VisionMobile App Profits Costs 2014 Mini Report

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  • VisionMobile 2015 | All rights reserved | www.vmob.me/AppProfits This is a chapter of the full report, available only to respondents to the 2015 Developer Skill Census survey. This document is for private use and should not be distributed.

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    About this document

    This document is a free chapter from our Premium App Profits and Costs report, available only for respondents who have completed the Developer Economics 9th edition survey: 2015 Developer Skill Census. As a thank you for completing our survey, were giving you a chapter from one of our acclaimed Premium reports containing 20+ pages worth of graphs and a closer look on how factors such as platform choice or app marketing can affect your apps profitability. We hope you find this document useful! Best regards, The VisionMobile team

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    VisionMobile Premium reports IoT Developer and Platform Landscape 2015 This research report analyses the top IoT platforms and profiles IoT developers. Explore what IoT developers working on, their motivations, platform choices and challenges. Understand how the business models of IoT platform vendors and developer sentiment, predict future winners in key IoT verticals: Smart Home, Wearables, Health & Wellness and Connected Car. vmob.me/IoT15 App Economy Forecasts 2014-2017 This report analyses the mobile app economy and developer population, forecasting its growth from 2014 to 2017. App Forecasts estimates the current size of the mobile developer population and break it down by platforms and revenue models. vmob.me/AF14

    VisionMobile free reports Developer Economics Q1 2015: State of the Developer Nation Developer Economics is the leading research program on mobile developers and the app economy, tracking developer experiences across platforms, revenues and revenue models, apps, dev tools, APIs, segments and regions. www.DeveloperEconomics.com/go European App Economy 2015 The 3rd edition of our European App Economy report series examines the app market within the European Union. The report also examines app-related job creation in five local markets, Belgium, France, Germany, the United Kingdom, and Israel, plus leading platforms, programming languages and revenue models used in these markets. vmob.me/EU15

    About VisionMobile VisionMobileTM is the leading research company in the app economy and mobile business models. Our research and workshops help clients compete and win in their rapidly changing industries.

    The firms semi-annual industry research series, Developer Economics, provides benchmarking of developer attitudes, trends and monetization by region.

    Our mantra: distilling market noise into market sense.

    VisionMobile Ltd. 90 Long Acre, Covent Garden, London WC2E 9RZ +44 845 003 8742

    www.visionmobile.com/blog Follow us on twitter: @visionmobile

    Terms of re-use 1. License Grant Single User. Subject to the terms and conditions of this License, VisionMobile hereby grants you, the named user, a non-exclusive, non- transferable license to the Report. You may not distribute the Report within your organisation, publicly, or to any other organisation or third party, or to any publicly accessible internet resource (such as Dropbox or Slideshare). Additionally, this License does not provide any right to you to sub-license the Report to other parties.

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    About the authors

    You can reach Christina at: [email protected] @ChristinaVoskog

    Christina Voskoglou Director of Research & Operations

    Christina leads the analyst team and oversees all VisionMobile research and data projects (big or small!), from design to methodology, to analysis and insights generation. She is also behind VisionMobiles outcome-based developer segmentation model, as well as the Developer Economics reports and DataBoard subscription services. While at VisionMobile, Christina has led data analysis, survey design and methodology for the ongoing Developer Economics research program, as well as several other primary research projects.

    You can reach Alex at: [email protected] @VforVeritsis

    Alex Veritsis Data Analyst As VisionMobile's data analyst, Alex dives head-first in all VisionMobile datasets to unearth meaningful associations and trends in the app economy. Alex explores correlations and creates visualizations of the Developer Economics survey data and participates in all VisionMobile data-driven projects. Prior to joining VisionMobile Alex served as a financial analyst in the Small Domestic Appliances sector. He holds an MSc in Business and Financial Economics and a BA in Economics from the University of Greenwich.

