Can you make money developing iPhone apps?
iPhone’s App Store is still on fire - in its first month, it generated $1 million a day in sales on 60 million downloads and by now has reached 500 million downloads since the launch. This kind of success has attracted the attention of a lot of developers, investors and enthusiasts, including us at Solon Partners. On the back of all the buzz, I wanted to see if iPhone apps are a realistic way of making money.
iPhone sales figures
Although subject to some controversy and mystery in the past it now appears that Apple has sold roughly 13 million iPhones since 2007. The new generation 3G phones make up 6.9 million of the total. Apple has now become the world’s third largest mobile phone supplier following Nokia and Samsung. IN addition to making money off the phones Apple makes money by taking 30 percent of the total sales from the App Store. The success of the App Store has now reportedly forced RIM, Microsoft and Google to consdier developing their own store fronts.
App pricing and categories
Mobile Orchard has gathered a lot of data that shows that most apps in the Apple store are priced in the $0.99 and Free categories, although there are a few specialty apps out there in the $50 range as well. Mobclix has done a clear and useful bar graph analysis of the pricing trends and offerings. When looking at all of the application in the iPhone store 77.9% are paid and 22.1% free apps. Games (26%) are the top apps category followed by Entertainment (12%), Utilities (9%), Education (7%) and Books (6%). So the most popular offerings are 99 cent games.
Diagnostic tools show usage habits
New York City-based startup Pinch Media, (VC financed by Union Square Ventures, First Round Capital and some angel investors) has created for iPhone SDK developers free analytics tools to track apps usage. According to data gathered through their analytics on average, people use their apps 1.2 times per day with an average usage time of under 5 minutes.
Top Games
After reading stories of garage developers striking it rich, I was rather surprised to find that most of the top revenue earning games are made by BIG game design houses the games market - Vivendi, SEGA, Apple, PopCap, Gameloft, Xen Games and Electronic Arts. Only two (Fieldrunners and iHunt) in the top 10 are made by smaller developers. I should not have been surprised, this industry is no different than others where brand name recognition, marketing and reputation play a key role in consumers’ buying decisions. Hence we see in the 10 ten games today familiar names such as Bejeweled, Spore, Tetris, Crash Bandicoot, Texas Hold’em and others.
However, there is hope for the little guys too, iShoot Lite sales numbers should motivate the entrepreneurial minded programmers around the world to develop games. This month downloads hit 16,972 in one day, but have averaged approximately 10,000 downloads for over a month which translates into $21,000 of net revenue per day (if somehow sales could be kept at this level for a year this small studio game would make $7.6 million).
Another success story that has been widely publicized is the success of Trism developed by Steve Demeter. The game, which is essentially a bejeweled clone, sells for $5, and has netted the developer over $250,000 so far. Demeter allegedly spent only $5,000 developing the game.
Bottom Line
If you can develop and promote an app that people are interested in downloading, and keep your budget under control, real money can be made with iPhone apps. If we assume that you are selling your app for 99 cents, and you could sell it to 10% of the iPhone users in the world (1.3 million users), then after Apple’s cut you would net approximately $900K. Even with 1% total market penetration you would net $90K. Not bad at all, if you can keep your development and marketing costs at 30% or below.
Even on a small scale, entrepreneurs have seen significant success with simple apps like EleMints, which is basically just a copy of a periodic table of elements priced at $4.99, and which sold 3982 in 45 days (netting $13,909 for a few hours of work)
Companies have also launched apps first in the free category and then made the transition to the pay model as most vividly demonstrated by Tapulous’ Tap Tap Revenge, a Guitar Hero style game which currently has over 3 million users. The original free edition was financed partly through advertising revenue, but largely through Angel investors’ financial support. Recently the company released Nine Inch Nails and Weezer versions for $4.99, of which Apple gets 30%, and the remainder gets shared with the bands, labels, and publishers. Tapulous hopes to get to the breakeven point with $1 million in revenue in 2009.