The Comprehensive App Economics Blog 2014 - Yes Peak App is apt name - Sheer disaster industry with only one sector making money

Welcome to the Definitive App Economics Blog. All the stats and facts. So. Did you read the news recently? Smartphone and tablet app store downloads will jump 65% from last year and pass 102 Billion in 2014. Thats 60 apps downloaded per smartphone user ie 5 apps downloaded per smartphone per month on average. Over 3 million apps have been created already and 40,000 new apps are released every month. The apps ecosystem employs 2.1 million developers globally and will make 35 Billion dollars in revenues this year. Thats up 67% from last year. Apps already are bigger than the global music industry and this year the apps economy becomes larger than total cinema box office revenues worldwide. Smartphone users now spend over 2 hours on apps every day. So isn’t this an awesome eldorado of a business opportunity? No. While all that is true, the business of smartphone apps is a total disaster. 

There is some good news. Some companies do actually make money and even profits in this struggling industry. But lets be very clear. When total developer-revenues (after Apple or Google has taken its cut) are divided by total apps in circulation, we get an average earned revenue of 5,250 US dollars per app that exists. Thats pretty pathetic when the average app development costs are about 25,000 dollars. When we remove the ‘zombie’ apps (ones that have been abandoned by their developer and aren’t updated anymore) then for currently supported ‘modern’ apps the average revenue per live app is $17,500. That sounds pretty good doesn’t it as everyone can't be a winner. Or is it?

Yes it sounds good. If you were still under the illusion that the smartphone apps opportunity is like so-called ‘hits businesses’ like books, pop music, movies and videogames - where roughly 1 in 10 titles is a hit, and by deploying a portfolio of titles, producers can play the numbers and become profitable - then it sounds promising yes. Many think smartphone apps business is like that and we hear it from time to time from so-called experts who don’t understand the mobile industry. But the real experts on smartphone apps business know now what I said from the start. It is not like the other hits businesses. The success rate is nothing near 1 in 10. The smarphones apps business is more like a lottery. Only very rare winners emerge and they collect massive income. That distorts the average number.

 

Let me illustrate with simple example. If a rural village has 100 people each earning 100 dollars a month, their average earned is 100 dollars. Then lets say one villager wins the lottery and earned now 1 million dollars. the town income is 1,010,000. Divide that by 100 and the ‘average’ income by each of the town villagers is 10,100 dollars. In reality one earned 1,000,100 and the others still earn only 100 dollars. Median is still 100 dollars meaning the mid-point. You can see where some exceptionally affluent members of such a statistical group can massively distort the math. Average is a misleading number when analysing the smartphone and tablets apps industry. It is vastly over-rating the reality.

So lets use median. Median is that person at the mid-point, literally half of all developers earn more, and half earn less than him (or her). Here is the truth. The ‘median’ developer earns a whopping 400 dollars per year out of the smartphone app-generated revenues. That includes all sources including payments from the app store (after Apple or Google has taken its cut). That includes advertising revenues. And it includes in-app purchases. Yes. Median revenue earned by a smartphone or tablet app developer out of the app itself is 400 dollars. That means literally, that half of all app developers earn less than 400 dollars, half earn more than that. 400 dollars does not even cover the cost of the development tools and software that the app developer needs. Thats before considering programming time used.

 

3.8% of smartphone app developers are able to turn some profit. Yes over 96% of smartphone app developers lose money on the project. Only 1.3% of developers have a hit product. This is essentially 10 times worse than normal hits businesses. Your chances of success are nearly as bad as 1 in 100. You are better off learning to rap or writing a book.

 

I said when smartphone apps became the latest iHysteria six years ago that this was mostly hype and most app developers won’t be able to make money. I was right. I also said that there will be some hits that will be celebrated and they will in turn lure more sheep to the slaughter. And I was right. I have been writing occasional deep and detailed app store economics articles on this blog to try to help the industry. Last time when I did this a couple of years ago, I said games would make money. I was right. I also said then that gaming revenues would be increasingly made with virtual goods sales (now-called ‘in-app purchases’ by the industry). I was correct. And I warned that apps will not become a big advertising medium. And I was right again. I do know this industry and how it makes its money. So now its time to do the most comprehensive analysis of the 35 Billion dollar smartphone apps economy for 2014. What is the state of this industry.

And before you quarrel with me that what does Tomi know about this apps business, I wrote literally the world’s first book about apps and services for mobile (the world’s bestselling mobile industry book for several months in 2002). Then to follow that, I wrote literally the world’s first business book for the mobile data industry (worlds’s bestselling mobile industry book several months early in 2003). I am the most published author in mobile, 12 books and counting, and I am referenced by my peers in over 140 books they have written. This blog is the largest collection of free statistics on the mobile industry with numerous exclusive stats that no other analyst releases into the public domain. I do this blog totally free with no advertising and no registration and I don’t collect your data to spam you later. A decade after this blog started its still here, its not for sale. We’ve had 5 million visitors to this blog and over 40,000 comments have been left here. Its no wonder Forbes ranked me the most influential expert in the mobile industry.

 

APP ECONOMY BASE METRICS

So lets start with the big picture. This blog is analysis by my company. TomiAhonen Consulting, on smartphone apps data published into the public domain by the major analysts who report on smartphone and tablet apps data. Some of the sources include Distimo, ComScore, Vision Mobile, Statista, Mobile App Jungle, Knicket, Abi, Crispy Codes, Gartner, Strategy Analytics, Juniper, Digi Capital, Compuware etc. And of course TomiAhonen Consulting. This is how I see the size of the industry now, all data is for full year 2013 and includes both tablets and smartphones, globally:

APP ECONOMY BIG PICTURE 2013
Total apps . . . . . . . . . 3 million [TomiAhonen Consulting]
Total downloads . . . . 102 billion [Gartner]
Total smartphones . . .1.4 billion at mid-year [TomiAhonen Consulting]
Total developers . . . . 2.1 million [Vision Mobile]
Source: TomiAhonen Consulting on published industry data Aug 2014
This table may be freely shared

All numbers keep growing. The snapshot is at end of December 2013 except for the smartphone number which is half-year so we can divide with it for full year data

ACTIVE APPS 2013
Total apps . . . . . . . . . 3 million [TomiAhonen Consulting]
’Zombie apps’ . . . . . . 70% [Adjust]
Maintained live apps . 900,000
Source: TomiAhonen Consulting on published industry data Aug 2014
This table may be freely shared

There are a rapidly increasing proportion of all apps in app stores that are so-called ‘zombies’ ie they still exist but are not really alive. Their creators have abandoned them, they are no longer updated for newer operating system versions and no maintenance is done but they still lie around cluttering the crowded stores. I will be providing related analysis both of ‘total apps’ counting all including Zombies, and data based on ‘live’ apps only when Zombies are removed. That is the currently relevant number.

APP DOWNLOADS 2013
Total downloads . . . . 102 billion [Gartner]
Total apps . . . . . . . . . 3 million [TomiAhonen Consulting]
Total smartphones . . .1.4 billion at mid-year [TomiAhonen Consulting]
Downloads per app . . 34,000
’Zombie apps’ . . . . . . 70% [Adjust]
Maintained live apps . 900,000
Downloads/live app . . 113,300
Downl/smartphone . .  73
Source: TomiAhonen Consulting on published industry data Aug 2014
This table may be freely shared

The average smartphone owner downloaded 73 apps in 2013. The average app had 34,000 downloads if all apps are counted but when counting only live apps after zombies are removed, the live apps got 113,300 downloads on average. Remember, these averages are far above the median levels because of well, Angry Birds, Facebook and Skype...

