Why are mobile developers so obsessed with advertising?

Advertising is used as a revenue stream by 38% of mobile app developers, far higher than any other source, but the majority of developers chasing the advertising dollar aren’t making much money, so what kind of developer persists in embedding adverts when the real money is elsewhere?

At VisionMobile we ask developers about every aspect of their work, the tools they use, the languages they work with, and (most importantly) what they hope to achieve by developing mobile applications. That last question is used to divide the developer community into eight segments, reflecting the motivation behind their efforts.

mobile developer segmentation

We know that across the mobile community 38% of developers are using advertising, compared to 21% who are still making money from downloads and 19% who are looking for subscription revenue. That 38% has remained pretty static over the last few years – at the start of 2015 it was 36% (see State of the Developer Nation Q1 2015) despite the lack of revenue generated (see State of the Developer Nation Q1 2016 for more details). The simplicity and scalability of advertising is irresistible to cash-strapped developers. But when we break down the numbers by developer segment some more interesting patterns emerge.

More than half of Hunters, for example, are using advertising as a revenue stream, the largest of any segment. Hunters are making money from their applications, but are always on the lookout for new opportunities or sources of revenue. As a result, they are the largest users of pay-per-download and in-app purchasing, as well as advertising. Almost a third of Hunters are using each of those business models, and more than 20% are using subscriptions too.

revenue of mobile developers segments

Hunters are clearly prepared to make money any way they can, and have harnessed multiple business models to make their product viable, but the segment also reflects an industry trend towards harnessing more than one revenue stream.

The first wave of mobile applications were largely pay to download – users were asked for a few dollars which was collected by the application store. That resulted in race to the bottom, as cheaper applications supplanted higher-quality rivals, and the cost of developing a mobile app quickly become untenable. The solution was advertising, embedded in the app as it ran or sponsoring content within the app, to cover the cost of development. That worked for a while, but as the industry grew in size the advertising revenue was spread more thinly.

In-app purchasing is another alternative, and now a foundation of most games and many other mobile applications too. Freemium models, where a basic version of an app is free, but users pay to remove adverts or add features (or both) have become increasing popular. Developers aren’t pinning their hopes on one revenue model any more, they are taking money however they can.

Digital Content Publishers are almost as polyamorous as Hunters in their exploitation of different revenue streams; subscriptions are obviously very important to them, 27% citing subscriptions as a revenue stream, but Advertising is even more significant with 34% mentioning it.

There are really two groups of developers who use advertising as a revenue source – those looking for simplicity and scalability as they dream of being the next big thing, and those who have added advertising as an additional revenue stream to top up their income.

The developer of Flappy Bird didn’t expect to make much more than pocket money when he released his childishly-simple (but challenging) game into the app stores, but (almost a year later) an unexpected surge in popularity was generating $50,000 a day for the developer. The scalability and simplicity makes advertising attractive, but very few developers manage to emulate that level of success.

For the second group, advertising is more viable – the only risk is a possible alienation of users, but that can be alleviated by offering a “premium” version for those who choose to pay. For many developers the income from advertising can form part of a revenue mix which combines to form a sustainable business.

Advertising isn’t the fairy dust it once was – giving up 10% of a mobile screen isn’t the route to riches – but neither can it be ignored as part of the mobile revenue mix, as it has become for many developers.

To gain more insights into how mobile developers can be understood through segmentation take a look at Mobile Developer Segmentation 2016, available from VisionMobile.

What gets desktop developers out of bed in the morning?

Despite all the hype around the death of the PC and the enormous amount of media attention focused on mobile, cloud and IoT, the humble desktop is still the biggest part of the developer economy. There are more professional developers working on desktop applications than any other sector. There’s also more revenue in desktop development. It’s understandable that the media focuses on the exciting growth areas and no-one is arguing that the desktop is likely to make a major comeback. However, while there are still significant quantities of both users and revenue on the desktop there will be developers creating new software for it. While those developers are still adding enough value for the users, the users will stick around. Will those developers still building for the desktop stay loyal to their platforms, or be tempted away into exciting new growth areas? The answer will depend on individual developers’ goals and motivations.

There being enough money to pay developer salaries, in any area, is obviously a very important factor. Even in gaming, where mobile revenue has grown at an astonishing rate in recent years, the desktop still accounts for more than a quarter of revenues. In the enterprise software market, which dwarfs gaming at well over $300 billion annually, desktops still account for the majority of the revenue, with cloud-based software and services gaining fast. Then we have e-Commerce, which in total is likely to approach $2 trillion this year. Mobile devices are rapidly eating into and expanding this market but they’re still only just over 30% of transactions and closer to 20% of revenue. However, although this looks healthy for the desktop currently, the growth trajectories will encourage a lot of developers to move towards mobile or cloud services development in medium term. Even so, our research says that money is not the most important thing for desktop developers.

Individual developer goals, motivations, and success metrics vary significantly and some do put revenues first. Many more developers measure their success by the knowledge gained, or users reached, ahead of revenue or cost savings. Opportunities to learn and reach users should remain plentiful on the desktop for some time. Steve Jobs made a great analogy as he predicted the beginning of the post-PC era:

“I’m trying to think of a good analogy. When we were an agrarian nation, all cars were trucks. But as people moved more towards urban centers, people started to get into cars. I think PCs are going to be like trucks. Less people will need them.”

The desktop PC isn’t going away any time soon and the enormous developer economy based around it isn’t either. Although there are far more cars than trucks today, the trucking industry is still worth hundreds of billions of dollars. Also, new technologies may reach serious commercial scale on trucks before cars. Autonomous trucks platooning are likely to be widely deployed long before consumer transport in autonomous cars. The economics of electric vehicles also makes even more sense for trucks than it does for cars. Similarly, although Virtual Reality (VR) will probably go truly mass market via mobile devices, the early market is likely to be dominated by PC-based VR systems. Developers wanting to push forward the latest cloud technologies in the enterprise will find their audiences demand desktop (at least web) clients on the front-end, with mobile currently more of a bonus than an absolute must-have feature in many cases.

