Picking an OS and learning to monetize are key
BY PEGGY ALBRIGHT
In the rapidly evolving mobile application market, new technologies, players, devices, and platforms emerge just about every month. These constant shifts in the business landscape and competitive environment create uncertainty and risk for application developers already struggling to stand out. But few can ignore the opportunity, since mobility will eventually have a role in most digital products and services.
“Mobile is very disruptive. It has the potential to be just as disruptive as the Internet was,” said Julie Ask, vice president and principal analyst at Forrester Research.
Most current mobile applications are adaptations of ideas or applications that originated in the PC-based world. However, Ask said that will subside as developers and end users imagine new and original ways to engage with information and services from a mobile context. In other words, future-looking mobile app innovators should divorce the PC from their thinking.
Nolan Wright, CTO of the application solutions provider Appcelerator, also stresses mobile’s increasing role in business and society. He compares the mobile industry today to the Web’s early days, when companies and developers cautiously used the infrastructure to publish content on static Web sites. Today, companies build entire businesses on the Web and consumers structure their lives and social interactions around it. Its impact pales, however, in comparison to mobility’s promise, Wright believes.
“We think mobile will follow a very similar path but it will happen at a faster rate than the Web did and the impact will be more profound,” he said.
Apple used to be the only force to reckon with, because the iPhone, the iOS operating system, and the Apple App Store had no competition. Now, the iPhone has been joined by rival devices and operating systems and about 160 app stores offered by a range of companies, including device manufacturers, platform providers, mobile operators, and media conglomerates.
App store inventories are growing rapidly. In the US, the Apple App Store had about 300,000 apps at the end of 2010, twice the number available the previous year, according to Distimo, a mobile analytics firm. The newer Google Android Market had about 130,000, six times the number available in 2009. Both Nokia’s Ovi Store, which offered 25,000, and BlackBerry App World, which had 18,000, were growing at triple-digit rates at the end of 2010.
Sales of mobile apps are skyrocketing too. The research firm Gartner recently forecast that mobile app stores will deliver 17.7 billion downloads internationally in 2011, more than double 2010’s 8.2 billion downloads. Gartner expects developer revenues from app purchases and mobile app advertising to surpass US $15.1 billion in 2011, roughly triple 2010’s revenue of $5.2 billion.
Money for developers?
Despite the enormous inventory and sales figures, competition is fierce and making money isn’t easy or clear cut. “Ultimately, the large volume of applications available today limits volume sales opportunities to a smaller percentage of developers,” stated Evans Data Corp. in a recent survey of mobile app developers.
The firm found that more than half of the developers who work on consumer apps sell less than 100 apps per month. Fewer than 30 percent of developers sell 100 apps or more during a month.
Revenues are limited too, for most developers. Most apps are low-cost, with more than half (51 percent) selling for less than $3 and 46 percent selling for less than $2, according to a new study by GigaOm Pro.
“The low cost of mobile apps highlights the limited value of any one application and makes generating significant revenue streams from mobile applications difficult,” the GigaOm Pro report said.
The industry has experimented with a variety of monetization models, including embedding advertising in free and paid apps. But developers as a rule “don’t seem to think highly” of the advertising approach, according to Janel Garvin, CEO of Evans Data.
Nor do embedded ads seem to make money. GigaOm Pro found in its study that the majority of ad-based apps won’t make more than $100 per month.
The need to generate visibility in crowded app stores is pushing more and more developers to consider new monetization options. “We’re really seeing a move away from pricing apps at $1.99 and a trend toward more of an eclectic way of monetizing apps,” said Michael Richardson, the integration team lead at Urban Airship.
One promising new trend is the practice of offering free apps that use in-app purchasing of premium content to drive revenues.
According to Distimo, in-app purchases create new revenue opportunities for developers in the Apple App Store, where the approach has first appeared. Distimo’s studies indicate that revenues generated by in-app purchases on the top-grossing apps in the Apple App Store doubled in the second half of 2010. This approach’s early success and rapid revenue growth are important developments that should prompt more developers and app stores to adopt in-app purchasing models. Google has recently adopted this approach for the Android Market.
Picking an OS
Given the steep challenges, developers who want to succeed in this market need to carefully determine how and where to focus their time and effort before embarking on an application development project.
Most developers start with the Apple iOS because there is so much excitement surrounding the iPhone and iPad. Also, its distribution and purchasing mechanism, tied into the iTunes-based Apple App Store, is widely used and enables customers to use gift cards or credit cards to pay for applications as well as in-app purchases. Apple uses a typical revenue-sharing model, keeping 30 percent of the sales price and giving the developer 70 percent. The Apple iOS is an established and stable environment to work in and its share of the global smartphone market, now nearly 16 percent, will remain steady through 2015, when it’s expected to reach around 17.2 percent, according to Gartner.
Google’s Android OS is the next approach most developers focus on and its rapid increase in market share will likely entice many developers to now pick this OS for their first development environment if they haven’t already. According to Gartner, Android should capture 48.8 percent of the OS market by 2015, doubling its influence; it had 22.7 percent market share in 2010.
Android introduces some challenges because it’s an open platform that can work on any device, fragmenting the market developers must create applications for. Thus an Android developer will need to write several versions of their app to take advantage of different devices, screen sizes, keyboard techniques, and other variables.
