State of the Developer Nation: The App Economy Consolidates Before the Next Gold Rush

Our 7th Developer Economics survey broke all records again, reaching more than 10,000 app developers from 137 different countries. The full report with the survey findings has just been published and is available for free download!

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The view of the app economy that they collectively provide is one of consolidation. Developers are focusing their attention on fewer platforms and app revenues are becoming increasingly concentrated amongst the top publishers. Consolidation in the developers tools sector may also be partly responsible for the decline we see in tools usage. This is also reflected by the platforms, with BlackBerry moving their focus away from consumer smartphones and Microsoft killing their recently acquired Asha and Nokia X platforms to double down on Windows Phone. Fortunately there are several indicators that the next gold rush is just getting started.

Platform Wars

On a global level the platform wars are ending with iOS claiming the majority of the high-end device market and Android winning almost everywhere else. This results in [tweetable]Android leading in developer mindshare at 70% with iOS a clear second with 51% of developers targeting the platform[/tweetable]. However, we’ve been tracking this metric since 2010 and there is a new pattern. [tweetable]Windows Phone was the only platform to gain developer mindshare, rising steadily to 28%[/tweetable], despite failing to gain device market share. Although Android and iOS lost developer mindshare, this was not fewer developers prioritising either platform, rather more developers are now choosing sides. The average number of platforms a developer targets has fallen from 2.9 to 2.2 over the last 12 months, with more than 40% only targeting a single platform.

DE2014Q3_Mindshare

BlackBerry 10 is rapidly leaking developer mindshare, down to 11%, having failed to gain traction with consumers. Meanwhile, it’s now becoming increasingly clear that [tweetable]the future of HTML5 lies beyond the browser[/tweetable]. Although HTML5 is used by 42% of developers as a technology for app development, only 15% still target mobile browsers as a distribution platform.

A surprisingly high 47% of iOS developers and 42% of Android developers are using something other than the native language on their platforms. While hybrid apps are the most popular non-native option for building Android and iOS apps, they’re only used by 13% of developers. Hybrid apps are HTML5 apps with a native wrapper, typically created by tools such as Cordova.

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App Revenues

The majority of app businesses are not sustainable at current revenue levels. [tweetable]50% of iOS developers and 64% of Android developers are below the “app poverty line” of $500 per app per month[/tweetable]. 24% of developers interested in making money earn nothing at all. A further 23% make less than $100 per app per month. The overall app economy, including all revenue sources not just the app stores, is still growing but the revenues are highly concentrated. At the top end of the revenue scale there are just 1.6% of developers with apps earning more than $500k per month, collectively they earn multiples of the other 98.4% combined.

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State of the Game Developer Nation

Games dominate app store revenues, yet most games developers struggle. [tweetable]33% of developers make games but 57% of those games make less than $500 per month[/tweetable]. Experience breeds success in the games market. The more games a developer has shipped the more likely they are to be financially successful. However, 70% of games developers have shipped less than 4 titles.

Games is a multi-platform world with the average games developer targeting 3 platforms versus 1.75 platforms for non-games developers. Multi-platform games benefit from cross-platform game development tools with Unity by far the most popular, used by 47% of developers. The next paid tool, Adobe Air, comes a distant second at 15%. Apple and Google’s latest graphics technologies launch a battle for the richest gaming experiences. Third party game development tools like Unity and the Unreal Engine will be key to developers exploiting these capabilities.

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Tools of the App Developer Trade

Third-party tools are a critical part of successful app businesses. There’s a strong correlation between tool use and revenues, the more tools a developer uses, the more money they make. We successfully predicted the rise of the Mega-SDK, where consolidation amongst tools companies allows developers to integrate multiple tool categories from a single vendor. Despite this, tool use is declining, partly due to the rapid influx of new mobile developers. These new developers are typically not aware of the tools that are available and thus reduce the average usage levels. 26% of developers that are interested in making money don’t use any third party tools, up from 14% just 12 months ago.