    You can reach Andreas at: [email protected] @andreascon

    Andreas Constantinou Founder & Principal Analyst Andreas oversees the growth and strategy at VisionMobile. He has been working on the mobile industry since 2000, helping take the very first smartphones to market. Since then hes worked with the top brand names in the mobile industry including Microsoft, Intel, Mozilla, Amazon, AT&T, Telefonica, Nokia and Huawei. Over the past eight years, Andreas has grown VisionMobile into the leading analyst firm in the app economy and digital business models, with a client base and reputation that out-rivals companies many times the size.

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    About the App Profits and Costs report The App Profits and Costs report analyses how and where app developers make profits based on hard data from the worlds largest survey across 7,000+ app developers. Based on ground-breaking research and unprecedented data depth, the report

    sketches the profiles of the profitable, the struggling and the loss-making developers.

    measures how decisions on platforms, app categories, revenue models, devices and developer segments impact app profitability, and how revenues translate into profits.

    breaks down developer costs across development, design, marketing and customer support.

    profiles the characteristics of the profit-making developers and app businesses.

    The App Profits and Costs report helps executives in the app economy make the right choices in their app business or their developer programs.

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    Research methodology Our App Profits and Costs report is part of Developer Economics 6th edition, one of the largest ever research on app developers and trends in app development. This report is based on a large-scale online developer survey, which was designed, produced and carried out by VisionMobile over a period of five weeks between October and late November 2013. The online survey received over 7,000 responses, making this the largest mobile developer survey at the time of publication. Respondents to the online survey came from over 127 countries, including major app development hotspots such as the US, China, India, Israel, UK and Russia and stretching all the way to Kenya, Brazil and Jordan. The geographic reach of this survey is truly reflective of the global scale of the mobile app economy. The survey reached an unprecedented number of respondents, globally balanced across Europe (36.5%), Asia (32.1%) and North America (19.7%). The online survey also attracted a significant developer sample from Africa (6.6%) and South America (3.4%). To eliminate the effect of regional sampling biases, we weighted the regional distribution by a factor that was determined by the regional distribution identified in our App Economy Forecasts (2013 - 2016) report published in July 2013, as shown in the graph below.

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    The survey gathered responses from developers across 15 platforms including Android, Bada, BlackBerry 5/6/7, BlackBerry 10, Chrome, Facebook, Firefox OS, iOS, Java ME, HTML5, OSX (desktop), Windows (desktop), Windows Phone, Windows 8 and Tizen. As our research focuses on mobile developers, we have excluded from the analysis all respondents that are not developing for mobile platforms. To minimise the sampling bias for platform distribution across our outreach channels, we weighted the responses to derive a representative platform distribution. We compared the distribution across a number of different developer outreach channels and identified statistically significant channels that exhibited the lowest variability from the platform medians across our whole sample base. From these channels we excluded the channels of our research partners to eliminate sampling bias due to respondents recruited via these channels. We derived a representative platform distribution based on independent, statistically significant channels to derive a weighted platform distribution. By combining the regional and platform weighting we were able to minimise sampling biases due to these factors. All results in the report are weighted by main platform and region. The App Profits and Costs research is based on the responses of developers who indicated they are interested in app revenues. Profit calculations were based on the responses of those who had provided number responses for both average revenues and monthly costs per app per month.

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    What profits are made of The revenue opportunities that the seemingly blooming app economy has to offer are growing by the day. Whether opportunistic or a serious business, dazzled by the unexpected glory of an indie developer at the far side of the world (like Flappy Bird creator Dong Nguyen) or weighing the upcoming trends, people across geographies and industries are pondering on a single question: Does it pay to be in the app business? Of course, those who are really serious about starting an app business need to ask a million other questions, but this simple is it worth it? is a good place to start - for our quest too. In this first chapter we explore developers perceptions as to whether or not it pays to be in the app economy and also look into how profits are broken down in its key ingredients: Revenues and investments - both in effort and money. In chapter 2 we will drill down into how choices in the app economy - including platforms, business models, devices and app categories - are correlated to losses and profits.