Monetizing Android apps can be more challenging than with the iOS because the Android ecosystem doesn’t have a single distribution process like Apple has. Android developers can use the Android Market for selling and distributing apps, but so far it hasn’t delivered revenues for them like the Apple ecosystem has.
According to IHS Screen Digest, total revenues for Android developers in 2010 were 77 million euros ($111.15 million), compared to 1.3 billion euros ($1.88 billion) for Apple's App Store. Google’s recent decision to allow in-app purchasing should help attract more developers and help increase revenues to compete against Apple. Like Apple, Google offers developers the industry standard’s 70/30 revenue split.
One monetization problem for those selling through the Android Market is that developers need to establish a merchant account with Google Checkout, which receives consumer payments via credit cards and gift cards. Google has begun offering an option, embraced by some carriers, that lets users pay for apps on their monthly cell phone bills. The company is working on additional payment options.
The Android platform lets developers use a range of distribution options offered through independent outlets operated by manufacturers, major brands, content companies, and mobile operators. Each offers their own purchasing and billing mechanisms and revenue-sharing arrangements. These various approaches can make it easier and faster to get an Android app on the market compared to the Apple App Store, which can involve a lengthy submission process.
Amazon, which just launched the Amazon Appstore for Android for US customers, will provide a good alternative to the Android Market, given the widespread use of Amazon’s online storefront, easy 1-click purchasing, and consumers’ familiarity with it. Amazon will also employ the 70/30 revenue-splitting tradition for apps that sell at the developer’s list price, but Amazon often discounts prices, in which case it gives the developer 20 percent.
Several new OS choices have emerged in the last year, along with affiliated app stores, and developers should consider these platforms as well as the iOS and Android.
Microsoft new Windows Phone 7 OS, which has been well-received by developers and consumers, is expected to gain meaningful substantial share in the next few years, increasing from 4.2 percent in 2010 to 19.5 percent in 2015 according to Gartner. Nokia’s recent decision to run the Windows Phone OS on its devices will also help drive sales of devices that use this OS.
Patrick Mork, CEO of GetJar, the world’s largest independent app store, says developers should give up-and-coming OSes like Windows serious consideration.
“Smart developers will say ‘Where can I compete?’” he advised. A product developed for Windows, for example, would have better chance of getting noticed and capturing a large share in that emerging market than it would find in the iOS ecosystem. By getting in on an emerging OS market early, developers can forge a close relationship with the principals involved, which can provide advantages and help lead to other opportunities.
The Research In Motion BlackBerry OS, vastly improved in 2010, will eventually be replaced by the QNX operating system, which RIM is using now for tablets. RIM’s new OS options are attracting developers, however the company’s technology is expected to lose market share, dropping from 16 percent in 2010 to 11.1 percent in 2015, according to Gartner.
Another one to consider is the WebOS, which HP acquired from Palm; now available for smartphones and soon tablets, HP plans to put this OS on all devices it sells, including desktop computers. HP hopes this all device strategy to lure developers to the WebOS but its potential for smartphones is doubtful according to Gartner; the WebOS falls into the “other” smartphone category, which Gartner expects to reach only 3.3 percent market share by 2015.
A previously important OS to begin ignoring is Symbian, now that Nokia, its longtime champion, has decided to switch to Windows. This OS, which had 37.6 percent of the market in 2010, will lose half its market share in 2011 and will be gone by 2015, Gartner expects.
Partners, partners, partners
For developers who want help getting their apps to market, many companies are available to lend a hand.
GetJar, for example, distributes apps regardless of platform or device except for the Apple-controlled iOS. Developers can upload their apps with minimal requirements and at no cost. Developers do need to find a billing provider and integrate the billing function into their apps, but they are free to use any billing approach they want. GetJar does not get involved in the transaction or take any of the revenues.
Developers that want help monetizing apps can look to companies like Urban Airship, which has a platform for adding in-app purchase capabilities, push notifications, subscriptions, and other approaches, as well as analytical tools to evaluate user behaviors. It’s connected to more than 100 million devices on the market. It has authenticated and delivered more than 2.4 million in-app purchase transactions and more than 2.3 billion push notifications. It gives its developers a million free push notifications per month; after that it charges 1/10 of a cent per message.
Developers interested in a cross-platform approach rather than picking one technology or distribution option can look to companies like Appcelerator for assistance. The company provides an open-source cross-platform solution that Web developers can use to create native apps. The platform can address all devices and OSes and integrate with cloud-based resources.
Strategy before technology decisions
Because mobile app development is challenging and the stakes are high, all developers need to make sure they’re proceeding carefully and smartly before introducing a product to the market.
Forrester’s Ask urges developers to carefully formulate a business strategy before selecting a technology to introduce to the market.
The Forrester POST method (which stands for People, Objective, Strategy, and Technology) can help developers pin down decisions before a successful product launch. It’s necessary to decide upon a target audience, evaluate its use of mobile apps (people), the app’s services or features (the objective), and distribution and delivery (the strategy). Don’t pick a device or OS (the technology) until you’ve done the first three steps, she advised.
“Don’t do mobile just for the sake of mobile,” she advised. “You need a strategy first.” CW (5 July, 2011)