The App Economy Bubble

I confess: We are somehow guilty for inflating a bubble. And this time it is, you already guessed it, the App Economy Bubble. Tomi Ahonen did the math, and the numbers just don’t add up. On June 7, 2010 Steve Jobs announced not only the iPhone 4, he also brought us the news that Apple has paid out 1 billion US-Dollars to apps developers over the course of almost two years since the launch of the App Store. And as Apple takes its 30 per cent revenue share, that means the total size of the paid iPhone…

I confess: We are somehow guilty for inflating a bubble. And this time it is, you already guessed it, the App Economy Bubble. Tomi Ahonen did the math, and the numbers just don’t add up.

On June 7, 2010 Steve Jobs announced not only the iPhone 4, he also brought us the news that Apple has paid out 1 billion US-Dollars to apps developers over the course of almost two years since the launch of the App Store. And as Apple takes its 30 per cent revenue share, that means the total size of the paid iPhone apps market was 1.43 billion US-Dollars. Remember, that’s two years!

And since the total number of downloads has now reached the 5 billion mark, the average earnings per app download are a whopping 29 cents. Of course that’s before Apple takes its cut – after that there’s 20 cents left.

Well, there are also free apps. In fact current numbers (look at Tomi’s post for details) see the amount of paid apps as high as 73 per cent of all apps. That means 164,000 out of 225,000 apps divide the 1.43 billion revenue, leaving the average developer with a revenue of 8,700 Dollars. Apple gets 2,600 out of this, so 6,100 Dollars remain to cover the development costs. In two years. And that’s the average.

“The average skews too high because of the long tail. There are a few who make several millions, who distort the average number, so it is not true that half of iPhone App Developers earn more, and half less, than $3,050 per year. It is definitely true, that the median will be significantly less than this.”

Tomi calculates the median with 1,363 Dollars over two years or 682 Dollars per year. Median means that half of all developers earn even less. That’s bad news for the App Economy.

“It is currently in hype mode, it is a bubble where most developers will not recoup their costs, and in the case of paid apps, will for the vast majority, never reach desired usage levels, and for free apps, will never achieve reasonable reach.

Today this industry is in over-hype mode as to apps, and most app developers will make losses – but not all app developers. Some will be lucky. In the future a stable viable business will emerge out of this, and we can thank Apple for revitalizing this opportunity. But don’t invest in it today.”