Mobile App Development: Methods, Marketplaces, and Monetization
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1 Monarch Media, Inc., Business White Paper Mobile App Development: Methods, Marketplaces, and Monetization Monarch Media, Inc. 406 Mission Street, Suite J Santa Cruz, CA
2 The number of tablet users in the U.S. is projected to increase to nearly 90 million by Introduction They find us restaurants, give us news, connect us with friends, keep us entertained, and even help us avoid traffic. Mobile apps have become an integral part of the daily lives of millions of people, and in just a few short years they have altered the media landscape irrevocably. With millions of people using smartphones and tablets to go online daily, it s no wonder that Internet giants like Google and Facebook have turned increasingly toward delivering their content via mobile applications. And they re not the only ones. Other content producers, including traditional media outlets, such as the New York Times, have created apps that expand their reach to mobile device users Tablet Users In millions of users 90m 33.7m During the past decade, mobile technology has experienced unprecedented growth, both in the variety and capabilities of mobile devices, and in the number of people using them. As of fall 2011, there were more than 80 million smartphone users about 1 in 3 adults and 33.7 million tablet users in the U.S. 1 The number of smartphone owners increased 10% in the second quarter of 2011 alone, with some estimating as many as 2 billion users worldwide by The number of tablet users in the U.S. is projected to increase to nearly 90 million by 2014 in the 2011 holiday season alone, ownership of both tablets and e-readers nearly doubled from 10% to 19% each, with 29% of all adults in the U.S. now owning at least one device. Since the late 1990s, the devices themselves have also evolved, from the earliest smartphones produced by Palm and Blackberry, which combined the functions of a mobile phone with those of a PDA, to today s multi-functional and media-rich devices that provide streaming audio and video content, access, GPS, and more. Once solely used by busy professionals, smartphones have undergone a rapid transformation in the past few years to become the main communication and entertainment device for millions of people: 25% of all smartphone owners report using it as their primary Web device, even when a laptop or desktop computer is available. Younger users (those in the age bracket) are especially apt to use smartphones to go online, with more than 80% reporting that they do so most days
3 The Apple App Store for ios, serving the ipad, iphone, and ipod line of devices, has the largest market share of any provider. With such compelling evidence of the growing popularity and ubiquity of mobile Internet usage, the decision to develop content aimed at mobile users is an obvious one. But once that decision is made, a host of questions remains: How do you develop your app? Where and how should you distribute it? How do you monetize it? This white paper provides an in-depth guide to the mobile app landscape: an overview of the various app marketplaces and their strengths and weaknesses; different methods for delivery of digital content and producing apps; and a look at some ways to monetize digital content, including an analysis of which are most appropriate for different types of content. Overview of App Markets and Devices Since the release of the original iphone in 2007 and the subsequent opening of the Apple App Store, content producers have had an ever-growing number of options for delivering their content to consumers. Each of the major platforms has strengths and weaknesses, and the choice of which device and market to focus on can have a significant impact for companies wishing to deliver their content digitally. App Sales Per $100 spent Other $ 15 Apple App Store $85 $ 15 Apple App Store $85 $85 Other Apple ios and App Store The Apple App Store for ios, serving the ipad, iphone, and ipod line of devices, has the largest market share of any provider, with an estimated $85+ of every $100 spent on apps going to the Apple App Store. Apple s mobile devices are also market giants, with 43% of smartphone owners using an iphone. Even more striking is the percentage of smartphone-driven online traffic deriving from iphone users nearly 60%, which indicates that Apple devices not only have a significant user base, but that this base is also especially active in accessing online content. Apple s ipad dominates the tablet market as well. About 80% of tablets sold in 2011 were ipad2s, and 97.2% of tablet-driven Internet traffic came from ipad users. Apple s App Store made its debut in July 2008, creating the world of third-party app publishing for mobile devices. From just 500 third-party applications at its launch, the number of apps has grown to more than 500,000, with tens of billions of apps downloaded overall. Half of all app downloads are games by far the most popular segment with entertainment apps a close second. 15 $
4 67% of all Android apps are free, compared to only 37% distributed through Apple s App Store. To be published in the App Store, apps must be approved by Apple and are tested for reliability and content. Once approved, the developer sets the price of the app and takes a 70% share of sales, with the remaining 30% going to Apple. In February 2011, Apple introduced subscription-based app services. Though publishers have been slow to adopt this approach, as new subscriptions purchased through the App Store are subject to the split, it also gives the option of selling through the developer s own Web site, allowing the developer to keep 100% of the sale price Free Apps 67 % 37 % 15 Apple App Store $85 Other $ Android Devices and Google s Android App Market After many years as the world s leading search provider, Google entered the smartphone market with its first Android OS-based device in October Unlike Apple s iphone, where