SMARTPHONE APPS ECONOMICS

 

So now lets talk about the money! Revenues. What kind of money is in the industry and who gets it and how. So now lets explore those numbers...

SMARTPHONE APP REVENUES 2013
Total revenues . . . . . . 21.0 billion dollars [Strategy Analytics]
In-app Advertising . . . . 3.5 billion dollars [Juniper]
App store income . . . . 17.5 billion dollars [TomiAhonen Consulting]
Commission 30% . . . . . 5.3 billion dollars paid to Apple, Google etc [Apple, Google]
Paid out to developers . 12.3 billion dollars
Developer revenue . . .  15.8 billion dollars
Source: TomiAhonen Consulting on published industry data Aug 2014
This table may be freely shared

Revenues have grown far more gradually than most promised. The advertising revenue growth has not kept up with total app growth numbers. Apple and Google and other app store owners take their cut of course. Developers got to keep 15.8 billion dollars out of the app store economic opportunity in 2013.

SMARTPHONE APP REVENUE RATIOS 2013
Developer revenue . . 15.8 billion dollars [TomiAhonen Consulting]
Total apps . . . . . . . . . 3 million [TomiAhonen Consulting]
Total downloads . . . . 102 billion [Gartner]
Total smartphones . . .1.4 billion at mid-year [TomiAhonen Consulting]
Total developers . . . . 2.1 million [Vision Mobile]
Dev rev per app . . . . . 5,250 dollars
Dev rev per live app . . 17,500 dollars
Dev rev per downl . . . 15 cents
Dev rev per smartph . . 11.25 dollars
Dev rev per dev . . . . . . 7,500 dollars

Source: TomiAhonen Consulting on published industry data Aug 2014
This table may be freely shared

So when we remove the iTax and gTax we get revenue paid to developers. That revenue is 5,250 dollars per all apps including zombies. In terms of live apps, the developer revenues are 17,500 dollars in 2013. When we divide total developer revenues by total downloads, the average download is worth 15 cents. If we allocate the revenues by number of smartphones in use, each smartphone in use generates 11.25 dollars of developer revenues. And each developer’s cut out of the developer revenue pie on average is 7,500 dollars. As the median developer only gets 400 dollars, obviously there is a fortune then available for the few uber-rich.

SMARTPHONE USERS AND APPS

So then lets look at the smartphone user and what they do with the apps. Even as they download tons, they don’t really use all that many.

SMARTPHONE USER APP STATS 2013
Total downloads . . . . 102 billion [Gartner]
Total smartphones . . .1.4 billion at mid-year [TomiAhonen Consulting]
Downl/smartphone . .  73
Free as % of downl..... 80% [Statista]
Deleted after 1 use . . . 85% [Compuware]
Apps left to be used . . 11
Pre-installed apps . . . . 20 
Of those in use . . . . . . 10
Total apps used . . . . . . 21
Apps uses daily . . . . . . 10 [Flurry]
Daily uses per app used 0.5
Monthly use ave app . . 14 times
Source: TomiAhonen Consulting on published industry data Aug 2014
This table may be freely shared

So yes, we use Facebook many times per day. But 85% of downloaded apps are deleted after one use. Of the 11 apps that remain, and the apps on our phone that we actually use, the average app gets less than one use per day. 0.5 uses per day. Or the average app that didn’t get deleted, is used only 14 times per month. This is the average across the total smartphone user base. Serious gamers can easily use an app (game) 50 times per day...

We just heard that most smartphone owners do not download even one app monthly. Why is that if the download numbers are so big and essentially all smartphone users do download apps. Its that we binge-download apps when the smartphone is brand new. We love the new phone, we want our fave apps onto it what we had before (or if its the first smartphone, what we may have been wanting to get) and thats when we also discover some other interesting apps. That happens in the first month of ownership. Then most smartphone users stop and the phone stays like that most of the way. There may be an occasional need to download something but we don’t go back to the store just to shop. We do that only when the smartphone is new. The next time we do that, is when we get our next smartphone.

This pattern will also get a level of ‘learning’ where at the first time we do a lot of experimentation of new especially free apps. Then after a couple of newer phones, we don’t bother to download all the bloatware we got previously when we know we didn’t use those apps that much to begin with. And we settle into our couple of fave apps that we’ll install to the next smartphone. Odds are that several of our favorites are pre-installed on that smartphone already.

SMARTPHONE DEVELOPER FINANCES

So then lets look at the smartphone app developer labor force. This part of the analysis is almost exclusively based on the excellent global app developer survey by Vision Mobile. I have sorted out some of the more cryptic numbers in their report, and then applied it across the total industry metrics as in the above. I have also re-integrated the part they cut out - those developers who are not trying to making money out of the downloaded app. That on the surface may seem counter-intuitive, why then make the apps but in reality there are many who are like this. Many corporate branded apps are utilities to let you use your smartphone to do something with their tech, from car apps to hotel key apps to accessories to our phones etc. So the app is not intended to be a ‘profit center’ but rather an enabler. The owner/company/brand makes its money on the main business and the app is only an accessory to get you connected. Similarly there are many ‘hobbyist’ developers who are in it for the fun or to get the experience coding, not to try to make money. Vision Mobile removed those developers and reported on stats only on the developers who try to make money. I have now re-integrated those developers back as this is a comphrehensive survey of the economy. Their numbers are needed in any case.

THE RICH IN APPS ECONOMY 2013
Total revenues . . . . . . 21.0 billion dollars
Apple & Google tax . .  5.3 billion dollars (25%)
Top 1.3% developers . . 27,300 developers
Top 1.3 earn . . . . . . . . . 11.8 billion dollars
Top 1.3 earn . . . . . . . . . 56% of all revenues
Top 1.3 earn . . . . . . . . . 75% of developer revenues
Average per dev . . . . . . 432,700 dollars
Left for rest of devs . . . . 3.9 billion dollars (19%)
Source: TomiAhonen Consulting analysis on Vision Mobile survey Aug 2014
This table may be freely shared

MIDDLE CLASS IN APPS ECONOMY 2013
Revenues left . . . . . . . . 3.9 billion dollars
Next 2.5% developers .  52,500 developers
Next 2.5% earn . . . . . . . 2.1 billion dollars
Next 2.5% earn . . . . . . . 10% of all revenues
Next 2.5% earn . . . . . . . 14% of developer revenues
Average per dev . . . . . . 40,500 dollars
Left for rest of devs . . . . 1.8 billion dollars (9%)
Source: TomiAhonen Consulting analysis on Vision Mobile survey Aug 2014
This table may be freely shared

LABORERS IN APPS ECONOMY 2013
Revenues left . . . . . . . . 1.8 billion dollars
Next 7% developers . . . 147,500 developers
Next 7% earn . . . . . . . .  1.4 billion dollars
Next 7% earn . . . . . . . .  7% of all revenues
Next 7% earn . . . . . . . .  9% of developer revenues
Average per dev . . . . . .  9,400 dollars
Left for rest of devs . . . . 400 million dollars (2%)
Source: TomiAhonen Consulting analysis on Vision Mobile survey Aug 2014
This table may be freely shared