    Where are developers spending their time? App development is not just about coding. Its, perhaps more importantly, also about design, marketing and customer support. So the question is how should app businesses split their efforts between the four phases of the app lifecycle? Do efforts in marketing or design pay off? Our research shows that they do - but app businesses are just beginning to realise that.

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    Our research shows that development takes up the majority of an app businesss time: 57% of developers dedicate at least half of their efforts in development. At the same time it is just 4% of developers who state their efforts go almost exclusively into development, while 4 out of 5 put at least some effort into marketing. This means that the app economy is moving into a higher level of maturity than the just build it and they will come mentality of its early days. The weight that different activities, from development to customer support, have in an app business helps pin the point where the app economy currently stands on its journey between the artisan and the mature business phases. It has obviously come a long way, but it has still got a long way to go. Marketing and customer support are still to be recognized as essential dimensions of an app business. Design has by now been recognised as a major part of app building: Almost 40% of developers put some moderate effort (25% - 49% of their time) into it, while another 23% actually dedicate more than half of their time to design.

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    Marketing is yet to grow in importance in the eyes of app makers. It is a very interesting finding that 21% of those who do care about revenues and profits dont spend any time on marketing, while another 50% (i.e. half the app businesses) allocate less than 25% of their efforts to marketing. Partially it is just a matter of new businesses not having yet appreciated what marketing can do for them. But it is also the hardcore programmers who think that all it takes for a successful app is good performance and a cool UI. As the app economy evolves, such a notion is bound to become obsolete. Customer support is the last stage in an apps lifetime: Once an app begins having a stable flow of demand, it is time for the app business to start supporting its customers. For the time being it tends to be as overlooked as marketing is, although there is also a non-negligible percentage of app businesses (13%) that put significant efforts into customer support. These are most likely businesses that rely on building a loyal clientele rather than selling cheap apps to the masses.

    Do companies often underestimate the value of marketing? Our research provides evidence that they do. We found that efforts in marketing are almost linearly correlated to earnings above $5,000 per app per month. At the bottom of the scale, less than 1 in 5 (19%) out of those spending little time on marketing make more than $5,000. The same percentage climbs up to 36% for those who heavily rely on marketing. Note that those few that stated they spend 100% of their time on marketing are not really app-building businesses and are therefore not considered here.

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    Our findings also suggest that too much focus on development hurts revenues: Those who spend more than 75% of their time in development are more impeded than all other developers in making significant revenues (more than $5,000 per app per month). This implies that developers who focus on development spend time in this phase at the expense of marketing and customer support, two factors which, if assumed, would improve revenues. In effect, this means that allocating more than 50% of an app businesss manpower in development is not just a lost investment that doesnt pay off: It actually harms the business, as it both increases development costs and reduces likely revenues. Focus on design doesnt bring about much better results than focusing on development. The flat non-existent correlation of design efforts and $5,000+ revenues suggests that design is merely a hygiene factor, not a differentiator between high and low revenues. Customer support correlates to healthy revenues almost as much as marketing does. Here the correlation works in reverse: As stated earlier, a business needs to be moderately successful to have some customers to support - in other words first come the revenues then the customer support, not the other way around. Even so, companies that take care of their customers seem to be doing quite well. The magic ingredient behind measurable revenues in terms of how developers spend their time and efforts is therefore marketing.

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    Profit traits: How developer choices impact profits in the app economy How do developer choices impact profitability? How profitable are iOS vs. Android developers? How loss-making are game vs. non-game developers? Our research documents many traits for profitability in the app economy that were previously poorly understood.