the hardware and operating system are exclusively an Apple product, Android handsets are manufactured for use with the Android OS by HTC, Samsung, Motorola, and others. The first Android tablet, the Motorola Xoom, was released in February Google s Android OS has gained some traction in the smartphone market, but Android-based tablets have lagged far behind the immensely popular ipad. This may be partly due to cost, with Android-based tablets such as the Xoom priced at $549, not much less than an ipad. With Amazon s release of the $199 Android OS-based Kindle Fire in fall 2011, however, the first true challenger to the ipad s ubiquity has appeared. Early estimates indicate that 3.9 million Kindle Fires shipped in 2011, leaping to second place in the tablet market in less than two months 3. Though Android-based smartphone users are slated to outnumber iphone users soon, they are less active in app downloads, and Android s market share of app revenues remains small. This can be attributed in part to the higher proportion of free apps on the Android Market 67% of all Android apps are free, compared to only 37% distributed through Apple s App Store 4. The Android Market follows a similar structure for developers as Apple s App Store, with the developer taking 70% of the price of the app, and various intermediaries, such as mobile phone carriers, the remaining 30%. 0 37
5 Thanks to a robust app developer community and a growing number of cross-platform developer tools, there is clearly wisdom in developing and delivering content on more than one platform. For Amazon tablets like the Kindle Fire, apps can also be purchased through the Amazon Appstore for Android. Early indications are that this venue is less developer-friendly than either Google s Android Market or the Apple App Store. In the Amazon Appstore, developers are paid either 70% of the sale price of each app or 20% of the list price, whichever is greater 5 meaning the price set by the developer may not always be the price Amazon sells the app to customers for, unlike the Apple App Store, which allows developers to set their own price. Conclusions With Apple s current market dominance and active, established user base, it is a clear winner for any developer who wishes to focus exclusively on one market. Android OS-based devices, however, are gaining a steadily larger market share and Android devices are by far the most popular in lower-income brackets in the U.S. 6 and in the international market. 7 Thanks to a robust app developer community and a growing number of cross-platform developer tools that enable content producers to more easily create apps for multiple mobile operating systems, there is clearly wisdom in developing and delivering content on more than one platform. Producing an App: Cost and Options When delivering content digitally, there are a wealth of options. You can: Develop and code the app in-house using native tools and programming languages for your chosen app marketplaces. Use an outside developer that specializes in app development. Take advantage of build your own app WYSIWYG software that don t require coding skills to use. The up-front costs of these options vary greatly, with estimates on external developers ranging from a few thousand dollars into the mid-six figures, depending on the developer s rate and the size and complexity of the app. Depending on your in-house capabilities and tools, you can also take on the design and programming yourself, either developing using the native OS or via a framework that leverages other sources, such as Web codebases or Adobe DPS files.
6 Web technologies, such as HTML5, CSS and JavaScript, function on a mobile device as though they were coded using the native platform of the device. Finding an External Developer Should you choose to hire an external developer to create your app, there is an abundance of advice and information available about selecting the right vendor. The key points boil down to: Opt for experience. Though inexperienced app developers are often cheaper, the more experienced the developer, the higher quality the product is likely to be. Do your homework. Check out a developer s Web site, portfolio, and any apps they have currently deployed in the various markets. If you don t like what you see, you re not likely to be satisfied with your app. Get plenty of bids. Give yourself several options to choose from, and don t simply opt for the lowest bidder. Though the up-front costs may be lower, the product quality is likely to be as well. Other things to keep in mind when hiring an external vendor are its stability and time in business. If you need to update the app in a year will the vendor still be around to help? Also, when you factor in tools, training, opportunity costs, and staff hours you d need to develop the app in-house, does the vendor s pricing compare? Frameworks that Leverage Web Technologies Another option for mobile app development is to leverage frameworks that allow apps programmed using standard Web technologies, such as HTML5, CSS and JavaScript, to function on a mobile device as though they were coded using the native platform of the device. These frameworks are an excellent option in some cases, as they let developers with Web coding experience, rather than native mobile OS programming expertise, create sophisticated apps using a range of inexpensive to free and open-source software tools. One such option is PhoneGap, a solution that can be used to take an existing HTML, CSS and JavaScript code base and transform it into an app that can be deployed for any of the major mobile platforms. Some limitations exist because it is free and open-source, PhoneGap support exists primarily in the form of Web forums and developer groups on Twitter and Facebook, and some common Web technologies, like PHP, are not supported. Despite these issues, PhoneGap is likely one of the best and most cost-effective options for developing mobile apps for those with existing Web development experience.