SLAVES IN APPS ECONOMY 2013
Revenues left . . . . . . . . 400 million dollars
Next 48% developers . . 1,029,000 developers
Next 48% earn . . . . . . .  1.4 billion dollars
Next 48% earn . . . . . . .  2% of all revenues
Next 48% earn . . . . . . .  3% of developer revenues
Average per dev . . . . . .  421 dollars
Left for rest of devs . . . . 0 million dollars (0%)
Source: TomiAhonen Consulting analysis on Vision Mobile survey Aug 2014
This table may be freely shared

HUDDLED MASSES IN APPS ECONOMY 2013
Revenues left . . . . . . . . . .  0 million dollars
Bottom 39% developers . . 819,000 developers
Bottom 39% earn . . . . . . .  0 million dollars
Bottom 39% earn . . . . . . .  0% of all revenues
Bottom 39% earn . . . . . . .  0% of developer revenues
Average per dev . . . . . . . .  0 dollars
In above numbers:
Beggars failed to earn . . . . 400,000
Hobbyists don’t care . . . . . 250,000
Branded utility app devs . . 170,000
Source: TomiAhonen Consulting analysis on Vision Mobile survey Aug 2014
This table may be freely shared

So the rich class is the 1%. They earn on average about half a million dollars from their app. There are about 27,000 app developers in that group (but remember average will be misleading metric. Median will be lower and again the hyper-millionaires will skew this with their high earning). Another coupla percent are able to survive on apps but aren’t visiting the car dealership. The vast majority, almost ‘the 99 percent’ or in reality 96% of developers do not recover the development costs of their app. The median revenue earned by developers is only 400 dollars per year.

And did you notice the iTax and gTax. Apple and Google combined slice up 25% of the total apps economy. (The reason its not 30% is advertising... developers can make some money bypassing the app store revenues). They are clearly the two biggest boys in this race. Its like in Las Vegas, the gamblers mostly lose, some win big, but the House Always Wins. This is like an unlicenced gambling operation run by the nice iFolks and gFolks for us, and poor saps run in with their wacky app ideas and 96% lose their shirts.. but the House Always Wins.

(NOTE added 3 Sept - Please note, Mark Wilcox who represents Vision Mobile, has posted a critical comment to this blog, where he argues that one should look at the picture of the apps developers from the perspective of those who actually attempt to make money rather than all app developers as a whole. He acknowledges that the theme of this blog is in line with their view but Mark says I present a picture more severe than it really is. I have of course responded to Mark in the comments as well. But his point is well made and please note, that if you go to Vision Mobile's survey data, you will get the info sliced the way he prefers. It was not my intention of this blog to focus only on a selected slice of about one quarter of all app developers but rather to provide a comprehensive global survey of the total apps economy, all apps, all platforms, all developers, all revenues, all profits and losses. Not just a slice of the developers.)

So yeah, the term ‘Peak Apps’ is quite apt. The hype and hysteria of smartphone and tablet apps is now starting to turn into a sour reality. The horrid state of most developers means that the level of app development is not sustainable. Now its not me anymore saying that, it is also what Vision Mobile said after they did their huge global developer survey and the math of developer income levels. It is also a reason why there are so many Zombie apps, the developers have just given up after they were demoralized that their app was not the next Angry Birds or Instagram or Uber.

There is definitely some use and need for apps. Most of that use is non-profitable apps, utilities and branded media apps etc. Facebook doesn’t need to make money on FB app downloads, they just want everybody to become guinea pigs onto their various weird behavior ‘studies’. Business and enterprise apps have their own niche which is far more healthy than the consumer apps space. And within consumer apps there is one area that can make money.. gaming.

So. Lets now separate the viable business part away from the junk and look at apps by type. And I will take one short view to this related topic

TABLETS ARE NOT MOBILE

So yeah, tablets. The smartphone app stores are used to sell apps to smartphones and tablets. When the iPad arrived I was among the first to point out, that a tablet is not ‘mobile’ in how we identify this industry (of cellular phones). Tablets are ultra-portable PCs. Many especially PC industry-based and US based analysts looked at tablets as ‘just being larger iPhones’ and thought a tablet is a mobile just like a smartphone. A little bit bigger smartphone. No, it looks like a larger smartphone but behaves quite differently. I was among the first to argue they were separate beasts and I used my standard test of ‘is it a mobile’ ie the ‘ringing in the pocket’ test. This same test is how we can see that a PDA is not the same device as a smartphone, neither is a Playstation Portable or an iPod Touch. They are pocketable digital gadgets but they are not ‘mobiles’. We do not carry them everywhere, we don’t sleep with them and take them to the toilet, like we do with our mobiles (smartphones, dumbphones). Ringing in the pocket test means it has to be small enough to fit into our pocket. A phablet fits in a pocket. a tablet doesn’t. And to ring there, ie to alert us anywhere, even while sitting in a speeding taxi, an iPod Touch with WiFi connection doesn’t connect continuously everywhere, but our mobile phones do.

Now increasingly that view is accepted in the tech industry and more and more experts and writers are teaching that beware, a tablet behaves differently from a smartphone. There is of course overlap but you should know how your device is used and optimize for it. The tablet is a different beast. For example Gary Schwartz in his latest book Fast Shopper Slow Store teaches us that tablets immobilize people. When we take out our tablet, we stop walking, we want to sit down, use both hands, sit at a Starbucks etc... Smartphones don’t make us stop. We can use our smartphones while we walk... So yeah. Tablets schmatlets.

Tablets are exciting for the PC industry which sees its traditional hardware sales in serious decline. The tablet came just in time to help rescue that industry. But in scale the tablet is a trivial bit of noise compared to the huge industry of mobile phones. And now we are seeing some of the first research about how the gadgets compare, out of where else Japan, the world’s leading nation in terms of mobile (all of Japan has already migrated to speeds of 3G or faster, Japan will launch 5G at the Tokyo Olympics). The just-released CIAJ consumer survey was the first to inquire about tablets as either first or second gadgets. About a third of Japanese smartphone owners carry a second device, and increasingly, they are now making a tablet that second device. But none in Japan consider the tablet the first device with the smartphone in second place. If you go out tonight, you’ll leave your tablet at home and only squeeze your mobile into some pocket of your evening outfit (or your purse). Tablets will sell more than laptops this year at about 250 million units. Smartphones growth this year alone exceeds that number! Yes, smartphones will add more than 250 million new sales this year increasing the gap between the two. Smartphones outsell tablets at roughly 5 to 1. Tablet sales will peak somewhere in the several hundred million range in some years from now. Smartphone sales will penetrate 2 billion units annually before this decade is done. This blog is about ‘mobile’ not about the PC industry. Tablets are ultra-portable PCs. I include them in the above numbers as they are included in the various stats, but now lets separate them from mobile apps and get serious.

