Full Analysis of iPhone Economics - it is bad news. And then it gets worse

I promised to return with the full analysis of the iPhone App Store economics analysis, from every angle, with all data I have managed to find. This blog intends to paint the most accurate picture of the specifically Apple related iPhone App Store market economics - and lessons from here should apply to most other smartphone app stores as well. The one final piece of the puzzle that had been missing, that we desperately needed to ge the full, honest picture, was the Apple official revenue number, which we finally got a few days ago, at $1.43B total revenues generated over 2 years, and thus $1B paid to developer. Now we can do the full analysis. But first a few general comments.

ACTUALLY I LIKE APPS

There is nothing inherently wrong with making a smartphone app. I have warmly welcomed the apps opportunity to smartphones, years before we even had heard of an iPhone (my first book on mobile services, a global bestseller, has the word 'apps' in its subtitle). As most developers will instinctively underestand, if we compare mobile web services to smartphone apps, there are some obvious extremes where one is far superior and the other would be very clumsy as the solution. Take apps - if you want to deply Tetris as a stand-alone time-killer game for a phone, it can be done via a web app on the mobile data connection (seeking each next Tetris block from some server 'in the cloud' but that would be hideously tedious, overkill in a web solution. You want the app once downloaded onto the phone, and then never to connect and just offer us the Tetris entertainment whenever we have some minutes to kill - even in situations where a network connection is not available, say on an airplane or in the London Underground subway trains. For a single user (ie non-networked) game, in most cases by far the most elegant technical solution is an 'app'.

Similarly there are cases where an app would be ridiculous. Take Google Search. We could theoretically attempt to install several times per day the full Google search environment with all web links onto a 'smartphone' - but the hard drive storage ability (and the web data load to install it) would be somewhere approaching the capacity of a modern super computer. Yes, a web search 'solution' could theoretically be deployed via a stand-alone app, but it would be the clumsiest dumbest way to deploy that, when a simple mobile web/WAP connection is all we need and a browser. So we understand, there are some extreme cases where a 'pure' app or a 'pure' web service is the natural solution, where the other is not a viable rival.

For most of our services the world is not so extreme, there is considerable overlap, and often hybrid solutions - say a multiplayer game would typically have an app part, and a real time online (mobile web) connected part. Doing both. So please do not think I somehow hate all apps. I understand there is valid need for apps and as the smartphones get smarter, with ever more inbuilt storage ability, it makes sense to deploy many of our 'mobile utilities' via apps - whether pre-loaded onto the phone upon delivery from the factory, or post-purchase installed by our employer IT department in the case of corporate/enterprise apps, or ourselves in the terms of 'App Store' apps.

I honestly do think the App Store opportunity, as re-vitalized by Apple iPhone in 2008, is a great development and adds to the options for developers, and enables better 'magical' experiences as I have often celebrated apps that I really like. With that being said, the recent hysteria around the Apple iPhone App Store, has reached fever pitch, and the industry pundits and reporters have often fanned the flames to create a hype around the Apple iPhone App Store, that distorts the whole opportunity. Because of the counting of how many billion downloads, the whole mobile services industry has jumped on the 'App Store' bandwagon and more than 30 new app stores have launched and all reason has been cast aside.

The purpose of this blog article is to examine the economics - and hopefully help guide potential developers and investors - into seeing where is the real opportunity (if any) and where are the dangerous pitfalls. If it is, as I have been claiming now for many months, that the App Store hysteria is developing into a tech bubble, and that most developers will never recover their costs, then the sooner you the reader can understand this, the sooner you can make the needed moves to minize your losses (or to avoid future and futile attempts to enter this area). I am confident in the long run there will be a vibrant and reasonable-sized market opportunity. but today all numbers scream the opposite. The math simply does not add up.

