There are hundreds of thousands of Android apps out there for buyers, but most of these mobile apps don’t make a dime
A few years ago, it was clear a Gold Rush mentality was brewing as Google proved that people really liked Android mobile apps. A lot of developers jumped on the bandwagon to claim their fortune, as did many young developers and regular folks lured by the promise of easy money via cookie-cutter apps created for them by app making websites (ex. Appsgeyser). The hype has cooled down, but not the desire for mobile Android apps, nor have the opportunities for real app developers to make real money from it.
According to Forrester Research, there is an estimated $17.5 billion worth of mobile apps that will be sold this year across all platforms. If you will subtract the cut that Apple, Google, and other platforms get for placement in their app stores, that’s at approximately $13 billion for app developers to pocket. But as a developer, what do you need to do to get the biggest slice of the pie?
Ilya Laurs, the founder of the app store GetJar, believes that he knows the key answer to the key question above, based on analyzing the sales and revenues of mobile apps.
He presented his analysis recently at the CIO Global Forum, an exclusive invite-only leadership event for CIOs. Take note, the vast majority of apps that he analyzed are consumer apps, so sales through an enterprise app store, such as the one Apple provides for employee app distribution, may not fit his analysis. Also, Laur’s data is based only on Android apps as he could not analyze Apple App Store sales data. But then again, he still believes from anecdotal evidence that the basic model for making money with apps “generally holds true” for iOS apps as it is for apps on other platforms.
For him, it boils down to what he calls the user engagement model. To put it simply, it means what you charge for an app should be based largely on how your users engage with it.
To give you an example, if users use your apps for just a few times, an ad-supported model makes no sense at all, as you’ll earn just a couple of pennies per user. You’d be better off charging 99 cents or $3.99 or whatever up front. Even though your sales at the paid price will be a fraction of the free, ad-supported version, your total revenues are likely to be larger.
Conversely, if your user engagement is expected to be high, regardless if your app is for a news, sports scores, social feeds, or other information-stream-oriented stuff, the advertising model makes much more sense. You would be able to make even more money from the many more impressions — sales-speak for the ads actually presented to your users — over your Android app’s lifetime even at a few cents per impression than if you charged a one-time upfront fee. However, you must remember that it’s often difficult to get paid by the ad networks.
Which begs another question: What about high-engagement Android apps that aren’t made to provide information streams, where ads would be a turnoff? I’m referring to games such as Angry Birds and the likes or Draw Something. According to Laurs, to combine a relatively low up-front price (perhaps 0.99 cents to $4.99) with “IAP” in-app purchases for virtual goods (such as hints or power ups in games) and additional functions like bookmarking of your favorite teams for a sports oriented app or ad removal to convert a free trial app to a paid one. Another huge advantage of IAP is that billing is easy, it can be done either through the app store’s own system or via an established provider such as PayPal.
Then there are highly useful Android apps that don’t really support the notion of an IAP. Those should cost more because they are more valuable. In some cases, a subscription model for you app makes sense. This approach is perfect for a high-quality magazine like The Economist, which doesn’t repeat the same news everyone else has. Outside of media, I think the subscription model is a harder sell, though you’ll still certainly see it with services such as the CloudOn Office virtual environment. It’s currently being used by Quickoffice Connect as their strategy to get people to subscribe to the Quickoffice Office editing suite rather than buying it just one time.
Laurs has created what he calls a user utility-engagement model to represent his app pricing strategy, as shown below.
The image shows three factors to steer you to the best pricing model:
- Utility – how useful a person finds the app
- Engagement – how often a person uses the app
- Value – how much a person likes the app’s features, relative to the universe of other options
As the slide above shows, how those three factors combine indicates the way to make the most money from Android apps.
Another factor that’s worth considering is marketability. Free apps, including “freemium” titles that use ads or in-app purchases to make money, are the easiest to market. We all like free stuff, even if they know there’s money being made off them in some other ways; thus, it’s easier to market a free app over a paid app regardless if it’s an iOS or an Android app. Take note, the marketing cost should not be your primary option; attracting people who aren’t paying for an app or end up using it for a few times, thus not getting you the ad or revenues via IAP you counted on, doesn’t make you the money you sought in the first place.
So, no matter your pricing model, always remember that apps have to be good at what they do and how users engage with them. Quality matters most to gain customers, customer loyalty, and referrals to their friends and colleagues.