TABLET REVENUES OUT OF APPS REVENUES
Total revenues . . . . . . . 21.0 billion dollars [Strategy Analytics]
Tablet revenue . . . . . . . 35% [Abi]
Tablet revenue . . . . . . . 5.5 billion dollars (out of developer revenues, after iTax & gTax)
Tablet apps all . . . . . . . 1.1 million [TomiAhonen Consulting]

Tablet apps live . . . . . . 315,000 [TomiAhonen Consulting]
Tablet app downloads .  35.7 billion [TomiAhonen Consulting]
Revenue smartphones .  10.2 billion dollars

Apps for smartphones .  1.9 million
Live apps smartphones . 585,000
Smartph app downl . . . . 66.3 billion [TomiAhonen Consulting]
Source: TomiAhonen Consulting on published industry data Aug 2014
This table may be freely shared

I am not going to analyze the above further, so those who are in the tablets or PC space, feel free to do a deeper analysis of the tablet apps industry. Now lets move to the far larger opportunity, smartphone apps:

APPS FOR SMARTPHONES WHEN TABLETS REMOVED

So now we get to the mobile opportunity. Tablets are good for education, for many magazine and media titles, and of course gaming etc. Mobiles are with us all the time so they are better for things we do while moving about, so for example payment related things, and alerts, and utility services like opening locks or say related to our identity, our ID cards and loyalty cards etc etc etc. And of course we will still also watch videos, play games, do our Twittering and Facebooking etc on our smartphones as well. So when the tablet apps business is removed, and we focus now only on smartphones, this is what it looks like:

SMARTPHONE APP SECTOR OUT OF APPS ECONOMY
Total apps revenues . . . . . . . 21.0 billion dollars [Strategy Analytics]
Smartphones only revenue . . 15.8 billion dollars
Revenue smartphones .  . . . . 10.2 billion dollars (developer revenue, after iTax & gTax)
Apps for smartphones . . . . . .  1.9 million
Live apps smartphones . . . . . . . 585,000 (after zombies removed)
Smartph app downl . . . . . . . 66.3 billion [TomiAhonen Consulting]
Total smartphones . . . . . . . .  1.4 billion at mid-year
Source: TomiAhonen Consulting on published industry data Aug 2014
This table may be freely shared

So yeah, these are just repeating numbers we had before, collected into one chart. Now lets do some analysis

 

SMARTPHONE APP SECTOR METRICS 2013
Developer revenue . . .  10.2 billion dollars

Live apps smartphones . 585,000
Smartph app downl . . . . 66.3 billion [TomiAhonen Consulting]
Total smartphones . . . . . 1.4 billion at mid-year [TomiAhonen Consulting]
Downloads per live app . 113,300
Downloads per smartph . 28.8
Revenue per download . . 15 cents
Source: TomiAhonen Consulting on published industry data Aug 2014
This table may be freely shared

Now lets split this up by enterprise/corporate smartphone sector and the consumer sector. Note the BYOD (Bring Your Own Device) development at the workplace makes these stats somewhat distorted but should still be reasonably good for the split out so we can then focus on the larger consumer market.

SMARTPHONE ENTERPRISE APP METRICS 2013
Developer revenue . . .  .1.1 billion dollars [TomiAhonen Consulting]

Live apps smartphones . 47,000 [TomiAhonen Consulting]
Smartph app downl . . . . 5.2 billion [TomiAhonen Consulting]
Total enterpr smartph . . . 90 million at mid-year [TomiAhonen Consulting]
Downloads per live app . 113,300
Downloads per smartph . 35.9
Revenue per live app . . . 24,500 dollars
Revenue per download . . 22 cents
Source: TomiAhonen Consulting on published industry data Aug 2014
This table may be freely shared

SMARTPHONE CONSUMER APP METRICS 2013
Developer revenue . . .  . 9.1 billion dollars

Live apps smartphones . 538,000
Smartph app downl . . . . 60.9 billion
Total consumer smartph . 1.3 billion at mid-year
Downloads per live app . 113,300
Downloads per smartph . 28.5
Revenue per live app . . . 16,900 dollars
Revenue per download . . 15 cents
Source: TomiAhonen Consulting on published industry data Aug 2014
This table may be freely shared

Now we can turn to see how those gaming revenues do, and compare to the ‘rest of consumer apps’ and now the truth becomes blatantly obvious.

SMARTPHONE GAMING APP METRICS 2013
Developer revenue . . .  . 8.2 billion dollars [Vision Mobile]

Live apps smartphones . 135,000 [Vision Mobile]
Smartph app downl . . . . 26.5 billion [Digi Capital]
Total consumer smartph . 1.3 billion at mid-year [TomiAhonen Consulting]
Downloads per live app . 197,100
Downloads per smartph . 12.4
Revenue per live app . . . 60,900 dollars
Revenue per download . . 31 cents
Source: TomiAhonen Consulting on published industry data Aug 2014
This table may be freely shared

SMARTPHONE NON-GAMING CONSUMER APP METRICS 2013
Developer revenue . . .  . 900 million dollars

Live apps smartphones . 404,000
Smartph app downl . . . . 34.5 billion
Total consumer smartph . 1.3 billion at mid-year [TomiAhonen Consulting]
Downloads per live app . 85,400
Downloads per smartph . 16.2
Revenue per live app . . .  2,300 dollars
Revenue per download . . 3 cents
Source: TomiAhonen Consulting on published industry data Aug 2014
This table may be freely shared

This is the massacre. This is how smartphone makers fail. This is the endless pit of despair. Let me put this into a carnage table so we can compare gaming apps vs non-gaming consumer apps in 2013.
 
CARNAGE TABLE: SMARTPHONE CONSUMER APPS BY TYPE 2013
Item . . . . . . . . . . . . . . . . Non-gaming apps . . . . . . . Gaming apps
Developer revenue . . .  . 900 million dollars . . . . . . 8.2 billion dollars

Live apps smartphones . 404,000 . . . . . . . . . . . . . . . 135,000
Smartph app downl . . . . 34.5 billion . . . . . . . . . . . . 26.5 billion
Downloads per live app . 51,900 . . . . . . . . . . . . . . .  119,800
Downloads per smartph . 16.2 . . . . . . . . . . . . . . . . .  12.4
Revenue per live app . . .  2,300 dollars . . . . . . . . . .  60,900
Revenue per download . . 3 cents . . . . . . . . . . . . . . .  31 cents
Source: TomiAhonen Consulting on published industry data Aug 2014
This table may be freely shared

You can see the dramatic difference. Gaming is quite a healthy app category, with plenty of profit potential. In fact the 10 biggest revenue-earning apps in 2013 were all games said App Annie. Most of the millionaires in apps are from gaming. But look at the opposite end on that table, the despair if you don’t do games or enterprise apps. Then its hopeless. 75% of apps are in this category of misery. And remember now, these are still averages, the median is always worse for these... If the median for all app developers was 400 dollars and the difference between game developers and the rest is this stark, the median income for the non-gaming developers must be under 100 dollars but I don’t have enough data to be able to calculate that at this point.