THE BIG NUMBERS FIRST

So lets start with the 'big picture' numbers and those that come directly from Apple and/or are calculated directly from those. We have the points in time when the 1B, 2B, 3B, 4B and 5B download milestones have been passed. These points in time do not conveniently coincide with December and June time points to allow easy annual calculations, but I did a linear allocation of the growth rates and have harmonized the data to the data points. Then I took the published 1.43 Billion dollar total iPhone App Store cumulative revenues (before Apple took its 30% cut) and allocated that in exact proportion of the total downloads. Please note that these numbers are 'more accurate' than the previous quick distribution I did by dividing the 1.43 Billion simply into four equal quarters of the same growth rate. In reality, the App Store has achieved increased growth rate recently and the revenues should reflect that. Here are my adjusted numbers:

Period ending.....Period downloads.....Cumulative downloads....Period revenues
Jun 2008............no apps...................no apps........................no revenues
Dec 2008.............600 M......................600 M..........................$ 172 M
Jun 2009..............800 M....................1.4 B.............................$  228 M
Dec 2009..........1.6 B.........................3.0 B............................$  458 M
Jun 2010...........2.0 B.........................5.0 B............................$  542 M
Total.................5.0 B.........................5.0 B............................$1.4 B

So based on this revised table, we can see that in the calendar year 2008 the total downloads were 600 million and revenues $172 million. In calendar year 2009 the total downloads were 2.4 Billion and total revenues $686 million. In calendar year 2010 so far (half year) we've seen 2 Billion downloads and $542 million in revenues.

If you prefer to look at the first and second full year of iPhone Apps (ie counting from July to June), in the first 12 months of iPhone Apps, they achieved 1.4 Billion downloads and $400 million in revenues. In the second full year there were 3.6 Billion downloads and $1 Billion in revenues.

Now for the total revenues generated by the iPhone App Store, 1.4 Billion dollars, when divided by 5 Billion total downloads over the past 2 years, the average revenues generated across the whole apps space, including paid and free apps, is 29 cents. After Apple takes its 30% cut, the average income earned by all apps, paid or free, to the developer, from end-user payments, is 20 cents per downloaded app. It is one legitimate way to look at the whole market and its total economics. But don't worry, I will split this by paid apps and free apps.

NOW THIRD PARTY DATA

So then how many of the total apps are free and how many are paid. There are lots of assumptions about it, but there is one specialist company which measures the total App Store environment and counts the paid and free apps. It is Distimo, which on April 30, 2010, reported that of all iPhone App Store applications, 73% were paid apps and 27% were free apps (obviously the smaller number of free apps get far larger numbers of downloads, that makes sense). This is consistent with an earlier number I saw from Nov 2009 by Pinch Media, which reported 77% of apps were paid and 27% were free. So lets use the latest, Distimo number. 73% of all iPhone apps are paid. Apple tells us currently there are 225,000 apps in total. 73% of that is 164,250 apps. So the best case of how few apps get to divide that 1.43 Billion dollars over the past 2 years, is 164,000 actual apps (I say best case, because there have been many successful apps that have earned money but have been booted out from the App Store, such as some soft porn/bikini picture apps etc).

1.43 Billion dollars divided among 164,000 actual paid apps gives the average app the revenue of $8,700. After Apple takes its 30% or $2,600 we are left with $6,100. That was over a two year period, so an average paid iPhone app earned six grand to its developers, ie in one year, they earned $3,050. This is the average, remember, it is not the median. The average skews too high because of the long tail. There are a few who make several millions, who distort the average number, so it is not true that half of iPhone App Developers earn more, and half less, than $3,050 per year. It is definitely true, that the median will be significantly less than this. (We will explore that number later, but need more data for it).

But the picture starts out bleak. The average developer gets to pocket a mere $3,050 per year, and this is still considered 'above typically successful', and the most typical developer earns less than that per year. Now the picture starts to get worse. Tighten your seat belts..

AVERAGE PRICE PAID

So we then want the price of how much the average downloaded paid app actually cost to the end-user. What is the average price paid. We know its more than 99 cents, because we know 99 cents is the floor price and we know there are paid apps that sell for more than 99 cents. But how much more. Partial answer comes from a ceiling number, we know the mathematical average price of all prices - not counting the number of downloads (a 99 cent app will be downloaded typically more often than a $9.99 app which will be downloaded more than a $99.99 app etc..). The average of all list prices was according to $3.83 according to Distimo in April 30, 2010. Our number needs to be between these two extremes, 99 cents and $3.83. And we have two sources who have calculated the actual average downloaded app price, and they are remarkably consistent. Chetan Sharma reported in March 2010 that the average paid app price was $1.90. Yankee Group also in March of 2010 reported the average paid app price was $1.99. Lets take their mid point and call it $1.95.

