

The cost of developing the apps is really important here. I have no statistics but by looking around in app store it seems that majority of the apps have been mass produced with some kind of app-generating tools. For example you create tool to generate 100 different apps around different topics (basically RSS readers with hard-coded feeds about some niche content). If you sell 240 of each in average, you get 100*240*1.3$ = 31200 and have covered your costs.

It needs to be further investigated but it may happen that the average development cost of applications in bottom percentile is somewhere around hundreds of dollars.

[Tomi T Ahonen]

Hi Andrew, Peter, AAMP, Romain and Rumsa

Thank you all for your comments. I will respond to each individually. But please note, I added two paragraphs to the bottom of the blog, after I read the comments here, discussing the costs of development.

Andrew, I hear you. And I wish I had similar splits for the app prices and their development costs. The consumer app store style application market for smartphones is such a recent and sudden phenomenon, that there is precious little data so far. I have been trying to 'calm the waters' as soon as I detected the hysteria around it, and my purpose here is to illustrate that this is very dangerously near a bubble right now. Most developers will not get their money recovered. Before these numbers I really had very few hard facts to get to try to prove my case, but I have felt it in my gut (and the top-line numbers obviously did not result in a viable business out of it as I've said for many months here).

And I understand you do agree with my premise, that because of the skewed shape of the download-success curve, only very few apps will be hits, and most of them will be enormous hits, but the vast majority of the apps will not achieve the required success level.

I am hoping to find more info, and this blog is not an application developer blogsite, haha, its not really our mission to study the intricate details of how the apps developer community will make their money. I hope others will take this and get deeper data and explore these issues further. (we specialize on the media, advertising and digital converegence, around the mobile phone. Even smartphones overall are only a minor interest to us, and obviously apps a tiny miniscule part of the smartphones opportunity).

On your specific points, first that cheaper apps would sell more - that would make the picture even more skewed, would it not? Currently I assumed that the price of the apps was uniform, the average price between Chetan Sharma's and Yankee's at 1.95 dollars per app. If we say expensive apps sell less and cheap apps sell more - and thus the hit products in the top decile will tend to cost 99 cents then the curve becomes even more skewed where even LESS of the developers make a return. So at 99 cents the previous 'break-even point' of 24,500 downloads at the 16th percentile would not even make money. If we say hit apps cost on average 99 cents, then the break-even point moves all the way to teh 13th percentile 45,000 downloads - so 7 in 8 developers would lose money.

I hear you and take your point, but I do not have any reported data on that statistical relationship of how the price relates to download success, althought I do agree totally with you, that a 10 dollar app will have a far harder time to achieve say 50,000 downloads than a 99 cent app would. And like I mention in the blog, the marketing effort is a significant part, often far greater costs than the development cost of the app.

As to the development cost, yes I could see that a cheap simple app that has lower costs (15,000 dollars to develop) would not need to get as high download numbers as a very fancy expensive app that cost 50,000 dollars to develop. Good point. But also, today, March 2010, it is increasingly difficult to get any 'differentiation' on apps, meaning that there are likely going to be far more development costs today to get an 'above average' level of cool and attraction and interest in the app. So I would suggest that in particular for paid apps, their development costs now are rising, not falling (as I argued in the last paragraph, that I added after reading the 5 comments here). I am very interested in your thoughts on those two added paragraphs too.

Finally, thanks for reminding me of the correct term - decile (I am Finnish, I sometimes forget my statistical terminology in English haha) but yes, we got deciles (ie break points by each tenth of the total0 from Pinch Media, which then allowed me to estimate the percentiles (break points by each one hundredth). I have adjusted the blog text to use the right terminology, thanks.

Peter - hi, welcome back again. Yeah, its still early going, and the math is not perfect but am trying to illustrate the issues as we get some data points. And yes, you are totally right that currently this is not the right game. Apps will be relevant and the apps space for smartphones will evolve and grow and mature. The crazyness will subside. Many developers get burned and quit the game. The initial novelty factor in downloading every free app you can possibly lay your hands on, will also wear off. Also as first-time smartphone owners (many of the US buyers of iPhones are first-time smartphone owners vs US based Blackberry owners who often are into their second or third BB; and Europeans and Asia smartphone owners who are into their fourth or fifth smartphones already) toss the old smartphone and get a new one, they will get far more selective in what really they wanted in their apps and which are really worth bothering with.