    The platform profitability debate Since 2010, our Developer Economics reports have consistently demonstrated that iOS is the most lucrative platform by far: At the end of 2013, median monthly revenues per app for iOS were between $500 and $1,000, almost an order of magnitude above the $101 - $200 median revenues of Android. Median revenues refer to the level of earnings made by developers in the middle of the distribution. Does the same economic gap apply when it comes to profits? The next graph shows how each platform varies greatly in terms of the share of developers that make comfortable profits. But thats just a small part of the picture.

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    Our research of 7,000+ app developers shows that all platforms have essentially the same share (around 40%) of developers and companies that either break even or make slight profits. Therefore, the experimentation and under-the-radar stages of an app business are not the characteristic of any platform in particular. Where platforms differ is at the low and high tails - those developers making spectacular profits and painful losses. As expected, iOS has the largest share of profitable developers (41%) and the smallest share of loss-making developers (21%). HTML5 developers are a close second to iOS. iOS only-moderate precedence implies that iOS developers may be enjoying higher revenues but they also incur higher expenses than others. HTML5 comes second in profitability with 38% of the platforms developers being comfortably profitable, while just 25% of developers are losing money. This verifies our earlier Developer Economics findings on the substantial revenues behind HTML5 apps, which stem from the nature of HTML5 mobile apps - many of those being enterprise and media apps. Android has come a long way in terms of developer profitability, coming in a close third after HTML5, with the same chances of incurring a loss (25%)

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    and slightly lower chances of comfortable profits (35%). Androids lower number of profitable developers (35%) is unambiguously due to the lower revenue opportunities the platform has to offer. For the three challenger platforms, BlackBerry 10, Windows Phone and Windows 8, things look gloomier: The app businesses that make a loss are comparatively more in number and the businesses that make a healthy profit are significantly fewer. In fact, as far as platform profitability is concerned, apps are a two-speed economy: There are the high-speed platforms, namely iOS,HTML5 and Android which present less than 30% chances of failure and more than 35% chances of success - in other words success is more likely than failure. Then come the low-speed ones, BlackBerry 10, Windows Phone and Windows 8, that have more than 30% chances of failure and up to 30% chances of success - i.e. failure is more or equally likely to success. The numbers for Windows Phone, the challenger ecosystem, portray a grim picture indeed: 40% of the developers who select it as their primary platform report losses, while only 21% enjoy comfortable profits. This is in mostly due to the many Explorers and Hobbyists that value fun and knowledge gained more than profits - although the Hobbyists included in the findings of this report are those who are not indifferent to revenues. Windows 8 developers perform somewhat better. Compared to Windows Phone, Windows 8 developers represent more mature businesses that also produce desktop apps. There are more Enterprise IT, Product Extenders and Guns For Hire developers among the Windows 8 developer ranks. Hence the better profitability as compared to Windows Phone. The grim picture of Windows Phone versus the near-rosy one of iOS, as painted above, are based on the share of developers and app businesses that are above or below the profit line. Just how profitable or loss-making are developers of each platform though? Where are the painful $2,000+ per app per month losses and where are the spectacular $50,000 per app / month profits?

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    Losses for Windows Phone are in fact not that serious - they are mostly between $100 and $500. In total 77% of Windows Phone developers make between -$500 and +$500, which verifies that its often chosen by Explorers: developers who are exploring monetization prospects in the app economy make cautious low-risk bets that can only lead to limited profits or losses. For BlackBerry 10, developer losses are similar to Windows Phone but profits above $500 are more likely (24% vs. 6% for Windows Phone). In BlackBerrys case it is not about Explorers: Having lukewarm device sales so far, BlackBerry cannot justify extensive investments, thus the limited losses of its developers. On the other hand, the rather limited competition that BlackBerry 10 developers have to face means they have a better chance at getting discovered and selling their apps - hence the better returns. iOS presents of course a very different case: The middle of its distribution is thinner. The most interesting finding about iOS profitability is the extent of losses made: iOS may have the lowest percentage of loss-making developers, but their losses are mostly deep red. Almost half (45%) of those developers making a loss (19% of iOS developers in total) bleed more than $2,000 per app per month.