SMARTPHONE APPS INDUSTRY PROFITS

So.. Now as the real interest is not download or users or even revenues, it is profits. How much profit is there, hidden in the overall apps desolation? We do have profits. The uber-rich do make profits and I used some industry metrics of development costs and updating costs and number of developers per app created and arrived at this kind of split:

PROFITS EARNED IN SMARTPHONE APPS 2013
Apple . . . . . . . . . . . . . . . . 2.8 billion dollars (46%)

Google . . . . . . . . . . . . . . . 1.4 billion dollars (23%)
Rich 1.3% developers . . . 1.9 billion dollars (31%)
Total profit earned . . . . . . 6.1 billion dollars
NOTE: losses by rest of industry greater than 6.1 billion so overall 21 billion dollar apps ecosystem in 2013 was unprofitable
Source: TomiAhonen Consulting on published industry data Aug 2014
This table may be freely shared

So there you have it. Last year the biggest profit earned in smartphone apps space was Apple with a nice 2.8 billion dollars. Google came in second with 1.4 billion and the rich app developers split another 1.9 billion dollars in profits amongst themselves.

How do apps earn their money? It is now almost totally by the in-app purchases as I promised way back when. I called it sale of virtual goods. This is how the revenues split by type of revenue earned (across all apps, including tablets)

REVENUE SPLIT BY TYPE IN APPS ECONOMY 2013
Total revenues . . . . . . 21.0 billion dollars [Strategy Analytics]
App store income . . . . 17.5 billion dollars
Commission 30% . . . . . 5.3 billion dollars paid to Apple, Google etc
Paid out to developers . 12.3 billion dollars
In-app purchases . . . . . . 9.8 billion dollars (62% of developer revenue) [Distimo]
App purchase fees . . . . . 2.5 billion dollars (16% of developer revenue) [Distimo]
In-app Advertising . . . .  3.5 billion dollars (22% of developer revenue) [Juniper]
Developer revenue . . .  15.8 billion dollars
Source: TomiAhonen Consulting on published industry data Aug 2014
This table may be freely shared

Thats what the app store economics look like. Do you think this is an opportunity? For games, yes. But that was true long before there was an iPhone or the App Store. I’ve been using games as my primary example of what part of the apps vs web argument works best for mobile, for more than a decade now. Gaming apps are easily a ‘hits business’ and roughly speaking one in ten gaming apps is a hit. And they can be huge hits, they can easily sustain that part of the apps economy where other games will of course fail. Its like music or movies or books or, indeed videogaming. No surprise.

The rest of apps? There is some health in enterprise/corporate apps but thats a long slug and the sales cycle is long, so get some investors with deep pockets. But in the consumer space, after a handful of social networking services, beyond the gaming side, there is a barren desert. No revenues, no profits, no water, just death.

PLATFORMS FOR SMARTPHONE APPS

So then the platforms. Where should you develop? Good question. Answer is Android. Yes, iPhone too if you develop for the Industrialized World but not for the Emerging World. If you develop for the Emerging World then its Android and Java. Windows Phone is dead, Symbian is dead, bada is dead, Blackberry only lives in the enterprise. Here are the stats:

SMARTPHONE INSTALLED BASE SUMMER 2014:
Rank . . OS Platform . . . . Units . . . Market share

1 . . . . . Android . . . . . . . . 1,336 M . . . 72 %

2 . . . . . iOS . . . . . . . . . . . . . 359 M . . . 19 %

5 . . . . . Windows Phone . . . . 53 M . . . 3 %

4 . . . . . Blackberry . . . . . . . . 44 M . . . 2 %

3 . . . . . Symbian . . . . . . . . . . 41 M . . .  2 %

Others . . . . . . . . . . . . . . . . . . 10 M . . .  1 %

TOTAL Installed Base . .  1,833 M smartphones in use at end of Q2, 2014

Source: TomiAhonen Consulting Analysis 15 August 2014, based on manufacturer and industry data

This table may be freely shared

WHERE IS THE MONEY?

Mobile is the fastest-growing giant industry on the planet. Our industry hits 1.7 Trillion dollars in annual revenues this year according to Chetan Sharma and he says the golden era of mobile is only dawning now (similar to what I’ve been saying). Let me just draw your attention to two lucrative technologies, neither of which is as exciting as smartphone apps.

SMS text messaging is not dead. Its not dying. 6 Billion people on the planet use SMS text messaging today, even as the heavy users have shifted most of their messaging traffic to OTT messaging platforms like Whatsapp. Even they are not abandoning SMS. I am not suggesting you try to do person-to-person messaging. I mean using premium SMS. Premium SMS was worth 55 Billion dollars last year according to Juniper (more than twice the total revenues of smartphone apps) and is used in everything from news headlines to jokes to coupons to television voting to alerts to reminders to weblinks to security confimations. 55 Billion dollars in the ‘business’ side of SMS. Who knew? (My readers knew..). And yes, premium SMS is still growing! 6 Billion active users of SMS is of course nearly 4 times more than all smartphones in use. You can use SMS also for all sorts of activation and engagement and reminder uses with apps.

Beyond that is what I often call the super-messaging for media. MMS. What you may think of as the stupid picture-messaging feature that you of course do not use. Except that MMS is far larger than all apps revenues.. yeah. That MMS. The ‘failed’ MMS that generated 31 Billion dollars in 2011 year according to Portio and is still growing. Far more than half of MMS is now media content not pictures by consumers. Media content like what? News. Video clips of TV shows. Ads. Movie trailers. Jokes. Offers. Tickets. So yeah. I don’t mean to stop developing your app strategy but please consider where the real money and profits are in mobile, except for games, they are not in apps. MMS works on over 85% of all phones in use on the planet, well past 3 times more than all smartphones in use. Here is the table putting the various platforms into context:

MOBILE DATA PLATFORMS SUMMER 2014
Rank . . Platform . . . . Units . . . Market share
1 . . . . . Premium SMS . . . 6,000 M (active users, total potential 7.1B but then illiteracy etc)

2 . . . . . WAP . . . . . . . . . . 5,400 M
3 . . . . . MMS . . . . . . . . . . 4,900 M
4 . . . . . HTML . . . . . . . . . 4,400 M
5 . . . . . Java . . . . . . . . . . . 3,900 M
6 . . . . . Android . . . . . . . . 1,336 M

7 . . . . . iOS . . . . . . . . . . . . . 359 M
8 . . . . . Tablets (all OS) . . . 275 M

9 . . . . . Windows Phone . . . . 53 M

10 . . . . Blackberry . . . . . . . . 44 M

11 . . . . Symbian . . . . . . . . . . 41 M

Source: TomiAhonen Consulting Analysis 15 August 2014, based on manufacturer and industry data

This table may be freely shared

If you develop for the Emerging World markets, you do Premium SMS, WAP as your primary platforms. You add Java, HTML and Android as the specialized premium services and thats it. Remember about a quarter of phones in the region are second-hand phones ie older premium and mid-range Nokias and Samsungs.

If you develop for the rich Industrialized World, you do Android and iPhone. You also add Premium SMS, MMS and HTML. Your premium effort then goes to the advanced side in Augmented Reality, NFC etc.

 

Windows Phone, Symbian and bada have died. Blackberry only lives now in the enterprise sector and is sinking even there.

Yes, the hype stage of smartphone apps is starting to be over and we are approximately at ‘peak app’ point in time, soon the new production of apps will stall and settle and perhaps even decline. And many who now do apps development will tire of the chore and move on. There are far easier ways to make money in mobile than apps.