Now we can calculate more valuable data points. The total paid apps earned $1.43 Billion over 2 years. When we divide that by the average price paid of $1.95, we get total paid app downloads of 733 million. In other words, of the total 5 Billion iPhone paid and free app downloads, 733 million - 14.7% - were paid, and obviously the rest, 85.3% of all downloaded iPhone apps were free. That is 4.27 Billion free apps. incidentially a sanity check, in Sept 2009, Yankee Group surveyed actual iPhone App users and found 18% of their apps they had were paid, 82% were free. So the math result of 15% paid apps is quite consistent with other sources.

Now we can attribute the total downloaded apps per installed base of iDevices (iPhones, iPod Touch's and iPads). There were 6.1 million iPhone 2Gs in use at the start point of the iPhone App Store in July, and today we have reached 100 million cumulative sales. So at mid-point there were 53 million iDevices. We can now divide total 5 Billion downloads over the 2 year period, by that average number of devices in use, to get the average number of downloads per user. Which is 94 apps per average device. That splits into 14 paid apps and 80 free apps (over a 2 year period). Or 7 paid apps and 40 free apps downloaded per year per iDevice. Each device generates almost $14 of app revenues per year or nearly $28 over the 2 year period. Naturally for those with 2 of these devices (an iPhone and Touch for example, or two iPhones) then the numbers need to be doubled.

THE MEDIAN ANGLE

So now we know how much each average paid app earned. Now if we have the number of downloads at the median point, we can calculate that number. And yes, there is that number, reported by Supercollider Blog on 2 February 2010. Remember the median has to be less than the average. How bad is bad? Supercollider Blog reports on several levels of paid app downloads, the relevant number is that half of all paid iPhone apps get less than 1,000 downloads. The median point is under 1,000. Lets call it 999. That number times $1.95 per paid app gives the 'most typical app' the total revenues in its lifetime - the full two years of App Store existence - of $1,948 dollars. This is before Apple takes its cut of 30%, so we are left with $1,363 over two years or $682 per year. This is so 'successful' that half of all of the developers of the 164,250 apps - will actually earn LESS THAN THIS. Before you start to cry, remember, there is that Angry Bird game that had 4 million paid downloads and the Bewelled 2 game with 3 million paid downloads. Thats your math there, they are totally skewing the averages, and you are stuck in the 'long tail' indeed. Half of all developers will earn less than $682 per year. Do you still think this is a good business idea?

IT GETS WORSE

Now the heartbreaking news. Lets factor in our development costs. Again, independent source, the Internet Retailer reported on May 1, 2010, that most apps cost between $25,000 and $50,000 to develop. There is another older source I also found, prMac which on 15 December 2009 reported that typical iPhone apps cost between $15,000 and $50,000 to develop. Lets take the mathematical average of those four extreme points, and we arrive at the typical iPhone App development cost of $35,000. Also, lets assume our developers are very clever, they do not need to do any further development of our App, an update would cost a further $10,000 according to Internet Retailer. I have no data on how many apps are updated, so lets say our app does not need any updating. How long for us to break even?

The development of the typical app cost $35,000 and the median paid app earns $682 dollars per year after Apple took its cut. You see where this is going.. We get to break even on our App Development costs in... 51 years. I'd say the iPhone battery will need replacing before then, and perhaps our grand kids have grown tired with that oldfashioned antique toy by then. But maybe - just maybe - without any updates to our app, we can sustain 51 years of continuous sales and recover our initial investment. Yeah, and this is obviously without covering any of our marketing costs, and gives us no profit yet, etc...  Just to break even.

If you take that absolute lowest end of the two estimates, $15,000 and do our app 'dirt cheap' - even then, it will take 22 years to recover our costs. 22 years? I bet AT&T's 3G cellular license doesn't run all the way to 2032 haha. And again, HALF of all developers of paid apps will do worse than this! Can you understand why I preach to the industry, yes, there is money in mobile but for heaven's sake, please do not invest your precious creativity on any smartphone apps today. Its utterly a fool's errand.

PLAYING A GAME

So, most paid iPhone apps are games and some games can have 'huge' success, eh? Like the afore mentioned Angry Bird, the best-selling iPhone paid game app of all time with 4 million downloads at 99 cents ie earning 4 million (before Apple's cut) and the previous champion, Bewelled 2, which had 3 million paid game downloads. You think that justifies your mission? That these numbers are 'impressive' for a mobile phone game? Sure. But I have some friends over there at Artificial Life here in Hong Kong, whose main business is in mobile, but not in making games for phones (they do TV-interactivity as their main business). They had a clever little game a few years ago, you might have heard of it, won many awards, called 'V-Girl' the virtual girl friend on the phone, in the form of an avatar. Like an adult age 'tamagotchi'. These guys are not EA or any major game developer and this was not their main focus. They celebrated their 4 million paid download milestone - back in 2008. 4 million is nothing in the real world of mobile paid data services and apps. Nothing.