So yes, we totally agree, skate to where the puck is. Web based apps are an important part, reaching a 3 times larger total accessable device market, than all apps - obviously more than ten times bigger accessable market than Apple iPhones and iPad Touch's. You know I feel passionately about MMS and WAP, these are very viable platforms to deliver most of the solutions that I see the typical 'innovators' who launched apps, say the hotel that lets you order room service from a smartphone app (why not WAP) or banks that tell where ATMs/cash machines are (why not use SMS or MMS or WAP) or retailers who give you access to their catalog and inventory (easily done with WAP) or restaurants with discount coupons (why not on MMS). But these skills - SMS, MMS and WAP - are very 'mobile' skills, need to know who does the short codes, or the bulk access, and you need to deal with the carriers/operators either directly or indirectly through some aggregator. Its not easy. But you reach the pockets of all consumers, not 13% who have a smartphone or the 4% who have an iPhone.

AAMP - I hear you and I totally agree with you. I wish I had some breakdown of the costs (and retail prices) of apps based on their success. I am sure at some point we'll get that data from some source. So at this point, this is an early and not very precise analysis, I totally agree. But - the point is very clear from the 'deciles' - that the mid-point app is not going to get 'average' amount of downlaods. The mid-point median app will get less than one seventh of the total downloads of the average number of downloads. This is an incredibly skewed industry, very very similar to hit music business. Most musicians who release (old-fashioned records and) CDs (I believe the new digital media are transforming the math now) will not sell enough of the CDs to become profitable artists for their record labels. But as the pop music industry is so fickle, you never know who turns into the next Madonna or Bruce Springsteen, after 100 artists who never made it, there is the one who gets a number 1 hit, who also has his album hit number 1, and the follow-up album still gets hit level sales - only then the record label typically earns back their investment. But these hit musicians then make so much money for hte record label, that they in effect subsidies the attempts at all struggling artists on that record label who try to break through..

So very likely we'll see an evolution in the apps area, where there appear app developer brands, who have families of apps, who can spread the cost of their development and marketing, and in that case, make sure that the few hit apps will help sustain the business and keep the less-successful and not-successful apps also in business. And that model itself, be adjusted by digital media, mobile phone, social networking etc factors that now hit all mass media, haha. (like we discuss here at this blog)

But the point is, AAMP, that you wont' get 'twice' the market success if you cut your development cost in half. As I showed in the blog, because the shape of the successful downloads curve is so skewed, you only gain a couple of percentile points, even if you cut your costs in half. That is an easy trap for many developers to fall into, where they are not aware of the shape of the curve, and don't recognize how much median and average are different in smartphone app store apps.

Romain - good points. On web app monetization, we are in typical web app domain, give credit card, paypal etc. Its not easy. On WAP we can get into operator/carrier billing but we then need to work with WAP's limitations. On MMS we often need to give a significant share ('onerous share') to the operator/carrier. Very valid points. But at least the market is from 10x to 50x bigger than with iPhone Apps.

On the point of low barrier to entry, very good point. Yes, this means a flooding of new apps coming in, ever diluting the space, adding noise, making it ever more difficult to be noticed - and even if your app gets some initial traction, there are hundreds of new apps joining the game daily (hourly, haha) to distract your potential customers. And the madness then means many that were intended as paid apps, get offered as free apps - just to get some 'success' which ruins the business viability for many. Others do drastic price cuts if their app is not successful initially, again, resulting in vicious price wars in similar app areas. Not a pleasant market space.

Rumsa - very good point and I agree with you. I hope that we will soon see that kind of info also to make a more educated analysis. I would suggest, that if you are Hilton Hotels or Mastercard, that kind of both paid and branded app, that we see now flooding the market, they will tend to be made by 'reputable' digital agencies, with very high production values, and trying to do some branded and distinguished 'benefits' to their customers. That is not cheap app development. Or like we saw the UK conservative party and then the labour party both release iPhone apps (and then even the health department release an iPhoen app? idiots. To serve what, 3% of the British population, what moron authorized that development? For the same money they could have had a decent WAP app that works on every UK phone of every UK citizen)

So yes, there are cookie-cutter apps. I would suggest - having not analyzed this, only by my gut feeling - that they are most prevalent in the free apps space. In the paid apps, we are now seeing a flood of major brands, who try to do a differentiated apps. That will almost certainly cost nearer the 50,000 dollar ceiling than the 15,000 floor as described by prMac in the costs of developing iPhone Apps.

Thank you all for writing

Tomi Ahonen :-)

[Steve J]

90% of apps cost $0 to develop. Your figures given are guestimations and are way off and discredit your whole article.

[ja]

MM I understand your point, but I think you have to cluster more ( amount high quality games/ low quality etc. ).

It seems that a top ten selling game reaches 9000 a day? Seeing that 9000*6.99 (gameloft pricing ) = 62910 cross per day not bad imho.

I agree the for small companies and indie devs it is very very difficult to break even, but big names like EA and gameloft can make a nice buck out o f the appstore.

