Posted by Peter Farago on Jul 31 2012

1. The Great Distribution
of Wealth Across iOS
and Android Apps
Posted by Peter Farago on Tue, Jul
31, 2012

2. More than 600,000 apps each
The iTunes App Store and Google Play now offer
more than 600,000 apps each. And Apple’s
most recent earnings call revealed that the
company has paid out more than $5.5 billion to
developers since the launch of the App
Store. With unprecedented consumer adoption
of iOS and Android devices, low barriers to entry
for developers and throngs of paying
customers, Apple and Google have created
massive economic opportunities for developers.

3. We used data from over 200,000
mobiles applications
In particular, iOS and Android have made it possible for
independent developers and mobile app start-ups to thrive. As
industries mature, however, we expect established players and
brands to invade from other platforms, depressing opportunities
for many early entrants. Along with this, we expect to see
market revenue concentrate among fewer larger players. For
this report, with these typical patterns in mind, Flurry modeled
worldwide mobile app revenue, revenue sources and revenue
concentration among top-ranked mobile apps on iOS and
Android. For this report, we used data from over 200,000 mobile
applications in the Flurry Analytics data set. Let’s start with
market growth.

4. The chart above compares
worldwide revenue generated by
iOS and Android apps in 2011 vs.
2012. For 2012, we modeled the
first half of the year based on
actual data, and then applied
growth rates to estimate the rest
of the year based on the
proportion of revenue observed in
2011 between the first and second
half of that year. In 2011, Flurry
calculates that iOS and Android
applications generated a total of
$5.4 billion across premium, in-app
purchase and advertising revenue.
Advertising made up 18% of the revenue. In 2012, Flurry forecasts that revenue will
grow by 60% over the previous year, reaching $8.7 billion. Advertising is the fastest
growing revenue category with growth forecasted at more than 100%, from $980
million in 2011 to $2 billion in 2012, delivering 23% of 2012 total
revenue. Likewise, premium and in-app purchase revenue is also increasing at a rate
of 50%, from $4.5 billion in 2011 to $6.7 billion in 2012.

5. Next, we look at the
concentration of revenue among
top ranked apps from 2010 to
2012. Please note that for this
analysis, we focus on premium
and in-app revenue
only, excluding ad
revenue. Comparing these two
years shows how dramatically
the distribution of revenue is
shifting across the long
tail. Starting on the left, in
2010, the green part of the
column shows that 28% of
revenue was generated by the
Top 25 ranked titles on iOS and
Android. In 2012, we estimate
that the Top 25 will drop to
commanding about half of total
revenue, or 15%.
Likewise, comparing the grey sections of each column, the rest of the Top 100 apps will drop
from earning 27% of revenue in 2010 to 17% of revenue in 2012. Conversely, revenue
generated by the long tail significantly grows from 2010 to 2012. Comparing the blue
sections, any apps ranked beyond the top 100, we observe that long tail revenue explodes
from earning under half of all premium and in-app purchase revenue in 2010 to over two-

6. Finally, we rank the revenue generated by each of the top 100 positions across the iTunes App
Store and Google Play. For each year, we set the revenue generated by the top spot at
100%. Then, relative to the top spot, we take the percent each position generates from the 2nd
rank all the way through the 100th. By normalizing each curve in this way, we can compare the
relative revenue generated per ranked position in the top 100 per year.
For example, we can see
whether ranking number 50
generates more relative
revenue in 2012 versus
2010. Most interestingly, this
kind of analysis shows whether
the developer “middle class” is
better off today than its
“parents’” generation.

7. Now that we have relative earning power mapped per ranked position, we can study
the heights and shapes of the curves. Comparing 2010, the green curve, to 2012, the
blue curve, we notice that two things are happening simultaneously. First, each
position in the top 100 is more valuable now, which makes sense because the market
has grown overall. Second, the blue 2012 curve is flatter. Unlike the green 2010
curve, which steeply drops during the top 10 ranked positions, indicating the wealth
is more concentrated at the top, the blue 2012 curve stabilizes shortly after the top 5
positions and then maintains a high, gently sloping plateau all the way through the
80th position, where it then settles just above the green curve, ostensibly continuing
to “fly” at an altitude higher than that of the green curve out across the long tail. In
short, this means that the middle class has more earning power, taking a substantial
share of total wealth in the economy.

8. With the app economy booming,
companies like Facebook, Twitter and Zynga are under tremendous pressure
from investors to seize the opportunity presented by this new
platform. However, with software delivered in the form of downloadable
applications, unguaranteed network connectivity, different consumer
behavior and control exerted by platform providers such as Apple and
Google, the mobile app landscape creates different, meaningful challenges
for companies attempting to enter the app space from other
platforms. Combined with a marketplace that reduces the power of brand
recognition (e.g., apps are free for consumers to try risk free), market wealth
unexpectedly continues to shift to the long tail, funding continued
R&D, advertising budgets and other activities that increase their competitive
strength. The age of middle-class app developer has arrived. In this
economy not only are the rich getting richer, but so too are the poor, and
gaining on the rich.