ADDENDUM 3 SEPTEMBER

As I return from vacation I found over 60 comments and very lively and detailed discussion it he comments thread. In it some argued that its not possible to use SMS for such services as Uber or Facebook or Twitter etc. I understand this view but it is not based on facts. Pakistan's most used social network is called SMSall which has over 10 million users and mimicks Facebook and Twitter functionality from likes to hashtags. Like Facebook and Twitter, SMSall in Pakistan is free to regular users on 'normal' volume of social media activity (typical for say a family user or a student). It is not primarily funded by advertising, but it pays for SMS traffic to the networks - it operates on all Pakistani networks and works obviously on all phones not just smartphones. Because every message is paid for by SMSall, the carriers/operators love it. The service was not launched by a big media brand, it was launched by a couple of smart university students and its launch was very literally a 'garage' start-up business. Its now expanding abroad.

Same for just about any major apps-based consumer idea, it can be done on the mobile web or often even with MMS or SMS. Look at Uber. Then go to India and see what is Autoraja or Autowale or mGaadi. They are all Uber clones but all done with SMS. This is not limited to the Emerging World, just last week we heard that Square is now adding SMS functionality to its USA based mobile payments platform, so that American Square users can send money to those Americans who don't use Square or don't even have a smartphone yet (one third of US mobile phone users). This is what Peggy Anne Salz was just teaching in her latest video and book about how smartphone app developers can build better engagement with their audiences - by using SMS. I totally undrestand that the knee-jerk reaction to Tomi saying 'SMS' is to respond that you can't do Facebook on SMS or you can't do Uber on SMS or you can't send money via SMS etc. That is simply not true. My mission here on this blog is not to perpetuate myths but rather to expose the facts and try to help my readers to find the best chances of success in mobile. Its a rough enough game as it is, without taking the most difficult path. MMS alone is twice as big in revenues than total smartphone apps industry globally, and MMS works on 3x more phones than the bestselling smartphone app platform, Android. And SMS, not total person-to-person SMS, just premium SMS alone (media content etc via SMS) is worth more than 4 times the total global smartphone apps revenues and reaches 5 times larger installed base of devices than all smartphones in use worldwide. Can you understand why I mention the reailty of SMS or MMS or hte other major platforms when people push the hype of smartphone apps.


All of the tables and stats in this story may be freely shared and used in any way you want including creating tables and infographics, quoting in print, using in slides etc. Please mention this blog and link to this article if you write about these stats somewhere online.

For those who want deeper data on handset industry my TomiAhonen Phone Book statistical volume is updated every 2 years in the summer. the last edition was 2012, the new 2014 edition is coming soon. If you buy the 2012 edition now, you will receive both for the same low price, the 2012 edition immediately and the 2014 edition as it is released in some weeks from now. To see what kind of info it contains, see this link TomiAhonen Phone Book.

Comments

[baron99]

Great Information! Many Thanks!

[E.Casais]

I had long suspected that the apps economy was skewed, but never thought it was that bad.

Regarding the "peak app" concept: there are a couple of indicators that should be straightforward to compute and throw some light on whether we have reached the peak or not.

1) Assuming you have the total number of apps N for Year and Year-1, as well as the total income I for Year and Year-1, compare the growth of income to the growth in the number of apps. A sound economy should have (Iy - Iy-1)/Iy-1 > (Ny - Ny-1)/Ny-1. Otherwise, it means that the average income is decreasing -- an ominous sign given the skewness of the statistics. Decreasing income is also a sign that a sector is entering the second half of its life-cycle.

2) The evolution of live apps is given by:

Ly = Ly-1 - Zy-1 + Ay-1

i.e. live apps at Year-1, minus apps getting abandoned and zombified, plus new apps added to the app stores.

We have Ny, and Ly = 30% of Ny.

If we have Ny-1, then simply Ay-1 = Ny - Ny-1.

We can then compare Ly and Ay-1, thus giving (Ly-1 - Zy-1) = Sy-1, or the "surviving apps", those older apps that were not abandoned by their developers. If Ay-1 is a very large compared to Sy-1, then this is a bad sign: there is a high rate of attrition of apps, and the economy maintains itself only by churning a massive number of new, but ephemeral, apps.

[New Start]

Is the app economy really that bad compared to something else?

There are even less companies making money from SMS. A business opportunity with SMS for a start up company, where is that? How many small companies are really making that much money with SMS? Spending on SMS advertising is not the same thing as making money with it.

[RottenApple]

@New Start:

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.

And here's the fun part about the term 'ecosystem': In a real thriving ecosystem everybody will benefit. But in these poison ponds all the real money gets scammed off by Apple and Google. How is that supposed to create a sustainable business model?

[AndThisWillBeToo]

Premium SMS . . . 6,000 M (active users, total potential 7.1B but then illiteracy etc)

Wait... How many target users? Your older stats said that there were 5.2 Billion mobile phone handsets in use globally, in hands of 4.3 Billion unique users. By that metric the absolute cap for reach is 4,300M. It serves no value to send same message twice to same
person.

Slight correction needed? :)

[AppleTurfer]

Yes, the app economy is like the web...only better. Like the web in that ANYBODY can put up a site/app. Like the web in that "getting seen" is the number one problem because EVERYBODY in the whole world is your computer.

Better than the web in that the app economy is far easier to monetize. Once you get past that "get discovered" part. Whether it's paying for apps, or the freemium or ad supported model...Apple has ushered in the age where people are paying for content. UNLIKE the web where everything is expected to be free.

Mobile is bigger than the PC centric web. Far bigger. You have to have an app strategy or just write off the 2 billion mobile users.

And don't even start with the web on mobile. Not unless you are prepared to compare how dismal the monetization is to apps. Yeah yeah...some day this and some day that and everyone will just write browser apps. That days isn't now, isn't tomorrow and may NEVER come.

Just like the web, there are FAR more uses that never show up in the revenue column. FB is a free app. None of the billions facebook makes from it's app count in the app sales column. Nor does facebook use anybody else's ad platform that would allow tallying up the revenue that way.

My bank doesn't charge for it's app. They make the app because mobile is where their customers want to be.

Same for ebay. You don't pay for the app. But the app drives sales from the mobile platform.

Same for almost any corporate app.

Mobile is the new computer. Apps are the new web.

[Tomi T Ahonen]

Hi b99, E, New and Rotten

B99 thanks

E - loved it!! I already told my Twitter followers about you and those formulae to come read your comment. Brilliant!

New - nothing is certain. Every venture is a gamble to some degree. But in books, movies, videogaming etc you have a 1 in 10 chance, now we have the math to see, in apps it is 1 in 100. If a given industry is not growing strongly then the odds are stacked further against you but mobile is growing massively. It is by far the fastest growing of the Trillion-dollar sized industries and has been in the past 2 decades the fastest-growing giant industry of all time. So of anything you could do, start a restaurant, launch a magazine, produce an indie moview, whatever tickles your fancy, mobile as an industry was the most lucrative opportunity in recent past, and will continue into near future.