Take Tetris. Tetris sold 35 million game cartridges to the Nintendo Gameboy platform. Pretty decent numbers for a gaming platform. Guess how many paid downloads to mobile? Over 100 million. One Hundred Million. Paid game downloads (on Java obviously, not smartphones). And this is nothing in mobile. Nothing! Our numbers are huge. I want huge numbers. That - 100 million in Tetris - is nothing.

What I have been telling my readers and followers and this blog and in my books, that the real money is in true mass market services like SMS, MMS and WAP. That is where the REAL money is. Lets take a game, add known branding, add a media twist, and do it on mobile the way I want to do it. Take Who Wants to be a Millionaire. No, lets go with Pop Idol. The Idols format way back in 2006, ran in 29 countries (American Idol, Indian Idol, Australian Idol, Neuvelle Star in France, Deutschland Sucht Der Superstar in Germany etc). SMLXL wrote a white paper on what they did in mobile-TV convergence. They had a cumulative global TV audience that year in 29 countries of 721 million. And they generated over 420 million dollars in TV voting via SMS. This was in 29 countries in 2006. Today the Pop Idol format has a far larger audience. The 2009 run of American Idol, in the USA alone, earned half a Billion dollars out of SMS voting. THIS is what I mean by where is the money (in gaming, in branded mobile consumer gaming experiences). That is Idol in just one country. Now go multiply that by about 50 countries of Idol this year and you get my vibe....  iPhone Apps, shmapps.

FREE APPS

So then what of the free apps, you say? Fine. There is of course good reason to consider a cool, sexy iPhone oriented advertisement-app (adver-app) or sponsored app. The iPhone is superbly desirable and its screen is large and easy to show to friends, it is far better as an advertising 'platform' than older smaller screen phones, whether smartphones or dumbphones. Sure.

But now we have to go to a different economics. The economics of mass market advertising, while using a smartphone as a mass market media device (something I know a bit about, I've written three books on the topic and lecture on it at Oxford University). Now we have to start with reach. The total active user base of all iDevices is not 100 million as is proudly claimed by Apple and its loyalists. Remember, Apple is quite clear, that 100 million number is cumulative sales. It includes many early iPhone 2G devices that have long since been retired from use. The real installed base is by definition less than the cumulative shipments, for any device like a mobile phone that has on average an 18 month replacement cycle (says the Semiconductor Industry Association). Absolutely definitely the total installed base of iDevices is less than 100 million. How much less, we don't exactly know. We can safely assume all 2 million iPads are in active use haha, but yes, iPhones? As of June of 2009, according to AT&T numbers, there were only 75% of all originally activated iPhones in use on the network. So a year ago the proportion was 75%. Today it is certainly less than that. It should be somewhere in the 65% range in June 2010. But that is for iPhones. I do not have replacement cycles for portable media players or PDAs similar to the iPod Touch. I think its safe to assume iPod Touch's will have longer replacement cycles than iPhones, because iPhones get often subsidised pushing the replacement cycle shorter. What is a fair number for iDevices? 75% or 80% in use? Lets play safe, call it 80%.

So worldwide there are 80 million iPhone compatible devices today in use. That seems like a big number. Except, that compared to just the installed base of smartphones at the end of 2009, it is 13%. So if you do any kind of free iPhone app, and intend it to be a mass market media vehicle to reach the pockets of the total population, you have abandoned 87% of all smartphone users in the world today. That seems like a poor idea to me. But wait, there are more phones than smartphones.

The world has actually 'featurephones' which do apps fully well, using Java and Brew and Widgets etc. How many of those are out there in the wild? Try 2.1 Billion. So that moron who approved the 'brilliant' marketing idea to develop a cool app, and did it only for the iPhone eco-system, conveniently spat in the faces of 96% of the population with reasonably advanced phones - that all could have easily taken that free app, and engaged with your brand, through a mobile phone app. 96% were rejected by this idiotic exclusion strategy by the Apple fan-boys from the marketing department who never bothered to study the real mobile market.