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    As iOS is in most cases a priority platform, the heavy losses of some iOS developers make perfect sense: Those who are serious about investing into an app business are more likely to invest on iOS, given its large user base and revenue potential. And investments can go wrong. Of course, iOS also has to offer the widest green area, 35% of its developers enjoying profits above $500 - investments can bear fruit as well. HTML5 developers stand somewhere in the middle between iOS and Android developers. HTML5 app losses are slightly worse than in the case of Android, although not as bad as the iOS ones (fewer HTML5 developers lose more than $2,000 compared to iOS). At the other end of the distribution, HTML5 presents better opportunities than Android (32% of HTML5 vs. 27% of Android developers make more than $500), but not as good as iOS does. Higher profits than Android are justified by far more HTML5 mobile developers building enterprise apps (37%) and business tools (31%) as compared to Android (21% build enterprise apps and 25% build business tools). It is also usually the enterprise and media businesses for whom HTML5 is a sweet spot that now target mobile using HTML5, Enterprise IT developers in many cases.

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    The money is in enterprise apps - games are a gamble The decision of what category to develop apps for greatly impacts app profits. In every app store, each app category is bound to bring different profits, given its differing pricing, development requirements and target user base.

    Our research shows that game developers have a 1-in-3 chance of reaching comfortable profits. A game makes between $201 and $350 per month in median revenues while its median development cost is between $101 and $250 per month. The diversity and inherent volatility of the games category imply that revenues and costs are in reality very widely spread around these observed medians. Games of different revenue models or subcategories offer very different prospects for profitability. The many factors on which game revenues depend on - discoverability within the largest app category, for one - makes games a risky bet in terms of profitability. Enterprise apps (e.g. sales force automation) are the most likely to be profitable, as 47% of developers who build enterprise apps report comfortable profits. Both median revenues and median development expenditure for enterprise apps are way above all other app categories. High expenditures make sense, given the revenues, and they seem to be paying off with a healthy profit margin for most.

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    Business and productivity tools (e.g.Analytics Pro) and entertainment apps offer the next best options, as 44% of those building business tools and 42% of those building entertainment apps make solid profits. For entertainment apps, median revenues per app are cleanly above costs, the only app category other than enterprise apps where such a pattern is observed. Entertainment apps seem therefore to be a reasonably safe bet for making a profit. Utilities, on the other hand, are not something with a promise of profitability: Only a third of those building utilities (i.e. 13% less than those building enterprise apps) enjoy healthy profits. For half the developers who build utilities, revenues do not exceed development costs. For developers who are interested in making profits, utilities could therefore only be justified for experimenting, developing skills and gaining knowledge. For education apps both revenues and development costs are slightly higher than those of utilities, but still comparable. The education apps market is expanding fast, targeting a wide audience from toddlers to college students. Opportunities for revenues are therefore increasing, but so are development and content production costs: As the demand for high-quality education apps is growing the effort and money that businesses have to put in each app are also increasing considerably - and it remains to be seen if small teams can keep up. Currently, 1 in 3 developers building education apps make comfortable profits.

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    Do tablets pay more than smartphones? Whether or not tablet developers make more money or not has been a point of debate for quite a while. Given the higher average app pricing and e-commerce conversion rates, many claim that it pays for developers to turn to tablets as their primary target device. Currently tablets attract 83% of app developers but just 12% of developers target tablets as their primary development screen.

    Our research shows that developers who target tablets as their primary device are as likely to make a profit as smartphone developers are - both on iOS and Android. The answer lies in expenditures: Tablet developers spend on average 30% more per app and month than smartphone developers do. As a result, and despite the higher conversion rates, the bottom line in profits is the same - in fact its slightly worse: 78% of the developers who prioritise tablets vs. 72% of those who prioritise smartphones make either a loss or up to $500 in profits per app per month. Higher profits of developers building tablet apps proves therefore to be a myth - at least for the time being.