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The most popular category of tool is Ad Networks, with 30% of developers using them. However, this is one of the few tool categories that is not associated with higher than average revenues. More experienced and successful developers show a preference for Cloud Computing platforms, such as Amazon Web Services or Microsoft Azure, with 40% of those with 6+ years experience in mobile apps adopting them.

Enterprise Apps – The Next Gold Rush

[tweetable]Enterprise apps are already the safest bet in the app economy and they’re only just getting started[/tweetable]. 67% of mobile app developers primarily target consumers and 11% target professionals directly. The 16% of developers who target enterprises are twice as likely to be earning over $5k per app per month and almost 3 times as likely to earn more than $25k per app per month.

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Penetration of enterprises with mobile devices and solutions is already broad but not yet deep. Currently iOS appears to be winning the battle for enterprise adoption and revenues. Yet many developers are focusing on the wrong platform with 10% more enterprise developers targeting Android than iOS. Although enterprise apps have been a historical strength for them, Microsoft and BlackBerry are seeing very weak adoption for their new platforms amongst enterprise developers due to lack of demand from enterprises.

This battle is in the very early stages. Microsoft is re-focusing on their core competence in productivity software while Apple and Google move rapidly to embrace enterprises. [tweetable]Google’s integration of Samsung’s Knox platform into the Android platform is a major step forward[/tweetable]. Meanwhile Apple’s new partnership with IBM gives them a strong proposition in all the major vertical markets. These moves will undoubtedly drive greater adoption of mobile technology in enterprises and create countless opportunities for developers to help re-think the way we work.

For more information, download the full Developer Economics Q3 2014: State of the Developer Nation report!

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.

Which apps make money?

[Which apps make money – and how? Andreas Pappas takes another look at the results of VisionMobile’s Developer Economics 2012 survey and comes up with interesting new insights on app monetisation: how does app revenue vary by app-category and by country? Is there a correlation between time spent developing an app and they money it makes?]

VisionMobile - which apps make money

In Developer Economics 2012 we discussed app revenues and how they vary across platforms. We found that overall, around half of all app developers that are interested in making money did not earn a sustaining income, i.e. they were below the “poverty line”, which we drew at $500 per month per app. Of course the real poverty line will vary widely across countries and regions: while $500 per month may not be enough for a San Francisco-based developer, it could be more than enough for a developer based in Bangalore where average living cost is less than a third, according to Numbeo. Continue reading Which apps make money?

Lead, innovate or assemble: three choices for handset OEMs as mobile starts to look like the PC industry

[Android has triggered more changes to the mobile industry than anyone had imagined. Research Director, Andreas Constantinou looks at the profound changes taking place and how the handset OEM market is shaping up].

Mobile industry connoisseurs used to smirk at the notion that the mobile industry was any similar to the PC world. How can the two industries be any similar when the software, services, channels to market, operator control, regional economics, and range of experiences were all so different.

This is so last decade. The march of software has irreversibly changed the economics of value in the mobile industry. Google’s Android and Apple’s iPhone have caused disruptions that threw all analyst predictions off the chart. Industry pundits used to project a linear growth for ‘open’ operating systems (Symbian, Windows Mobile et al) that saw them take over an increasingly large share of mobile handsets sold.

But the evolution of software has been anything but linear in the last two years; Google’s Android, an operating system that was greeted with skepticism in 2008 become a launchpad for just about everyone working within the mobile industry.

Network operators/carriers saw Android as an opportunity to reduce their dependency on two players, Apple and RIM whose stellar sales were depriving operators from any negotiating power. Operators have always tried to divide and conquer amongst their suppliers, for example working in 2002 with HTC and Windows Mobile to reduce their dependency on Nokia, or in 2007 using a three-pronged OS strategy (WinMo, Symbian, Linux) to reduce their dependency on Microsoft. Android allows operators to deliver iPhone or BlackBerry –like devices at much higher levels of customisation and at much lower subsidies.