Wait, we have even more interactive devices in our pockets. Are you really sure that wonderful digital media advertising experience could not be delivered via a web service? Or perhaps a variant of it via a web service? Even if only a simpler version of the experience on the app. If its your catalog or a discount coupon or 'nearest store finder' etc - surely that can be done also via a web page? How many phones have a 'real' web browser, yes using HTML. That is 2.8 Billion phones. If you ignore these and limit your marketing campaign to iDevices - you are now abandoning 97% of an addressable market. Is this truly prudent use of your marketing, branding, advertising and creative effort? Wait, I can go on, there is WAP, MMS and SMS....

But you get my picture. Take Hilton Hotels (the idiots). They developed an iPhone app to help busy travellers book their room service meal. An iPhone app to book a meal? And now limited to 3% of prospective clients? Why was this not done via a mobile Web (HTML) or WAP site? Is it somehow impossible to book room service meal on an interactive mobile website? Darn! Or take Walgreen the US drug store (the idiots). Their 'mobile strategy' was an iPhone app pleasing 3% of their customers and ignoring 97% while rival Rite Aid drug store did the SMS based loyalty card, prescription renewals etc and reached the pockets of 100% of Americans. Which is the smart move, which is the moronic move? And thats before we factor in the cost. The iPhone App still costs typically $35,000 to develop. You know what a mobile web site development costs on WAP or Web? Try one tenth of that cost - $3,000 according to that same source I used earlier, Internet Retailer, on May 1, 2010.

So, your development costs are 10 times bigger, your audience reach is 50 times worse. And this makes sense as an 'advertising platform' exactly how?

Again, there is nothing wrong with adver-apps. Adver-apps can be exciting, clever, fun, magical. Nothing wrong with a mobile app developed for a given smartphone platform to drive traffic from there to your site or to create branded experiences for your consumers. But then, you have to start with some sense of reason. The first thing you do, is cover the obvious mass market approaches. Do at least one of SMS, MMS or WAP. Then if you want to be more 'engaging' then yes, you can add Java or Web or Widgets or whatever, but still something that reaches more than half of all phones. After you have those bases covered - THEN do your free app for the iPhone. No problem. Mastercard did it the right way. They first did the basics, SMS and WAP based basic credit card support systems from balance alerts to ATM/cash machine finders etc. Then they added a smartphone app for the predominant smartphone platforms - in the USA obviously starting with the Blackberry first, before the iPhone.

Today if you decide to develop a free app, you pay your $35,000 development cost, then you find your free app competing against just a modest set of 60,750 rival free apps on the iPhone. Imagine if you are your consumer, scrolling past that set, to find you. If the consumer just spends 2 seconds per app considering it, that would take 34 hours to check out the whole range of free apps - to hopefully find yours. Does this make ANY sense? And we already know that the consumer has ALREADY downloaded just a modest amount of... 80 ..eighty.. eight-zero... 80.....free apps to the iDevice before today, to offer your free clever adver-app some rival competition. You really gotta be good to stand out in that context. That $35,000 dollars is probably not enough even for your first edition, and you may well need several updates at $10,000 a pop just to be noticed by your target audience. Who wants this headache in the 'cool, its a free app' nonsense.

The free apps hysteria is totally a repeat of the previous tech bubble, the dot-com bust of year 2000-2001. Suspending all market realism, believing that magical billion download numbers of free content somehow have created an alternate economy where normal rules do not apply. No. If you do advertising, then you measure it by advertising metrics and apply that business logic. Then you value a wider reaching (multi-media interactive platform) ahead of the narrow reaching one of similar performance. Yes, if you really invented a cool game that uses the motion sensors that only the iPhone has, or really need the GPS pinpoint positioning, etc, fine, do your iPhone App. But for most marketing, advertising, branding uses - remember Walgreens vs Rite Aid - the smart move is to start with SMS, MMS, WAP, and adding Java, Web, etc long before you even consider smartphone apps. And when you do apps, then remember which platforms rule. In North America its the Blackberry, in the rest of the world its Symbian (mostly Nokia) far before you even contemplate an iPhone app. But yes, if your VP of Marketing loves his iPhone, do create a cool sexy prototype for him to play with his toy, that is what the iPhone is truly great for - it is the world's fave pocket gaming platform - has more devices than the PSP and obviously most paid and most free apps are ... games.

