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

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[Developer mind]

I am amazed at people complaining about Apples 30% cut. Sure its high and they make money selling phones etc.
But considering they distribute your app, host it, market it (if your lucky) etc I would not shout too loud. I think for most people the cost of handling distribution, payment etc would be far more expensive (for 95%).
Not trying to defend the 30% cut. It could be lower but its not totally unreasonable.

I have a couple of million downloads for my apps and make a good amount of money. Unfortunately I live in Norway and making 2-3000 dollars a month is way less then I make as a software developer. But I think if your from e.g. India, China, Brazil etc (no offence) this would be far more impressive.
So if its worth it or not also depends on where you come from :)