Handset OEMs saw in Android the opportunity to develop iPhone clones at less-than-iPhone prices for operator customers. In 2008-9 most Android projects were kicked off by operators, while in 2010 OEMs are investing in Android big-time. LG and Samsung, who used legacy real-time OSes for 90% of their high-end phones in 2009 have now 10s of Android projects in the pipeline for 2010-11.

Software developers saw the opportunity to enter the mobile ecosystem of downloadable apps – in the role model set by Apple’s App Store – in the most approachable and developer-friendly platform ever created for mobile.

But the biggest changes are yet to appear.

Android has triggered a mass arrival of 10s of ODMs from China and Taiwan eager to create me-too touch-screen handsets. Qualcomm and Mediatek, the chipset vendors powering the majority of feature phones today have launched or preparing to introduce out-of-the-box Android designs that reduce the time to market for Android handsets to 6-9 months (or circa 3 months once Mediatek’s design hits the market). Platform development for Android has dropped to the $300 per engineer-day mark, while big outsourced development centers are being set up in Asia dedicated to Android handset development. All these developments will allow Android touch-screen handsets to hit the €150 mark retail price.

The new world order: Lead, innovate or assemble.
The developments triggered by Android have made it possible to replicate the economics of the PC industry, leaving mobile industry insiders dumbfounded. Last decade’s rules and role models no longer apply. Instead there are three role models emerging for handset manufacturers in the world of commoditised software: leaders, innovators and assemblers.

Assemblers. Dozens of contract manufacturers can now take Android and deliver fully-featured, high-end handsets at made-to-measure requirements, but at price points and wow-factors only enjoyed previously by top-5 manufacturers. Think iPhone me-too experience at €150 retail price.

Innovators. The price pressure from assemblers will force the top-5 OEMs to innovate-or-die. With the innovation moving out of the pure user interface domain, widgets or touch innovations or no longer the ‘wow’ factor. To claim higher prices at €300 (and a respectable margin above the BOM) the top-10 OEMs will have to innovate.

Handset innovation lies in three elements: firstly, novel industrial design (think Nokia’s ‘listick’ or sports handsets of 2006) that will break the boring mould of today’s form factors and plastics. Secondly, novel use of sensors that will enable user interactions only imagined so far. Thirdly, use of shelf space within the commonly used applications (idle screen, menus, browser chrome, app store) to promote and monetise from third party content. Yet innovation will have to be balanced with application compatibility. Already we ‘ve seen how Android implementations have created fragmentation headaches for developers.

Leaders. To reach the top-tier of handset pricing (circa €500) handset manufacturers have to deliver new product experiences. This is the privilege enjoyed by Apple, RIM (and Amazon Kindle to an extent) who have integrated hardware, software and services under the same roof. You can buy Mediatek-powered iPhone clones in China (Shanzai in local speak) for $75, but the experience is laughable to an iPhone user. Only by controlling and integrating hardware, software and services under the same roof can a manufacturer deliver new product experiences that can command top-tier retail prices.

Mass producers. Naturally, emerging markets where retail prices are at circa €50 make up the majority of the mobile handset market – at least revenue wise. And while assemblers can produce low-cost devices, they won’t have the economies of scale to make a profit at €50 retail price. Mass producers, i.e. companies with the supply chain sophistication and negotiating power of Nokia and Mediatek can do that.

The picture that emerges for the mobile handset market in 2015 (the predictable future) is surprising in many ways. We estimate that the top 5% of the market will command as much revenue as the bottom 50%, but with a higher profit – for example Apple and RIM today bring in around 55% of the industry’s profits. The middle two segments (what some observers call mass-market smartphones) will generate much higher revenues.

The mobile industry is starting to look scarily close to the PC industry, both in terms of business models and profit vs revenue patterns.

What do readers think? Is the PC future for mobile inescapable?

– Andreas
you should follow me on twitter: @andreascon