Apps Developers: Show Us the Money

In this new mobile platform world, app developers are the new kingmakers. Not a day goes by when someone doesn't introduce their own app store, but the question of whether they'll actually be able to profit from their efforts remains. (See our related research report from GigaOM Pro, Surveying the Mobile App Store Landscape, subscription required.) In many ways, my post from last week about the potential size of the applications market has exposed what seems to be the Achilles' heel of this new economy: a lack of moneymaking opportunities for small, independent app developers.

Unlike large companies such as Electronic Arts (ERTS), which sell popular games such as Scrabble, some of the smaller players are facing growing pains. And these problems aren't unique to developers focusing on the iPhone. On Monday, Aug. 31, Matt Hall, who runs Larva Labs, a startup developing games for Google's (GOOG) Android platform, e-mailed to let me know that the $5 million in Android apps sales outlined by AdMob was way too high. "We have some of the better-selling games, but it doesn't seem to us that Android can even get to $5 million a month based on our numbers," he let us know.

The company makes two top-ranked games—RetroDefense and Battle for Mars—that sell for $4.99 each. They were promoted by Google quite heavily, so much so that you'd think they'd be flying off the shelves. Not so! The company is selling only a handful of them—$62.39 worth, on average, a day. Hall, on his company blog, points out that Trism, another game, sold fewer than 500 copies to bring in just $1,046. An Apple (AAPL) iPhone developer with a top-ranked game, in comparison, could easily make about $3,500 a day.

"So let's imagine for a moment that we're a typical Android developer in terms of earnings, even though I think it's more likely we're on the high end of the curve. Assuming we are the average, though, there would need to be over 2,500 other Android developers to get to $5M total sales. The last estimates I heard put the number of applications at around 12,000, so there's probably around 4,000 developers total. That means over half of the developers need to be earning what we do to reach $5M a month. However, we know from experience that below position 25 on the top-selling games the earnings drop off to almost zero so it's very unlikely that anyone below that position is earning much money at all."

Putting a Number on iPhone App Sales If Hall is raising reasonable doubts about AdMob's numbers on behalf of Android developers, David Barnard of App Cubby is working hard on behalf of iPhone developers to clear the air.

In the back-of-the-envelope calculations Barnard shared with me, he noted Apple's claim that the App Store had 1.5 billion downloads in its first year. Multiply that 1.5 billion by the $2.50 average price for an app and you get a total of about $3.75 billion. However, Barnard points out that if you used AdMob's metrics that users download free apps at a ratio of at least 5:1, the "actual sales are somewhere in the neighborhood of $150-$300 million."

He also points out that while the overall ecosystem continues to grow, the price of apps themselves is falling rapidly. When Apple's App Store launched, the average price of an app was around $5.50, but has since declined to $2.50. "At an average price of $2.50 per app, my estimate of $250-$500 million is looking even more dead-on," said Barnard.

According to him, it takes about 400 sales per day to break into the top 100, and about 10,000 sales per day to hit the very top of the charts. Assume the average sales in the top 100 to be about 1,000 a day. If the average price of an app in the top 100 is $3.18, that's about $116 million per year for the top 100 apps. "Most apps sell in the single digits per day, and quite a few don't sell at all," Barnard says. "There is a long tail, but it's a very skinny one. I wouldn't be surprised at all to learn that the top 100 grosses as much as all other apps combined." AdMob had responded to these charges by app developers last week by saying:

"Perhaps the average $ per month or the % of people who purchase paid apps is higher than actual figures, but those are the results we obtained from our user survey and we thought that others might find the monthly estimate useful."

In the words, they waffled a little from their original stance.

At this point, I'm open to hearing from anyone who can share information that will essentially help me (and the readers at large) figure out the real size of the application marketplace.

Before it's here, it's on the Bloomberg Terminal.