That was my big blog on the economics of the App Store. It is currently in hype mode, it is a bubble where most developers will not recoup their costs, and in the case of paid apps, will for the vast majority, never reach desired usage levels, and for free apps, will never achieve reasonable reach. Doing advertising that is iPhone specific is like doing TV ads that only work on Sony branded TV sets - except that Sony has a far better global market share than iDevices. (and iPads, at 2 million installed base, don't even mention it.)

And to be very clear, Apple re-vitalized the consumer-oriented app store opportunity where exiting apps store were almost dead at the time, like Nokia's N-Gage gaming apps store. (The other smartphone apps opportunity that I did not discuss in this blog is the business/enterprise apps which are worth about 4 Billion dollars annually, far bigger than all apps stores combined). Everything written here, on both paid and free consumer apps, applies also to Nokia Ovi, Google Android, Microsoft etc app stores. Today this industry is in over-hype mode as to apps, and most app developers will make losses - but not all app developers. Some will be lucky. In the future a stable viable business will emerge out of this, and we can thank Apple for revitalizing this opportunity. But don't invest in it today.. Put your creativity and investment into the real money opportunities, remember Pop Idol simple SMS votes earning half a billion dollars in USA this year alone...

All stats in this blog that were not expressly quoted for a specific source, are from the TomiAhonen Almanac 2010. You may freely quote any facts and analysis from this blog and make your own shorter edited versions of it. GigaOm has already kindly done so (thanks!).

PERHAPS? - if you the reader feel 'I wish someone had told me this a while ago, before all that effort' then you might want to stop by this blog, not one of the many where I have been warning of this growing hype around apps, but rather, my advice from last year, on where the real money is in mobile. There is more than $250 billion dollars this year in mobile data services to be made - you could be part of that. You might want to read this guide to the digital Klondyke, the mobile Eldorado.

BONUS - I have just finished my latest free 'Thought Piece' which is a 2 page unrestricted pdf file - yes, my blogs are long and tedious, but at least the book and Thought Pieces are edited haha.. - anyway, this latest Thought Piece is on 'Investor Advice' to mobile, helping navigate the pitfalls and find the good opportunities today. If you'd like a free copy, just send me an email to tomi (at) tomiahonen (dot) com and I will send you the Thought Piece by return email.

Comments

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[Patanjali]

There is no such thing as spare time, as such time is always an opportunity to be doing something else, and hopefully better, with it.

Such time is not a bonus, so treating it as if it is, is delusional, and a sure way to lose track of your actual costs. Time IS money, and if you could be doing something that earns money with it, or just doing useful life enjoyment stuff, then that is better.

Of course, one can spend time for the love of it, but it is still not 'free', as you withdraw the use of that time from everything else.

To me, many would be better buying lottery tickets instead. They would have far less grief and frustration, and a lot more time to spend with their families, instead of answering a interminable list of bug complaints!

Apps have a long tail of unpaid follow-up, like the enquiries and bug reports, plus the time actually spend on fixing them. All time that has to earn its keep out of the profits. Don't discount that time as being spare anyway.

A good way to get perspective is to think about your time as if you could earn what you may get in your 'day' job for every hour. From that point of view, much of what we do has far more time allocated to it than it is really worth.

For example, if considering buying a $100 item, is it worth spending two hours researching to see if it fits your needs? Perhaps get a sense of whether it will do the job, and just buy it. If it works, good, if it doesn't, not much time or money is lost, and you can just get on to the next thing.

People who value money more than time will not have the head for long-term app development. Your time value has to be real and measurable to be successful.

[Patanjali]

Just want to say thanks Tomi.

It must be hard to be a lone voice against such obvious delusions people have about Apple, and its 'success'. I sometimes wonder whether Apple puts something in the coating of their devices that blocks user's independent thought and reasoning.

The app store IS successful, for Apple, as they make money from the very first app a developer sells, well before the latter has any chance of breaking even.

And many think that their time is 'free' or 'spare'. Fine, they can come over and develop apps for me for nothing then. Too many deprecate their time as insignificant, and so can never accurately make time-prioritisation decisions.

Huge enterprise projects fail and have costs overruns for exactly the same reasons. They fail to account for all the time that they need to spend on the project, especially testing, documentation and support, and don't tightly manage the scope of development, so let it creep, by just adding extra to do here and there.

