The Idea Dude

CONNECTING THE DOTS ONE AT A TIME

Monday, July 13, 2009

The Economics of iPhone App Development

If you follow the tabloids, you would believe that every iPhone developer is driving around in Ferrari or at least some German pedigree sports car. Judging by the number of people, friends, family and strangers who have approached us with the next million dollar iPhone app, I would put that perception to be categorized as 'widely held' if not in the 'urban myth stratesphere'.

The reality is many apps don't make enough to even cover the cost of the software development licence of $99 and the $1,500 to get a Mac. I surmise most developers are either keeping their day jobs or driving humble Asian vehicles with double mortgages to boot.

The economics of the iPhone apps have drastically changed in the past months. At the beginning of the year, there were probably 5,000 apps kicking around costing you $70,000 to buy all of them. Today, it's more like 70,000 apps and a cool $160,000 if you wanted to own all of them. Of course, it is an impossibility given that the limit for your iPhone is around 148 apps. But that is one way to measure the market cap of iPhone apps, i.e. what would it cost to buy all the apps.

8 to 10 months ago, the shortage of apps and major players meant relying on Apple to promote you in the AppStore was a sure fire way to success. Lots of eager iPhone, iPod users and less apps, you could rely on a ton of people to try and buy your app. Today, you would likely disappear from the front page in a matter of days and even hours depending on your category.

Add to the fact that major content players (both movies and games) with big budgets are using the the iPhone platform to extend their marketing and sales reach make it really tough for smaller development shops from surviving, let alone show a profit.

So the typical developer goes to bed each night praying that someone like MacWorld will give them a review or they would hit the jackpot and be featured in What's hot! on the Apple web front page.

If you've dabbled in Google Adwords or Facebook in the web world, a 10 to 1 return is phenomenal i.e. 1 person buys out of every 10 clicks. Generally it is more like 20 to 1 and often more. I have scars from that adventure too! When you pay 15c a click or the more usual 20-50c a click, you'll quickly realize the traditional marketing techniques are a sure fire way to hell if you're selling a product for 99c.

On that other hand, if you're an Apple iPhone or iPod Touch fan, this is an awesome place to be. With some amazing free apps to choose from, there's very little that you can't do these days with the iPhone. And if by chance you bought an app that didn't turn out the way you hoped, the cost was less than a double Mocha at Starbucks.

I'm both a fan and developer. The Yin and Yang of Apple iPhone development. The bitter and the sweet. To be fair, life isn't any easier anywhere else. We've had several clients making forays into the digital web world with less than stellar success to put it mildly. Making apps for the iPhone is no different. Lots of sweat and tears and hopefully a little bit of luck (maybe lots of luck).

Browse the app reviews and you'll see the people get more angry over a missing feature in a 99c app or even a free one than they would about not being able to format a paragraph in a $299 word processor. It's a pretty weird thing that's for sure.

Despite it all, we still get excited by the number of people who use our apps. Whether it is to put smile on someone's face with a Kiss Stickie or a Bunny, or being part of someone's productivity when they use us to add a cool signature to their email. I just wish I could get them to pay $29.99 instead of $2.99 for each.

As the Eagles song goes, "It is not the center of the Universe, but it is where I want to be."

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