TECHnalysis Research Blog

September 23, 2014
Is the App Ecosystem Sustainable?

The focus on mobility and mobile platforms as the growth engines for the tech industry’s future is now so engrained into most people’s heads that it seems nearly blasphemous to suggest there could be faults in that thinking. But there’s a question that keeps popping into my mind—is the mobile app ecosystem really sustainable at its size and rate of growth?

I’m increasingly starting to think that no, it isn’t.

Some simple math helps with my reasoning. First, we’re at well over a million (likely around 1.2 or 1.3 million) apps in both the iOS and Android stores. Yes, the revenue numbers paid out to developers keeps growing as well, but it doesn’t seem to be growing nearly as fast as the number of apps are. So, basic division would suggest the amount of payouts per app is decreasing. In fact, I’ve seen numbers which suggest that a large majority (>50%) of mobile apps make only a few hundred dollars a month.

Now, of course, some of this could be due to the fact that many apps have moved to a freemium model, where the app is free, but in-app purchases and advertising generate the necessary revenue for developers.  But in-app revenue still counts towards those revenue payout numbers that Apple and Google love to talk about, so the lower average per app still seems relevant.

With regard to advertising, mobile ads have notoriously poor click-through rates, so the amounts that ad networks, app developers and others selling advertising can charge on mobile devices is still relatively low.

So, as with many industries, it seems a tiny, single-digit percentage of applications and app developers are making the lion’s share of the revenues. Everyone else is just doing it for fun or holding onto the dream of being one of the very select few who do make it big—at least for a while—in the mobile app business.

Now, as an entrepreneur myself, I’m certainly not going to fault small businesses for having big dreams and hoping to generate a big financial windfall. More power to you.

But as a musician and someone who worked in the music business, I also know that 11+ years after the introduction of the iTunes store, we haven’t seen an explosion of new artists that have all reaped large financial gains. Instead, we continue to have a reasonable number of long-term popular artists, a few one-hit wonders and occasional breakthroughs of new artists that hit it big. Consider this, when Apple chose to release a free album to their hundreds of millions of iTunes users, they didn’t pick a relatively unknown new artist—they went with one of the most successful bands of all time. (Don’t get me wrong—I’m a big U2 fan and I wasn’t one of the people who wanted to delete their free album, but you get my point.)

The relatively harsh metrics of the music industry are widely-known, but I don’t see that same kind of thinking and logic being applied to the app ecosystem, even though—I think—they’re relatively comparable. The problem is, instead of being cognizant that it’s very difficult to make it big—as most aspiring musicians know and readily accept—mobile app developers seem to think that their paths to the top are paved with gold.

I believe some of this fault lies with tech investors, as well as the tech press, who promote the myth of mobile app millions, instead of the harsh realities that most mobile app vendors face. Of course, no one seems to want to burst the mobility bubble, for fear of what might be exposed. But it’s a story that needs to be told—and told—and told again.

The reason is, we’ve now reached a point where there are too many apps (yes, I said it) and there needs to be more focus on quality versus quantity. But if everyone involved seems to think building more mobile apps is their ticket to millions, the problem is just going to get worse. And that’s, ultimately, why I believe the app ecosystem could end up buckling under its own weight.

Until we’re all willing to take a more realistic look at both the pitfalls and opportunities in the mobile app ecosystem, I’m afraid we’re heading towards an implosion instead of the explosion that many still expect.

Here's a link to the original column: http://techpinions.com/is-the-app-ecosystem-sustainable/35033