If the big ones, with all their methodologies and expertise, regularly fail, almost every small, though competent, developer, WILL fail, just because they often really have no idea how to effectively manage their project. It comes down to the breadth of skillset needed to properly self-manage a development project. It is like starting a small business, with all the intricacies those have.

Pretending that a product will just carry itself to market is delusional, no matter how supposedly 'easy' it is to find apps. Having millions of choices blows all 'easiness' out of the water. While many initially try out lots of apps, most fall back to a very very few that actually work for them. And they tend to be the ones put out by the very very big players, not the small developers at all.

Keep up the good work! Keep battling the determined ignorance and delusion.

[Patanjali]

Tomi,

With digital distribution and cheaper software tools to do what formerly took expensive equipment to do, the cost of entry for books and music has dropped dramatically, but then so has the chance of success rates.

I wouldn't be surprised if the digital success rate now might be around that 1 in a 1000, or even a lot less.

Personally, if success were measured by whether break-even were reached in any of these endeavours, that 1 to 1000 would appear to be delusionally over-optimistic.

While you can now record your own music for a few $1K, and distribute to all major online music stores, including iTunes and Android, and streamers though CD Baby, without the hefty advertising budget of a major distributor, or being very successful at live gigging with a huge following, you will probably never have the opportunity to give up your day job.

Such is the way with these popularity-based enterprises. Advertising is spent on the 'sure bets', and even than, many will not be successful. That is where the 1 in 10 comes from, just among those 'sure bets'. Not the millions of indie films and shorts that fill up YouTube, but that will never see any real money return.

[Winter]

@Wayne
"The "smart" in smart phones are the apps."

The "smart" in phones is their being a general computer that can run any type of software. This software is "cheap". I see now a lot of ads asking to install brand or shop apps. Not free, you actually get money back if you install the app. Eg, H&M and a dairy brand.

That is app economics.

[Per "wertigon" Ekström]

*Silently wonders why this debate is happening in a 7 year old thread...*

As for native Apps, they were more of a fad than anything else, and this is becoming increasingly apparent as time moves on. Sure, there will be a few areas to make money still, but those are rapidly shrinking. Not even the gaming market is very viable anymore.

Is there money to make still? Of course. But the only way to (reliably) make money in apps is as a contract developer. Everything else is loss-generating at this point.

Web apps, on the other hand, will only increase in importance...

[Tomi T Ahonen]

Hi Patanjali, Wayne & Winter

Hey, welcome Patanjali! Thanks for the nice words, it really means a lot. And I was quite stunned to find this 7 year old blog article suddenly gaining a discussion thread but yeah, that is precisely why I keep everything here on the blog, the good and the bad. And its really rewarding to find someone who found value in an older blog posting, still after gosh, 7 years..

Onto the late understanding now of the apps economy. The hysteria came and went. I was correct, but my view was not formed in 2008 when Apple launched its App Store, as you all know, I wrote about apps in my first book in 2002 (and compared them to the web option). As I've said time and again, apps are good for GAMING but beyond games, the smart way to do MOST uses is .. mobile web. Not the PC web, you have to optimize for mobile (I was also considered a heretic for saying that) but I was proven correct and today all internet gurus accept, a web page designed for PC/laptop screens will not work as well on mobile, as a screen that is somehow adjusted for the mobile experience, whether by actually designing it for mobile or having some software do the adjusting.

That doesn't mean you cannot do apps. Apps are a clever way to get attantion and do weird wonderful magical stuff that you can't do on most 'normal' internet HTML types of uses, and Augmented Reality is a great case example of a whole massive global industry now worth $3 Billion dollars that 'needs' apps and can't be done practically without an app (today, on most phones, in most cases).

As to Wayne your argument that apps make the smartphone - thats not true and you know it. Half of smartphone owners NEVER DOWNLOAD A SINGLE APP. (ok, I exaggerated a wee bit, its 49% according to 2016 Comscore measurement). So WHY would any idiot total fool buy a smartphone that then isn't used for those apps that you love? Half of smartphone buyers are morons perhaps? No, its the REMAKE of the software wars, why Google is the giant and Microsoft lost. Its the SAME REASON. The internet. A smartphone that doesn't do Facebook, that would be a foolish smartphone. A smartphone that can't connect to an app store, that is still viable although would suffer of course. The internet trumped the app in the PC world, and it now trumps the app in the mobile world.

