The Idea Dude


Tuesday, September 22, 2009

Fools rush in where angels fear to tread

An article in ComputerWorld today had the headline "Gold rush! Big money seen for iPhone, Smartphone app developers.". They quoted the Yankee Group Research as extrapolating the numbers to 2013 to be 4.2 billion. It said that 2.9 billion will go to developers and 1.3 billion will go to the people running the app store.

Being one of these developers in the game for almost a year, you would think I'd be jumping for joy hearing such great news. Alas, to me this sounds like the optimism of the dotcom crash. Here's the reality check.

There are only 3-5 major smartphone players running app stores of any significance. Assuming the numbers come true, Apple will probably take 60% of the 1.3 billion and the rest divided up between Blackberry, Google and Nokia.

There are easily over 30,000 mobile application developers, let's say 50,000 by 2013. Dividing 2.9 billion amongst 50,000 people is 58,000 per capita. Pretty dismal if you ask me. The harsh reality is that the long tail applies. Of the 80,000 apps in the Apple App Store, a handful (literally) will make a million dollars or more, a couple hundred will make several hundred thousand dollars and the rest (that's 95% or more) will never recoup their costs.

So it's all good news for the smartphone vendors but not as rosy for developers. (Sounds remarkably like Google Adsense, where Google makes billions and most of the poor blog owners are, well, poor, to the tune of making several cents a day). Sure, we'll continue to see the great story of how one guy spent one week to write a app that sold a million copies. These are the black swans of our age, it is unlikely they will ever repeat their success the same way again except if you're a big player with deep pockets and huge marketing budgets.

If I got a buck for every time some one came up to us and told us they had the next killer app idea, I would make more money than I would selling apps in the app store.

But this is the real world, life is fair and the majority will always be poor and few will be rich regardless of the industry. I just get disappointed because it's stories like these that make people flock blindly to the next paradigm. What's even worse, is the days to come, where small startups get funded with ridiculous amounts of money when the business models are not sustainable and built on hype. If you build it they will come is happening all over again. I lived through the dot com, this is another dot com in the making. We will never learn.

Caveat Emptor, let the buyer beware, in this case, let the developer beware. If you believe you can build a set of applications each returning a reasonable amount of money over time, you have the makings of a business. If you believe you can write one app and make a million dollars, all you have is a dream. It can happen but don't bank on it.


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