Even if you took the market value of all of the goods and services that are produced annually across Aruba, Fiji, Barbados, Grenada and Greenland, you’d still fall short of the global revenues that were generated last year through mobile apps: $15.1 billion.
For code-hungry developers, there seems to be no shortage of appetite for pint-sized digital portals on smartphones and tablets. Around 3 billion apps have been downloaded from Research in Motion’s App World, with an additional 20 billion via Google Play and a full 30 billion through Apple’s App Store.
But this sector’s explosive growth has some questioning whether it might be ready to bust. In some ways, it’s already tearing at the seams.
Last year, a photo-sharing app called Color raised more than $40 million from investors before users started downloading it. Yet in a cautionary note to both developers and venture capitalists eyeing this space, Color was overhauled after failing to entice a large enough following.
While many app-development costs have been falling in recent years, few programs actually attract enough paid users to turn a profit. Nearly 60 percent of developers in a May survey from the marketing and strategy consultancy App Promo, said the income earned from their most successful apps was not enough to break even with its creation costs. More than three quarters also said their top app fell short of being financially successful enough to prop up a standalone venture.
"App developers aren't typically very good at thinking commercially," says David Ashford, an e-business consultant in the United Arab Emirates who used to work for an app-development fund. "App developers need to innovate and think about what people want to consume rather than what they want to develop," he adds.
So what's a burgeoning app maker to do? Here are three secrets for extracting the highest profit potential from an increasingly crowded marketplace:
- 1. Get the right genre.
Start by scanning for the most successful genres of apps. So-called freemium games, which rely on users to make in-app purchases, have dominated the charts on many app stores. At Apple, for instance, games comprised 25 out of the 30 top grossing apps last year, with many of those being of the freemium variety.
- Games are not for everybody, of course, and there are some profitable exceptions outside of this category. Both Navigon and TomTom created best-selling navigation apps in North America last year, with versions that scored in the top 20 in Europe and sold for as much as $125 a pop.
- Creative programs that take advantage of feature-rich mobiles, such as Hipstamatic’s use of a camera, have also ranked high on best-seller lists.
- 2. Target a marketplace.
Homing in on a specific company’s app store may improve the odds of boosting big returns. According to Gene Munster, a tech analyst from Piper Jaffray who has studied the app marketplace, Apple earned between 85 percent and 90 percent of the money spent on mobile apps last year, and the company is poised to command at least 70 percent of this market over the next few years.
- While Google’s Android Market has high growth potential, just 1.3 percent of apps there are paid for, compared with 13.5 percent via Apple. Moreover, Google earns just 7 percent of the gross revenue of Apple’s app store, Munster’s study found.
- Still, analysts warn that this sector can shift quickly. "No one market is dominant today so as long as there are ecosystems in competition with each other developers need to be prepared to support all the ecosystems in order to address the largest possible audience for their product," says Stephen Baker, a tech analyst with the NPD Group.
- 3. Market till you make it.
Not every app will succeed based solely on word-of-mouth recommendations or viral-marketing tactics. The top revenue earners in App Promo’s study, who earned at least $50,000 with their most successful app, spent the most effort on marketing. On average, 14 percent of their time was dedicated to promoting their app, backed by a marketing budget of nearly $30,000 on average.
- Keep in mind, however, that ad dollars only go so far. "App developers, just like any organization entering into a competitive, crowded marketplace, need to have the confidence that they are building a better mousetrap and that is why they will be successful," says Baker.
How have you dealt with the rising competition in the apps world? Let us know in the comments section below.
Neil Parmar's work has been published in The Wall Street Journal, SmartMoney Magazine, The Huffington Post and Psychology Today, and he's been interviewed on CNN, ABC News, Fox News and radio shows in the U.S. and U.A.E. In 2012, former President Bill Clinton announced that Neil was among one of three winning teams, out of 4,000 applicants, who won the Hult Global Case Challenge and $1 million to help SolarAid, Habitat for Humanity and One Laptop per Child. Most recently, Neil was an assistant business editor and writer for The National, a newspaper based in the Middle East.