Anyone interested in the ongoing survival and health of the desktop platform needs to understand the developers that are building for it and why they do so. Those that want to tempt developers away from the largest ecosystem to exciting new ones also need to understand what motivates those developers. VisionMobile’s latest Desktop Developer Segmentation 2016 report applies our proven segmentation model to the world’s largest developer talent pool. The report is based on data from our 10th edition Developer Economics survey, which ran in October-­November 2015 and reached more than 17,000 desktop developers in over 150 countries, of which over 2,500 answered detailed questions on their desktop development work. We use this data to generate a wealth of insights about desktop developers: What drives them? What else are they working on? What languages, platforms, and tools do they use? What categories of application do they build and how much money do they make?

How much does it cost to create a successful app?

The app stores contain a range of apps from hobbyist creations built for fun to the carefully crafted output of venture backed startups and mega-corporations that have had millions of dollars spent on their development.

05 App Profit & Loss 2014

Even though the market is maturing and exceptionally well-funded developers have taken over the store charts, the occasional small independently developed app that goes viral can still break through and achieve a decent level of success. The question is, how likely is a small budget developer to succeed? What platforms give them the best chance of success? Where should the budget be spent? With all the competition out there, how much does a bigger budget improve your chances of turning a profit?

What are the odds?

In order to look at how budget can impact profitability it’s worth calibrating by the average chances of making a profit on each platform.

The figures in this chart are probably more positive than most industry observers would expect. Looking at the data it seems likely that many solo developers have valued their time at zero when reporting costs. For hobbyists and explorers, working in their spare time this might make rational sense. They don’t expect to be paid for the time anyway and their small app profits more than cover their other development costs. This is reflected in the slightly lower level of Android developers losing money versus iOS (there are far more hobbyists on Android than iOS).

Leading platforms

On the most popular platforms – iOS, Android and HTML5 – there’s a general correlation between spending more on an app and making more revenue. However, not all spending produces equal results. Spending more on development only slightly increases the chances of making a profit, while increased spending on design and marketing are strongly correlated with higher probability of making significant profits. Higher spending on customer service is almost always associated with greater profit probability but here the causation is almost certainly in the other direction; successful apps incur greater customer service costs because they have a lot of customers! These platforms show very similar patterns but they aren’t identical. The biggest difference between them is that spending more on design for HTML5 apps seems to produce much less of a boost to profit probability than for either of the leading native app platforms.

The second tier

BlackBerry 10 and Windows Phone show similar patterns of spending versus profit probability that are very different from the leading platforms. For small amounts of spending, there are similar patterns to the leading platforms. More investment, greater chance of a profit, with better returns from design and marketing spend. However, before reaching a level that would sustain a full-time designer or developer, the trend reverses; investing large amounts in any aspect of apps for these platforms reduces the probability of a profit and increases the chances of making a loss. This suggests that these platforms have not yet reached sufficient scale in terms of app revenues to sustain many highly complex or polished apps.

Opportunities everywhere

On the leading platforms, developers with budgets in the multiple thousands of dollars a month have roughly twice the chance of turning a profit on their apps as those spending minimal amounts. Even at lower spending levels, the probability of breaking even or better is reasonably high across all platforms, particularly for those investing in design and marketing. While it’s clear that only some of the platforms discussed above are likely to support scalable app businesses at the moment, there are plenty of opportunities to build profitable apps on any these top 5 platforms.

Want to know more?

I’ve only scratched the surface of our data here. What scale of profit or loss can be expected on different platforms with different levels of investment? Are there optimal investment levels to maximize the chances of success? Which app categories are most likely to product a profit. What do successful app development companies look like at different sizes? All this and more is covered in our App Economics report.

The Language of Talking to Developers: The Importance of Outcome-Based Segmentation

Why outcome-based segmentation should be the cornerstone of developer outreach strategies. VisionMobile’s Data and Operations Manager, Christina Voskoglou, explains why everyone running a developer program should focus on outcome-based segmentation and not technologies, demographics and platforms.

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00 Shooting the duck

Two statisticians were hunting for ducks by a creek. Spotting one taking off behind a bush both hunters fired simultaneously: The first man’s shot fell 1 meter too low while his friend’s shot flew 1 meter too high. Thrilled, they dropped their rifles and started congratulating each other, hopping about, happily chanting: “We got it on average, we got it on average!”. The duck, even happier than the statisticians, had of course in the meanwhile flown away to safety.

This is a lesson on how working with averages is a sure-fire strategy to miss your targets. [tweetable]There is no average person. And there’s no average developer[/tweetable]. Continue reading The Language of Talking to Developers: The Importance of Outcome-Based Segmentation

The hierarchy of developer needs: Creativeness, not money is the top motivator

What motivates developers? Is it fame or fortune? Our new Developer Segmentation 2013 report addresses this questions, presenting a needs-bases segmentation model that focuses on developer goals, not just demographics. Based on data from our latest Developer Economics survey (6,000 respondents from 115 countries), this article gives you some insights from the report, discussing how the sense of achievement, not money is the prime motivator for developers.

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Forward-thinking businesses today realise that developers are their innovation engine, their most promising affiliates, their evangelists or their fastest growing resellers. Businesses are discovering that developers are modern-day channels that help them reach new consumers, discover new use cases and propel their growth. Continue reading The hierarchy of developer needs: Creativeness, not money is the top motivator