App stores: Does reality match the hype? (Guest post on the blog)

The kind folks at the Symbian Foundation generously invited me to post a blog entry related to my upcoming talk at SEE 2010. I drafted a post on the uncertainty surrounding the various app stores and cited some resources that contradict the “everyone gets rich” aura that the respective stores are trying to cultivate. The original post is at the Symbian blog, and I’ve included a copy for posterity below.

As a software developer trying to support myself in the mobile ecosystem, platform statistics are invaluable when it comes to making informed decisions about where to spend my attention and resources. Unfortunately, in the race to become the top mobile platform, Nokia, Apple, and Google have not been helpful when describing their respective ecosystems.

Apple likes to brag about the total amount paid out to developers, while neglecting to share the actual statistical distribution of those payments. Google highlights the number of devices being activated, but downplays the lack of purchase options internationally. Nokia highlights the total number of downloads from the Ovi Store, but declines to share any meaningful revenue details.

In the short story “Silver Blaze”, Sir Arthur Conan Doyle penned the following exchange between Sherlock Holmes and a Scotland Yard detective:

Gregory: Is there any other point to which you would wish to draw my attention?

Holmes: To the curious incident of the dog in the night-time.

Gregory: The dog did nothing in the night-time.

Holmes: That was the curious incident.

From my perch as an independent developer, the statistics that platform vendors withhold reveal more to me than the large numbers in their keynote slides. Aggregate developer profits mean little if the payouts follow a power-law distribution where a small minority receives the vast majority of the sales. A large quantity of compatible devices is irrelevant if users cannot buy apps. Not sharing the most basic financial details suggests to me that the app store is underperforming. I understand the platform vendors’ motivation in withholding these details, but as someone in the process of building a mobile software business, the lack of meaningful statistics makes me wonder if these ecosystems are as lucrative as vendors claim.

While drafting this post, I debated whether I was too pessimistic about the prospects of app store models and wondered if my extrapolations went too far. Seeking independent corroboration, I looked for anyone who approached this question using a rigorous approach and found VisionMobile’s 2010 report on the state of the mobile software economy. Their conclusions supported what I already suspected:

Our survey found the number one issue for mobile developers to be the lack of effective marketing channels to increase application exposure, discovery and therefore customer acquisition… Developers reported persistent challenges with getting traffic, customer visibility or in short ‘being seen’. One developer put it succinctly: ‘It’s like going to a record store with 200,000 CDs. You’ll only look at the top-10.’ (p. 24)

The dubious long-tail economics are reinforced by our findings on developer revenue expectations. Only five percent of the respondents reported very good revenues, above their expectations, while 24 percent said their revenues were poor. (p. 26)

Combined with the lack of financial transparency from the app store operators, these findings suggest that I would be foolish to build a business solely dependent upon these markets. Combined with degraded customer relationships created by generic billing systems (a topic for another post), I am not comfortable building my business by relying on payments from the Nokia, Google, or Apple app stores. Their goal is to maximize aggregate market performance, which does not always align with an independent developer’s own goals. While Apple demonstrated how app stores can become a profit center for the platform vendor, it failed to demonstrate that the market can be a reliable profit center for the independent developer. For every Ravensoft, Tapulous, or Car Locator, how many others struggle to make ends meet?

While I believe that app stores are a dangerous environment for building healthy businesses, I wouldn’t be writing mobile software if I didn’t think there were plenty of opportunities available. In my upcoming presentation at SEE 2010, I will share how my company avoids the pitfalls of the modern app stores to sustainably build compelling systems for our customers. I hope to see you there.

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