A FastCompany Expert Blogger recently wrote an interesting article titled The Great App Bubble. The title will get lots of people agreeing pretty quickly because of their own biases but if you read how he tries to prove his thesis, you quickly realize that he is incorrect.
Apps don’t generate profit for developers
He arrives at this conclusion in a way that would make my grade school math teacher cringe and my econ 101 teacher laugh: “One billion dollars in revenue for the approximately 225,000 apps is $4,444 per app–significantly less than an app costs to develop“.
A Couple problems:
- Average cost he uses is wrong
- The App market is no different from the movie, music or software industry
What is the average cost to develop an app in his opinion? $35,000
I am no math genius but “average” would mean that you divide the money spent on all apps by the number of apps that have been developed. Does anyone believe that US$7.785 billion has been spent to develop iPhone apps so far?
Of course I don’t need math to point to the absurdity of the average cost he quoted because I am working on apps right now that cost as little as US$1,000 to develop.
The bigger problem with the statement though is NOT the math related to the average cost, it is the math and economics behind using the average revenue per app to conclude that developers don’t make money. Like any normally functioning market, there are a few big winners, some medium winners and a lot of losers.
The music industry puts out thousands of albums per year but only a few sell enough to breakeven and even fewer are breakout hits and account for the bulk of sales. No one would dare say that record labels don’t generate a profit from albums. They don’t generate a profit from many albums but the labels are profitable.
App developers are no different and the fact that Angry Birds has been sold 7 million times at US$0.99 with 70% of that revenue going to the developers demolishes the first assumption.
Apps aren’t very profitable for Apple either
Huh? People buy hardware with large margins partly because of the App Store. Apple makes absurd amounts of money thanks to the app store in the form of hardware sales of iPhones, iPod Touches and iPads. It is no different from Nintendo, Sony and Microsoft making money because of the videogames that are available for their systems.
Software sells Hardware.
iPhone users don’t find their apps very valuable
How often you use an app is a poor metric to determine how valuable you find it. It would be wiser to actually ask people seeing as how I may not play Paper Toss every day but it is quite valuable when I am bored on a plane or waiting on a meeting.
The fact that people are spending so much money on apps would indicate that they DO find them valuable.
Apps have carved out a market because they are more convenient, people spend money on them and developers are obviously generating revenue and in some cases, profit.
Yes there are lots of people rushing into the app market to create apps but that is the same of anything that is a proven market. There will be a shakeout and fewer players will remain but continue to generate solid profits. This is no different from all the PC manufactures that used to exist, mp3 player manufacturers or record labels.