So I've been incredibly frustrated here on my blog, for 5 years now, as I've watched the hopeless toil of the app-makers in the - waht was Rotten you called it, poison ponds haha yes, excellent term. There ARE huge opportunities in mobile, obviously. But the apps ecosystem is not it. You asked about SMS. You are actually wrong. There are hundreds of companies that have launched businesses essentially from their garage that were powered by SMS. Yes the carrier/operator takes a big cut out of premium SMS especially in markets that are not very mature (including USA) but yes, even then, it is FAR FAR easier to make money there than in apps. Good example was just now minutes ago in my TW stream that Square the payments provider has added SMS to their portfolio to send money to such American consumers who don't have their app.... Brilliant. I have thoundands of recent examples of SMS innovations from literally around the world. The beauty is that everyone knows how to use SMS and its already 'pre-installed' on everyone's phone

Rotten - thanks and that was funny! poison ponds.

Tomi Ahonen :-)

[RottenApple]

@AppleTurfer:

"Apps are the new web."

Are you on drugs or what?
It's clear that you don't have even the slightest clue about the whole matter.

Let's be clear: Apps are NOT the new web. Aside from a few utilities they are mostly an abomination - an extremely inefficient way to do things. Like this blog suggests and what I can confirm myself, the cost to benefit ratio of apps is bad - no, not jut bad, it's abhorrent.

The entire app market is in for some major shake-up - and once that's done, most app-makers will be gone. Period. There's just not enough money to be made here, from a purely cost-driven standpoint, the WWW is magnitudes more efficient and it's inevitably that things will gravitate back to it.

The problem with apps is obvious: You cannot target everybody, and on top of that even most of those who you could target, may not even thing about downloading your app, especially if it's a first grade space waster (like I've seen too many of.) And even if you make an app, you make one for iOS and depend on Apple's whims - then you need an Android version and have to deal with Google - but - oops! - what about the rest of the computing world, those who are still on a real PC or on some other mobile OS? You also want to target these so what do you do? Yes, right! You have a WWW website made! Thinking about it - this website can also be used by iOS and Android users, so why waste the money on creating apps that need constant maintenance and more investment, whereas with a website you only have one code base - which unlike your apps is written in a high level scripting language and doesn't have to contend with the idiosyncracies of the various mobile OSs and their ongoing changes.

It's simple economics that sooner or later will put an end to the app craze.

Of course I'm not surprised that some Apple puppet is trumpeting this nonsense, as Apple is clearly the company profiting most from apps, as Tomi's numbers clearly show.

[AppleTurfer]

Mobile apps have passed PC web browsing: http://www.marketingcharts.com/online/in-the-us-time-spent-with-mobile-apps-now-exceeds-the-desktop-web-41153/

Rising time spent with mobile applications over the past year means that Americans now spend more time on a monthly basis with apps than they do accessing the internet from desktops, says comScore in new data. That threshold was passed for the first time in January, per the data, when Americans spent 46.6% of their total internet time with mobile apps, compared to roughly 45.1% spent accessing the internet from a desktop and the remaining 8.3% using mobile browsers.

Another article show that apps increasing and web decreasing on mobile
http://www.flurry.com/bid/109749/Apps-Solidify-Leadership-Six-Years-into-the-Mobile-Revolution#.U_5t1GRdWxM

Another article but using the same to studies written by a VC: http://cdixon.org/2014/04/07/the-decline-of-the-mobile-web/

Moreover, there are signs that it will only get worse. Ask any web company and they will tell you that they value app users more than web users. This is why you see so many popups and banners on mobile websites that try to get you to download apps. It is also why so many mobile websites are broken. Resources are going to app development over web development. As the mobile web UX further deteriorates, the momentum toward apps will only increase.

[Henry Sinn]

I think AppleTurfer and a suite of others can't take their fingers out of their ears / blinkers off their eyes...

Apps are not the path - especially if you want to sell something.

Imagine a world where you had to download an App to check something out / engage with a company, brand, offer - this would be insanity redefined. We don't. We won't.

I currently work for a company that's moved $4,5b (last year) of retail sales through its systems and Apps aren't on any radar..

The path to ongoing cash in the draw / new business is the net/web (on any device).
I've been saying it for years and the wheel is turning faster and faster..... Every day, more and more businesses are getting mobile (Web) friendly - not the other way around..

[abdul muis]

Hi Tomi,

Great article... as always..Thnx.

I was wondering...

Quote
"1 . . . . . Premium SMS . . . 6,000 M (active users, total potential 7.1B but then illiteracy etc)
2 . . . . . WAP . . . . . . . . . . 5,400 M
3 . . . . . MMS . . . . . . . . . . 4,900 M
4 . . . . . HTML . . . . . . . . . 4,400 M"

As far as I know only Mobile Phone Carrier or big corporate can make money from this, how can a student like Dong Nguyen (http://en.wikipedia.org/wiki/Flappy_Bird) can make money with Premium SMS, WAP, MMS, HTML. My point is, apps is NOT comparable to this SMS/WAP/MMS/HTML. You were comparing orange to apple

[E.Casais]

@abdul muis

Comparing apples and oranges is the whole point of a scientific approach: how do those fruits differ in terms of vitamins, pectin content, shelf life, seasonal availability, etc.

Same here. Tomi has been comparing monetization and profitability of apps. To (coarsely) summarize his conclusion adjusted by your comments:

1) Web/SMS: close to 100% penetration via mobile phones; most developers can develop for it; only medium to large size firms can monetize; perhaps 10% of developers/services are profitable.

2) App: about 30%-40% penetration via mobile phones; most developers can develop for it; everybody can monetize, but two giant app store owners capture 25% of monetization and 69% of the profits; of the developers/apps, only 1.3% are truly profitable.

Telecom operators act as gatekeepers for SMS and Web services similarly to Google and Apple acting as gateways to app distribution. However, you will never see two operators capturing 69% of profits in that area, leaving crumbs for developers except the 1.3% lucky ones.

The comparison shows that the app economy is so much more skewed in its monetization structure than other content selling domains that it fundamentally throws its sustainability in doubt. This is the message by Tomi.

[RottenApple]

@AppleTurfer:

Stop posting this nonsense. If you post some numbers, better think about them first before deriving the wrong conclusions from them.

The rise of apps for the most inane stuff is just a symptom of some bad developments in recent years. The process of fixing those is underway but not yet fully complete.

Leaving aside stuff that genuinely benefits from running in native mode because it makes certain things more flexible (e.g. social networking stuff), apps suffer from several major problems:

1. developing apps costs a lot more than developing a functional website.
2. maintenance of apps is a lot more costly
3. you get to suffer from major platform lock-in.
4. apps cost storage space on your phone that is lost for everything else.
5. you only get to offer your service to people who actively download the app (and as Tomi's numbers point out, that's a small minority of mobile users!)
6. most potential users of your service thankfully pass if they visit your website and get redirected to the app store to first download an app. Downloading apps costs time and bandwitdth, both of which tends to be conserved when not being connected via WiFi/WLAN, as most providers have a data cap on their contracts.
7. you STILL need your website to serve the platforms and customers that fall through the cracks.

How does that fit in with those strange reports you cite?
Well, actually, the numbers aren't strange, they are just meaningless in this context.
Just look at the chart of the Flurry page you linked. What kinds of apps are being used?

Well, here it is:

32% gaming
28% social networking
4% YouTube

- nothing of which has any value to a service provider that must decide whether to use apps or a web service. We can immediately discount these 64% as irrelevant as decision metric for mobile service providers. I said before, these are special cases from which you cannot derive and useful information for the general case. These are also just a handful of big players.