    Tools are the competitive arsenal of profitable developers Our research of 7,000+ app developers confirms once again that tools are the competitive arsenal of developers. From ad networks and push notifications to cross platform tools and BaaS, tools use correlates to higher developer profits. Although this

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    is not necessarily a causation, it does recount a compelling story about how tools and profitability are related: 70% of those who dont use tools - and do care about revenues - make less than $100 in revenues per app & month. On the contrary, only 13% of those developers who do use tools dont make any revenues at all and 41% in total make less than $100.

    Double-clicking on the data shows that some tool categories are associated with higher profits. Push notifications and crash analytics are at the top of both the revenues and profitability rankings, as 57% of those who use them make more than $500 in revenues per app per month.

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    At the bottom of the profits ranking we find ad networks, game development tools and cross-platform tools. Ad networks are the least correlated with revenues and profits, as 39% of those using them report monthly per-app revenues of up to $100 and only 35% are profitable. As most game developers use specialised development tools, and given the rather low median revenues of games we saw earlier, it comes as no surprise that those who use game development tools score badly both in revenues and profitability. It is rather the app category rather than the tools that is correlated to revenues and profits. Cross-platform tools are correlated to low profits too: 40% of those using them make $100 at most per app per month. We believe that this research finding reveals how native apps are tied with higher revenues and better profitability. Apps developed using lowest-common-denominator apps are still struggling to compete in the consumer apps space. User analytics might be the most popular tool category, but developers using such tools are not showing strong profit performance. The median revenue of developers using user analytics just manages to touch $500. Clearly, employing user analytics tools is certainly popular, but is not what differentiates developers between those profitable and those not.

    Revenue model profit secrets In our State of the Developer Nation report we showed that the choice of revenue model greatly impacts the likely returns of the app. In this research report we explore how revenue model choices impact profits. We will consider small, medium and large companies differently to account for their dynamics.

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    In our State of the Developer Nation report we showed that e-commerce is by far the revenue model bringing the most returns, at $2,750 on average per app per month. A good example of apps using e-commerce revenue model is the eBay app or apps that use Amazon mobile affiliate APIs. In this analysis we further confirm that those developers who leverage e-commerce revenue models have much higher chances of being profitable than others: More than half (52%) of such developers report comfortable profits. This result holds true across all company sizes: Small, medium and big companies alike are significantly more likely to be profitable if they do e-commerce sales as compared to other companies of similar size. This also leads us to conclude that the e-commerce as a revenue model e-commerce is easy to approach by both startups and incumbents building apps alike.

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    Affiliate / CPI programs is the next most profitable revenue model, which works well for all company sizes, and especially for small companies. Commissioned work, on the other hand, has similar profitability (44% enjoy comfortable profits) but works better for medium-sized and big companies. It is obviously the larger agencies and software companies that undertake sizeable, multi-platform projects with the fatter profit margins. Our research also showcases the differences between the old and new revenue models. Pay-per-download and in-app advertising come in stark contrast with the e-commerce and affiliate revenue models. Traditional revenue models simply dont work anymore - the profitability of those using them is at best average. Developers obviously need a major review in their understanding of business models and a careful look at the untapped potential and low risk of e-Commerce and affiliate revenue models. Despite the increasing share of ad dollars going into in-app advertising, we would not recommend the revenue model for any company size: Those who use in-app advertising (and particularly companies of 21+ employees) are making considerably less profits than other companies of the same size. Similarly, pay-per-download is at the bottom of the profitability ranking (30% of developers using it are profitable) and is the worst-performing model for small companies. Selling services to developers seems to work well only for big companies (of 501+ employees). Medium-sized companies that have tried it are making profits significantly lower than other companies of similar size, while for small companies services to developers are correlated to average profitability.

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    distilling market noise into market sense