June 2 (Bloomberg) -- There’s a place where mobile applications go to die, and its name is Apptopia Inc.
The Boston-based startup hosts an online marketplace where apps that attract few users or fail to make much money -- including an animal-hunting game and a program that lets people send drawings to one another -- can try and sell themselves to buyers such as other app makers. In the past month, Apptopia has brokered 350 such deals, a sixfold jump from last year, said Chief Executive Officer Eliran Sapir.
As Apple Inc. kicks off its annual developer conference today, where apps will be front-and-center as the company is anticipated to introduce new software features, the economics of the $23 billion market have become so challenging that apps undertakers are flourishing. Of the more than 1.7 million software programs available in Apple’s and Google Inc.’s online stores, about 600,000 have been downloaded fewer than 100 times in the past 60 days, Sapir said, referring to them as zombie apps. More than 80 percent of all downloads are of the top 500 apps, or less than 1 percent of those available, he added.
“There are roughly 3,000 new apps submitted each week” to the Apple and Google app stores where people can download games and other widgets for their smartphones and tablets, Sapir said. “It’s almost guaranteed that nobody is going to discover your app.”
The result is that the business is increasingly dominated by a small group of publishers, including Supercell Oy and King Digital Entertainment Plc, which can spend heavily on production and expensive promotional campaigns to spur downloads. Many independent publishers can’t afford those expenses, leading to a booming business for Apptopia and a similar company called Exitround Inc.
The state of the app market will be a focus this week at Apple’s developer conference in San Francisco, which starts today with a keynote from CEO Tim Cook. He is projected to outline new features in the company’s iOS and Mac operating systems. The company is also set to announce new software for monitoring health and fitness, and tools to link up a so-called smart home, enabling a person to control a light switch or thermostat from a smartphone, said people familiar with the plans, who asked not to be identified because the information isn’t public.
The health of the app market is critical for Apple because the programs help drive sales of its iPhones and iPads, which account for more than 72 percent of the company’s annual $171 billion in revenue. Since opening its App Store six years ago, Apple has said that developers have earned more than $15 billion through it.
“We’ll be sitting in the keynote holding our breath that Apple announces changes to the App Store” that will help the ecosystem, said David Barnard, a developer from Austin. He said Apple could experiment with improved search tools and letting developers charge for app updates, all of which will make it easier for a broader swath of software makers to display and profit from their programs.
Trudy Muller, a spokeswoman for Cupertino, California-based Apple, declined to comment.
For many, the challenging apps environment is a sign that the market is both robust and becoming more mainstream. The App Store is acting more like a traditional media property such as television, movies or music, which push out only the best material from a wide selection of content, said Mark Kawano, a former Apple evangelist who worked with developers and founded Storehouse Media Inc., a storytelling publishing tool. In the same vein, now the “the best apps surface to the top,” he said.
“There’s enough money flowing through the system for a lot of people to be doing well, even though it is harder and harder,” said Barnard, who added that he makes six figures a year from a batch of apps such as a mirror tool that lets people look at themselves using the iPhone’s front-facing camera. “There are plenty of people making a living.”
Among the independent developers who have broken out with a big hit is Dong Nguyen, who created the game Flappy Bird that made $50,000 a day after it shot up the App Store charts. Nguyen later removed his game from the store.
Yet as new titles struggle for notice amid the sea of programs, the top of the download charts is largely unchanged week to week, with King and Supercell accounting for six of the top 10 highest-grossing apps last week. Many smaller developers are dependent on being promoted as a pick by Apple, which is an unpredictable honor to obtain.
Exitround, a San Francisco-based startup that began last year, said of the roughly 1,000 companies now selling themselves through the company, 23 percent are mobile apps. That’s the largest category and even includes apps that have attracted millions of users but little revenue, said CEO Jacob Mullins. Buyers include traditional technology companies, as well as media outlets, private equity and financial services firms.
“Being able to rise above the noise is incredibly difficult,” Mullins said.
Sapir said he started Apptopia in 2012 because he knew with so many apps being introduced, consolidation was inevitable. He also wanted to eliminate “crappy” apps -- many of them copycats or incremental versions of one another -- that are clogging up Apple’s App Store. Those are drowning out quality titles, he said.
Apptopia, which takes a 15 percent cut of each app sale, has doubled revenue in the past year and is on pace to generate $5.5 million, boosted by Apple’s decision last year to let developers more easily transfer ownership of their software to another company. On Apptopia, which is backed by investors including Mark Cuban, developers can post their wares with information like how much money the app has made and its number of downloads. The company also sells research about the app market.
Buyers through Apptopia have included mobile-advertising networks, analytics firms, as well as bigger companies such as Walgreen Co., which wanted to add a new fertility feature to a service it was rolling out, and Princeton Review, which bought a test-taking app, said Sapir.
Representatives from Walgreen and Princeton Review didn’t return requests for comment.
The size of the deals are a far cry from the multibillion-dollar acquisitions made recently by Facebook Inc., which said in February it would buy mobile messaging startup WhatsApp Inc. for $19 billion, and others. One hunting game that was downloaded four times and made $3 in 13 weeks was sold for $500, while a stopwatch app that had been downloaded nearly 800,000 times over three months sold for $46,000, according to Apptopia.
One seller is Gabor Cselle, a former Google employee who created an app that lets people draw pictures and quickly send them to friends. Even though the program was featured by Apple, he discovered that users would send a picture or two and then drop the app. Cselle ultimately sold the application through Apptopia in late 2012 for $15,000 to a company in Missouri.
“A lot of developers get frustrated after a while and just want to be able to monetize the hard work they’ve put in,” Cselle said. “Apptopia is the place that you go when you want to move on.”
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