Eight Ways to Completely Misunderstand the Economics of App Stores

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FastCompany "expert blogger" Aaron Shapiro says we're in an "app bubble", based on crackerjack analysis like this:

Apps don't generate profit for developers. Apple CEO Steve Jobs has said, the App Store has generated more than $1 billion in revenue for developers. That sounds like a big number. But in this context it's not. One billion dollars in revenue for the approximately 225,000 apps is $4,444 per app–significantly less than an app costs to develop. …

A typical iPhone app costs $35,000 to develop. The median paid app earns $682 per year after Apple takes its cut. With these calculations for the typical paid app, it takes 51 years to break even. It's not any better for free apps. A free app also costs about $35,000 to develop. But there are so many free iPhone apps that at a rate of 2 second per app, it would take approximately 34 hours for someone to check out each one. That's not great odds for a revenue model based on advertising.

Do I even have to break down how misleading these numbers are? 225,000 is the total number of apps on the App Store, including free apps. The billion dollars in revenue, on the other hand, came either from sales of paid apps or from in-app purchases. A study late last year by Pinch Media found that while 77% of the apps in the App Store are paid apps, those account for only 25% of downloads.

In fact, the number of apps in the App Store is almost a meaningless number for this discussion, because (a) free apps are downloaded so much more than paid ones, (b) free apps are often used as advertising and thus aren't expected to recoup their cost via the App Store, and (c) apps can be developed once but added to the App Store catalog many times with slight variations. (For example, Ngmoco's _Eliminate_—a popular, free first-person shooter game that makes tons of money charging for in-game weapon upgrades—comes in seven different near-identical versions, each of which counts towards Shapiro's 225,000 apps.)

That's not to say App Store apps never lose money. I've written two iOS applications, and so far I've only made about $50 selling them. But that's with no marketing, and no development expense other than about 2 weeks of my time. (If I had been billing for those hours, the cost would have been a lot less than $35,000.) For me, the time expense was worth it, as I can now state on my résumé that I'm an iOS developer, which is worth a lot more to me long-term.

Which is to say: even when developers aren't making six figures from selling their iPhone apps, that doesn't necessarily mean they're getting screwed.