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

[Vesku]

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

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

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

[New Start]

@Vesku

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

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

[AppleTurfer]

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

[AppleTurfer]

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

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

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

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

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

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

[RottenApple]

@AppleTurfer:

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

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

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

About this:

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

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

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

[AppleTurfer]

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

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

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

[E.Casais]

@AppleTurfer

"iTunes saved the music industry"

Wrong. Look at the graph:

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

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

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

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

"streaming is putting another financial blow"

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

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

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

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

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

"apps are like the current state of music."

This is very alarming.

"try monetizing a web site."

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

[AppleTurfer]

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

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

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

[abdul muis]

@Tomi

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

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

[AppleTurfer]

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

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

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

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

[RottenApple]

@Baron95:

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

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

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

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

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

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

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

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

[adi purbakala]

@baron95 & @appleturfer

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

[abdul muis]

@RottenApple

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

[Huber]

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

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

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

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

With apps I see a similar pattern:

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

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

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

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

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

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

But that's about it, I think.

[Tumbleweed]

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

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

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

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

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

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

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

As for the casino Owners, its a great business.

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

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

[Tumbleweed]

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

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

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

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

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

"you're not even wrong"

[E.Casais]

@Tumbleweed

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

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

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

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

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

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

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

[Jouko Ahvenainen]

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

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

[Digiterium]

@RottenApple

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

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

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

[RottenApple]

@Digiterium:

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