12% productivity and utilities

- that mostly has nothing to do with web use (like using your phone as a music player or photo viewer, etc.) Another 12% taken down

4% News

- again: Interesting for news services, but irrelevant for the general public. Plus, I wonder what news services get used here - most phones come with preinstalled ones.

14% web browsers

... and now that we have cleaned out all the noise, we are left with:

4% Entertainment (Other)
3% Other

... and it's a fraction of these 7% that may be interesting for 'other' app makers, not the inflated 86% this page trumpets. Unfortunately this chart doesn't distinguish between apps that are based on web access or just some things that are being done locally on device.

The simple truth here is not that apps outclass web browsers but that most mobile users predominantly do other things with their phone than surfing the web. That some of these services need to access the web to get their data is beyond the point.
The numbers clearly show that for any service that's not a game, not a social network, not YouTube, not a news service, - and that's the vast majority of them - it is pointless to create an app.

[AtTheBottomOfTheHilton]

Thanks you for your article Tomi. What you are describing is perfectly logical and I think the app industry follows many other industries. Musical artists for example. There are a myriad of people who wants to be musical artists but only very few of them will be able to make a living doing only that. The absolute top make a fortune while a majority will only try once and then move on. Probably those who can barely keep a tone or play an instrument.

The medium quality of the apps is pretty low so which justifies your statistics even more. There must be some kind of fierce competition here otherwise it wouldn't be good for the consumers or the app industry as a whole.

Also what is obvious here is that the content providers (Apple, Google ...) are the real winners. They can make a lot of money with very little effort and their cuts are really high. I can see why Ballmer wanted to copy Apple, he just had to destroy everything else on way.

[Mark Wilcox]

I wrote the VisionMobile report used extensively here. Please don't butcher our numbers.

The developers who are not interested in revenue we removed are almost entirely those doing it for fun (we ask developers about their motivations too) and it's reasonable to exclude them from the app economy. The main effect they have is increasing competition and driving down prices for those who do want to make money.

When it comes to revenues, you've only counted direct revenues from app stores and in-app advertising. Those are the most popular revenue models but there are lots of other developer revenue models we track and they all work better for developers than the ones you've included. Developers who primarily aim to make direct revenue from app stores and in-app advertising are called Hunters in our segmentation and only make up 24% of all developers. That's not to say that your general thesis is entirely incorrect but you've skewed the numbers to make them even worse than they really are.

The main reason app stores are a really bad bet for making money is the winner-takes-all nature of the discovery mechanisms. You have not presented any evidence to suggest the distribution of outcomes is better for those following your preferred options of Premium SMS, MMS and WAP/HTML. Our data shows most of those targeting the mobile web (particularly if you exclude those building enterprise apps with web tech) make less than those building apps. Whilst I'm certain some people are making fantastic money from premium messaging services it's not at all clear it's a great technology to start a business around today.

[abdul muis]

@E. Casais

"Comparing apples and oranges is the whole point of a scientific approach: how do those fruits differ in terms of vitamins, pectin content, shelf life, seasonal availability, etc."

Good word!!!

I understand the point Tomi's trying to make here. i.e Apps rush is like Gold rush, the SMS/WEB/MMS/WAP is much greener pasture, but I think Tomi missing out on the entry barrier for apps is so low that school student like Dong Nguyen can make a great money. I know... I know... it's kind a lottery like what Tomi said..... but in the SMS/MMS/WAP, can anyone with an idea do the service really do it? How much money they need to invest for the equipment for SMS/MMS server?? Ring back tone server / SS7 server?? How much money to do the initial investment??? In Apps, at least for person like Dong Nguyen, the Flappy bird inventor, he can use a US$400 machine to do the work. A guy can create an apps from his computer from some basement, or maybe homeless. But to do what tomi's suggest the SMS/MMMS/WAP/(?RBT?) it needs to bet his house........... So, I think Tomi's doing a wrong comparison.

But Tomi's article is good, If I had a million dollar, I should invest in the better business instead of apps.

[E.Casais]

"I think the app industry follows many other industries. Musical artists for example. There are a myriad of people who wants to be musical artists but only very few of them will be able to make a living doing only that."

If the app industry behaves in a way similar to the music industry, then this only reinforces the argument that it is not self-sustaining.

There are interesting aspects in the music industry, beyond the extremely skewed reward structure (a few stars get millions, many musicians almost nothing):

1) Total sales of music (i.e. CD, vinyl, iTunes, streaming, etc) is globally diminishing (-3.9% in 2013 according to RIAA and IFPI).

2) Common wisdom has been that artists would go back to organizing concerts to make money. The problem: this is not self-sustaining either. For instance, since 2011 no festival in the UK has been able to make a profit in excess of the corporate sponsorship which it had received (i.e. without sponsors, you go bankrupt).

What it means is that music can no longer live from sales to the public, but requires sponsors, or side-activities that have nothing to do with music, to survive. For instance, in Brazil, famous bands no longer bother too much with CD and the like; they organize concerts that are actually giant fiestas where they make their profit from the sale of food, beverages, t-shirts -- and drugs.

This also seems to be the case for app developers: "sponsorship", i.e. working as subcontractor for a corporation that wants to have its own branded app, seem to be the most common way for them to make a living. This confirms the remark by Mark Wilcox that app store and in-app purchases do not work well, and therefore as such do not constitute a sustainable economic model for independent software vendors.

[abdul muis]

@E.Casais

Game and music industry both fall under entertainment category.

[E.Casais]

@abdul muis

Actually, you do not need anything very special to set up a WAP or mobile Web service -- the same infrastructure as for the normal Web (i.e. Apache/PHP/MySql and a domain name) will do. There are plenty of ISP offerings for that -- but of course, the more scalable you want it, the more you pay. But you can start cheaply at something like 5€/month.

For SMS/MMS, you do not need to have an SMSC or bother with SS7. There are providers of SMS/MMS gateways to operator infrastructure. You subscribe to a certain number of SMS/MMS per month for all operators in your country of preference, and the service provider gives you the interface to send and receive messages, and manage service numbers -- transparently, without having to bother with CIMD or SMPP, or entering complex agreements with operators. It is usually more expensive than WAP/Web ISP, though.

On the whole, I already agreed with you: the barrier to entry in the app business is lower than in the SMS/Web business. It is just that the perspectives for success are much, much lower as well.

[New Start]

@Rotten Apple

Pretty much any business will fail without marketing or advertising. Someone may think that apps are somehow different but why should they be?

@Tomi

The illusion about books happens because f the publishers refusing to publish so many books. There are an incredible number of "indie" book authors who never get published and therefore never get any profits. I don't think those are included on that 1:10 figure.

if there are hundreds of companies making money from SMS it's still so many less than companies making money on the apps business. It's actually a fraction of the companies making money on the apps.

"So of anything you could do, start a restaurant, launch a magazine, produce an indie moview, whatever tickles your fancy, mobile as an industry was the most lucrative opportunity in recent past, and will continue into near future."

I was speaking about SMS in this particular example and I fail to see how making money with SMS has anything to do with that. Promoting those services can be done with SMS but it's not the same as making money with SMS. Revenues based on similar promotional apps are not included on the revenues you have about apps and when compared to SMS they shouldn't be there either.