7 For speed and simplicity Build Your Own App solutions can t be beat, with some providers bragging that their solution is as fast and easy as creating a blog post. Other popular tools, such as Titanium Mobile from Appcelerator and Sencha Touch, operate on a free-to-download system, with paid support in the case of Sencha Touch and subscription-based features and support from Appcelerator. Another alternative is to use software or services such as Woodwing and Rovingbird that convert Adobe-native files for example, PDFs or InDesign formats into ios or Android mobile apps. This method has the most in common with, and is perhaps best suited to, graphically intensive but minimally interactive apps, such as digital editions of magazines and electronic newsletters. Build Your Own or Easy App Makers Perhaps the simplest solution, and less costly than many others, is to employ one of the many Build Your Own App solutions that have been released recently. These options are typically browser-based and require no coding knowledge whatsoever. Some, such as SeattleClouds, offer subscriptions ranging from less than $100 to $600 for the full enterprise solution. Other providers charge a one-time fee of a few hundred dollars. For speed and simplicity Build Your Own App solutions can t be beat, with some providers bragging that their solution is as fast and easy as creating a blog post. However, there are significant limitations to these companies offerings. Build-your-own apps are geared largely toward content producers that will have a high volume of updating content and lean heavily toward RSScentric features, and are not necessarily geared toward revenue generation (some only provide support for free apps, and others do not provide support for in-app purchases). In addition, the ready-made nature of these solutions doesn t lend itself well to innovative apps that offer users a rich feature set. Conclusions With the variety of options available for producing an app, it is particularly important to identify your needs and what type of content you will be delivering before selecting a method. For highly complex and feature-rich apps, choosing an external developer or developing internally (where the expertise is available) is ideal. For delivering existing Web-based content, choosing a tool like PhoneGap that converts Web code into the native mobile format is the most cost-effective option. Though Build-Your-Own App solutions can be relatively inexpensive,
8 Even before your app has been created and is ready for distribution via an app marketplace, you will want to consider whether and how to monetize your content. they are suitable primarily for those who wish to get a large volume of content out quickly and cheaply without offering any unique or complex features. ROI and Monetizing Your App Even before your app has been created and is ready for distribution via an app marketplace, you will want to consider whether and how to monetize your content. The most popular way to do this is by charging for your app and collecting the direct sales revenue the 70% that Apple, Amazon, and Android s app markets award to the developer. For certain types of apps and content books and other media that will not be updated, or those that provide a valuable service users are willing to pay for, a one-time purchase price is a suitable means of generating revenue. Alternatives exist, however, and are growing in popularity within the developer community. Many developers are now choosing to make their apps available as a free download for the user and focus on monetizing through other means. There are clear reasons for doing taking this approach. Download trends in all major app stores show that, not surprisingly, users heavily prefer free-to-download apps. For example, on Apple s App Store downloads of free apps outnumber those of paid ones by more than 10 to 1. 8 Luckily, there are ways to capitalize on this trend. You can generate revenue in ways that do not rely primarily on direct sales, including: Selling in-app advertising Offering in-app sales Applying freemium features and content Advertising Today, more than 45% of app developers say they rely on inapp advertising to create revenue. 9 Each of the major online marketplaces provides support for developers who wish to advertise within their apps Apple s iad and Google s AdMob, in particular are well integrated with the overall app experience and provide a plethora of options for in-app advertising. If you are developing apps for Apple s App Store or the Android Market, these are probably your best options for integrating and monetizing advertising.