One thing apple should do ASAP split the appstore between indies/ small companies and HQ developers

[Tomi T Ahonen]

Hi Steve and ja

Thank you for the comments.

Steve - You make a statement which has no valid reason and no evidence. Do you mean that apps just suddenly appear, out of the 'apple tree' ? No, there are software engineers who write the code for the app. I did not pull these numbers out of my head. It was prMac website which stated very clearly that the cost to develop apps for Apple iPhone apps ranged from 15,000 dollars to 50,000 dollars as of this past November. If you Steve can show me some credible source who can verify that 90% of apps cost nothing to develop, then we can start a discussion. IF you come here to post totally meaningless and erroneous comments, we will delete them as spam. Please consider what you write. But I will leave this comment here, if you Steve J want to come back, we are happy to talk with you.

ja - Sure, a top 10 game can reach 9,000 per day. Sure, lets say they stay in the top 10 for a month, thats 270,000 downloads per month, and they're up there among the very wealthy. But also - that puts them in the 2nd or 3rd percentile of the most downloaded apps of all time, passing a quarter million downloads.

Remember that only 21% of all paid apps achieve 9,000 downloads - in their LIFETIME, not in one day. Only one in five achieves 9,000 downloads in their existence. And even they won't break even - they lose over 18,000 dollars with the assumptions in this blog. So yes, a super duper hot product, like a Top 10 app will yes, definitely make enough money to return its software programming investment. But even if we allow half of the Top 10 to rotate to new content every week - its only 265 such games in a year, which is zero point 5 percent, one half of one percent - of all paid apps. You really REALLY have to be lucky to get there. And then - did you see my addendum comment - you're probably throwing at least a quarter of a million dollars in just Admob ads to try to get to that Top 10 (whether you land there or not, is not up to Admob, you also need luck and a good game). Its not sure even at that level..

Thank you both for writing

Tomi Ahonen :-)

[ja]

Point I want to make is that on all console platforms only a small percentage break even: source:

http://forum.beyond3d.com/showthread.php?t=49421

And because the iphone is a very easy target to step into for developers you see a lot of crap ( far to many apps and games ) that doesn't even would or could be published on any other platform.

Some volumetric wise ( games ) Iphone is the biggest console. So its logical only 5 % breaks even because only 5% is worth looking at

Thats why I hope apple can somehow apply a filter for HQ and or LQ apps/games.

[Sander van der Wal]

How about comparing the apps industry to, for instance, the DJ/pop/rock/house music industry? Most of those people do not make any kind of money either and their equipment is at least as expensive as that of the app developers. But as it is a hobby, with the added bonus of a small change of becoming rich&famous, most people don't care about that. Their time doesn't cost them anything.

Also, the article about the real gold is a bit short on the pitfalls that exist when creating all these SMS/WAP/MMS services. Given the capital investments that are needed, I doubt that app developers will be able to turn themselves into SMS developers. Simply because the nature of both businesses is so very different it is not likely that somebody with the choice of starting a business in either apps or SMS services will use the amount of money that might be made as the only differentiating factor.

[Murat]

The best thing to do is to look at the market you want to advertise in, the demographics of your audience, the objectives of the campaign and the best way to execute all of that.

Should you use apps the right boxes are ticked? Yes.
Should you use MMS/SMS/WAP if the right boxes are ticked? Yes

That's how you do good work, you keep a open mind and use the best tools available based on your needs.

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[John Clark]

This whole thing is very interesting, but you shouldn't lose sight of the fact that the development of an app may be simply an 'added value' conduit to some other service - such as an established product, or service, or whatever. A 'juicy carrot', if you will.

Therefore, assessing the monetary benefit should also include the possible bump in interest and therefore potential revenue to that existing product or service...

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[Laptop Batteries]

90% of apps cost $0 to develop.Good job.

[Tim]

Does this model change for B2B apps?

[baza firm]

About this 0$ to develop - you need to spend like 100s of hours to write/code it. 100s x 30$-50$ isn't 0$ :-) Simple math.

[Polly]

Hi Andrew, Peter, AAMP, Romain and Rumsa

Thank you all for your comments. I will respond to each individually. But please note, I added two paragraphs to the bottom of the blog, after I read the comments here, discussing the costs of development.

Andrew, I hear you. And I wish I had similar splits for the app prices and their development costs. The consumer app store style application market for smartphones is such a recent and sudden phenomenon, that there is precious little data so far. I have been trying to 'calm the waters' as soon as I detected the hysteria around it, and my purpose here is to illustrate that this is very dangerously near a bubble right now. Most developers will not get their money recovered. Before these numbers I really had very few hard facts to get to try to prove my case, but I have felt it in my gut (and the top-line numbers obviously did not result in a viable business out of it as I've said for many months here).