Yesterday, GigaOm published the results of their study on developers’ monthly take from paid apps. If you read the title of this post, you can guess how much money most of them make. Despite the Angry Birds and Words with Friends of the world (the 5% of developers actually making $20,000+ per month), are prospects more bleak for the other 95%? Can app development actually be a profitable career for indie developers, or will it continue to be a side gig for most as the market gets even more crowded?
As the guy at Apptopia who works with developers every day, I wanted to share my thoughts on what the GigaOm study means for them. There are two sides to every story though, so I grabbed our VP of Business Development, Greg Salwitz, and asked him for his take on how investors should view the results. Here are our thoughts.
From Gerry Praysman, Sr. Acquisitions Advisor
If you’re an individual developer reading this post, there is a good chance you find yourself in the $1-499 bracket. In fact, if you’re an iOS developer, you probably haven’t even broken even on your development costs. This isn’t necessarily because your app sucks (although your app could totally fucking suck). The space has gotten busy, saturated…dangerous.
- Lower the price or make it free. Seriously, just read this. Take a few extra minutes and really think about how you can more effectively price your app.
- Sell your app. Yea, I went there. If your app makes $12 a month, and you sell its ownership for a $1,000 – congratulations, you just made 7 years revenue in one fell swoop. More on valuing your app to come at a later time.
- Learn more & test. Obviously, every app can’t kill it with revenue. But a lot of apps don’t do as well because developers don’t take the time to learn more about cross-promotion, their respective app store’s search optimization, what their users are thinking, and lots of other little details that come together to make a big difference. Yea, it takes more time and effort – but it could be worth it. Test what works, and respond when things don’t.
From Greg Salwitz, VP of Business Development
While you should always take survey and poll results with a grain of salt, the results of this study are consistent with lots of other data that I have seen. There has been a significant drop in the average monthly revenue per app as the marketplace becomes increasingly competitive. Quite simply, you don’t get points for showing up anymore.
An important take away from this study is that there is a growing income disparity that exists within the app store. While developers find themselves taking a shrinking slice of a growing pie, the upside has expanded rapidly over the past few years, netting the most successful apps massive returns.
For investors, developers, and publishers that are prepared to invest time, knowledge, and resources in the distribution of apps, hitting that 20k+ mark can be a very attainable goal. The obvious disclaimer is that the app game isn’t a great fit if you’ve got a weak stomach for volatility. Consumers are fickle, Apple’s edicts are unsurprisingly unilateral, and anyone holding a top rank has a fiery red target on their back. This element of risk is one of the core reasons that apps generally sell with an 8-14 month multiple on earnings. I challenge you to find me a stock with a 100% dividend yield.
While the risk is real, but the path to success is not as obscured as you might think. With an effectively designed portfolio of apps built to hedge individual app risks while cross-promoting users, the growth prospects are huge. From there it’s all about the marketing hustle.
As we roll into the 2012 holiday season, prepare to watch the ceiling of profitability set by the most successful apps on the market get shattered, but at the same time as more apps flood the market, competition among indie developers will continue to grow. Improvements in the discovery engines of key marketplaces may change who kills it, but with such a huge pool of apps and growing consolidation, a relatively small pool of actively managed portfolios will continue to take the lion’s share of the spoils.