9 in-app purchases direct-app purchases White Paper Mobile App Development In 2011, 4% of ios apps used an inapp purchasing model to generate revenue, but these apps generated 72% of total ios sales ios App Purchases 4% of ios apps used in-app purchasing model 72 % income from in-app purchases 96% of ios apps used direct-app purchaing model 28 % income from direct-app purchases In-App Sales In a recent survey, the number of developers focused on reaping revenue primarily from direct app sales has decreased by nearly 10%. Nearly all of these have instead shifted to in-app sales generate revenue. The most recognizable example of this model is the free-to-play game, which allows users to download and play games for free, but peripheral items and upgrades must be purchased within the game for a fee. The percentage of revenues generated by this method is particularly striking in the ios market. In 2011, 4% of ios apps used an in-app purchasing model to generate revenue, but these apps generated 72% of total ios sales. 11 Much of this revenue derived from in-app upgrade purchases within free-toplay games (estimates suggest that roughly half of all App Store revenues are generated this way), but there are alternatives for non-game apps utilizing this method, as well. One example is the New York Times, whose mobile apps are free to download and provide free front-page access and a limited number of article views per month. Users can upgrade to unlimited access for a monthly fee. Freemium Apps A final alternative to relying on direct sales revenue is the socalled freemium approach, where both a free and a paid version of the app are made available. This model is excellent for new entrants to the app market, as it will allow you to quickly attract a large user base by providing a free app and then converting some into paying customers by offering a paid version with premium features and content. A potential pitfall of this approach is the difficulty in maintaining an appropriate balance between the free and paid versions of an app if there are no features or content that would entice a user to pay after trying a free version, profits will be limited. An alternative that circumvents this issue is to offer a free version of the full app with ads, as well as a paid version that eliminates ads. Conclusions The model of revenue generation that is most appropriate for your app depends heavily on its content and features. The inapp sales model has proven highly lucrative, but its success has
10 As the mobile landscape evolves, the one constant is the wealth of options available to those who wish to deliver content digitally. primarily been limited to games, and it has limited potential for other types of apps. Direct sales revenue, depending solely on single-unit sales and the price of an app, is a reliable means of generating revenue and one that half of the developer market still uses. It limits the potential market for your app, however, because free downloads still greatly outnumber paid ones by a significant margin. The final alternatives, in-app advertising and freemium content for paying users, provide the greatest flexibility, allowing an app to attract a larger user base by providing a free version, and guaranteed revenues in the form of ads and paid downloads by users who were pleased with the free version of the app. Final Thoughts As the mobile landscape evolves, the one constant is the wealth of options available to those who wish to deliver content digitally. The rapidly growing user bases and competitive app markets for both Apple and Android devices make it a wise decision to develop cross-platform wherever possible. The ideal mode of development is ultimately dependent on the type of content to be delivered identifying whether you need complex interactive features, or if an existing Web codebase can be leveraged will go a long way to minimizing the cost of developing your app and maximizing your ROI. Finally, choose carefully when monetizing your app free or freemium apps are downloaded at much higher rates than paid apps and can be effectively monetized with ads, but unique, high-value services can be well suited to the pay-to-download model and still develop a large user base. Identifying the most appropriate route to monetization will be instrumental in the success of your app on the marketplace.
11 Works Cited 1 Aaron Smith, Smartphone Adoption and Usage, Pew Internet, July Summary/Key-Findings.aspx 2 Ibid. 3 Mia Lamar, Strong Demand for Kindle Fire Sets Record Holiday for Amazon s Kindle Line, The Wall Street Journal, wsj.com/article/bt-co html, December 29, Mike Wehner, Apple Approves Its 500,000th App, but Do You Care?, Yahoo News, May 24, Amazon Appstore Developer Portal FAQ, Program Overview, 6 Smith, Smartphone Adoption. 7 Chloe Albanesius, Android Captures 52 Percent of Global Smartphone Market Share, PC Mag, November 15, Pricing for Success: Industry Trends and Best Practices, 2011, Distimo, Appcelerator/IDC, Q Mobile Developer Report, November Ibid.
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