Now the smartphone is a MOBILE (phone) first before being a smartphone second. The most used function on the mobile is.. messaging (SMS). Thats communication, does not need a smartphone (only 1 in 5 mobile messaging users is on ANY messaging OTT service like Whatsapp). The second most used function on the phone is the camera (does not need to be a smartphone obviously to be a cameraphone). And the third most used feature is voice calls. So FAR FAR FAR ahead of ANY 'smart' functionality of a 'smartphone' the device is a 'mobile' and its primary uses govern its main success - messaging, camera and voice calls. For SOME users the apps and smartness of the device is of 'primary' concern - but again, if half of users NEVER download ANY apps, then yeah, your argument Wayne that without apps there is no smartphone, that falls flat. Obviously we have PLENTY of needs we can fulfill on a smartphone that do not require apps - but just like a PC, the apps give us a lot of versatility. The Pokemon Go of next year, that will likely need a smartphone to run, and if you now bought a dumbphone, you'd probably lock yourself out of that opportunity.

But for DEVELOPERS - my main readers of this blog - apps were a nonsense bullshit hysteria wishing for a gold rush that never came. Now its a 1 in 100 chance of earning a profit out of an app. I was the first to tell you so, on this blog, and did the math diligently year after year, until the mass of evidence became overwhelming and the mass hysteria subsided.

I told you in 2008 that apps were not the thing. I said to put your effort into SMS and mobile web. In the interim period, apps have been the SECOND WORST PERFORMING ASPECT of mobile content types (ahead only of location-based services) while Premium SMS alone has done TWICE as good as smartphone apps and mobile web three times as good. Duh.

Lastly on the last point, Winter and Wayne - my focus NOW is to shift the struggling developers' interests from the under-performing apps to where? What I said all along, SMS and mobile web. STILL GROWING, both of them, of course. (Don't confuse person-to-person SMS decline with the huge growth in MEDIA use of premium SMS in various banking, payments, coupons, ads, televoting, e-verify uses etc). So I keep reminding, apps is ok for game developers (1 in 10 chance of success) and others should stay away from apps if they want to reach a mass market or get rich selling an app (or its advertising or other revenue streams). Apps can help brands deliver better customer service yes, and that will rarely be another Uber or Starbucks, in most cases the brands are FAR better off doing a good mobile web and SMS service on mobile - reach a FAR larger audience, get far more satisfied users and it'll be far cheaper for the brands too.

Luckily the apps hysteria phase is mostly subsiding globally by now.

So yeah, thanks Patanjali, really, really, I appreciate the comments!

Tomi Ahonen :-)

[Cycnus]

@Tomi
"Half of smartphone owners NEVER DOWNLOAD A SINGLE APP. So WHY would any idiot total fool buy a smartphone that then isn't used for those apps that you love? Half of smartphone buyers are morons perhaps? No, its the REMAKE of the software wars, why Google is the giant and Microsoft lost. Its the SAME REASON. The internet. A smartphone that doesn't do Facebook, that would be a foolish smartphone."

Indeed. Let's remember what was one of the biggest "oohs" of the Nokia 9000 Communicator? - Full scale web browser. (i.e. Not just WAP browser.)
What did the silly Americans think iPhone did first? - Full scale web browser.
What dumbphones (a.k.a. feature phones for Elop-the-idiot-terminology) do NOT have? - Full scale web browser.
What was that killed the local apps in PC's? Web Apps. And what do they need? - Full scale web browser.

A smartphone user that does not download a single app? That's my beloved wife you're talking about. Let's try to check what she does in an average day (besides calls and SMS):

Alarm clock - technically that's an app as there exist other alarm clock apps than the preinstalled one but as she uses the preinstalled app, it doesn't count.
Camera - technically an app as there exist other camera apps... oh heck, I'll just say "the same".
Photo gallery - the same
Calendar - the same
Email - the same
Chat groups she is in - web pages optimized for smartphone, basically web apps so they don't count.
Facebook - was preinstalled on the phone so it doesn't count.
WhatsApp - was preinstalled on the phone so it doesn't count.
Google - I'm not sure if it is preinstalled app or web page but neither type counts as an app so all the same.

I'm pretty sure she is a "value adding smartphone user" for metrics that Wayne Brady uses, nevertheless she has never installed a single App to her phone, I doubt she even has set up a Google account. I remember that you talked about smartphones that are not visible in activation counts by Google in some other blog post of yours, I just don't remember which one. This is most likely one of those.