Most Apps in the Apple App Store Will Probably Lose Money

Last Updated Sep 1, 2010 10:21 PM EDT

Yesterday, GigaOM reported that there are now more than 250,000 apps in the Apple (AAPL) iOS app store, quoting the newest numbers from 148Apps.biz. It's just another in a long string of claimed numbers: downloads, money paid by Apple to developers, popularity ratings, average sales price, number of submissions.

From a business view -- that is, for the people and companies that create the 70 percent of apps that consumers have to pay for -- what does it mean? Once you get past the sales superstar apps, most don't make that much money. That's not surprising. Retail operations usually follow the Pareto principle, otherwise known as the 80-20 rule, though even more skewed. What it means, though, is that the average app might be challenged to cover its own costs, when you consider the commercial worth of developers' time.

These calculations will be far rougher than I'd like, but we do what we must with available data. In early June, Steve Jobs said that Apple had paid $1 billion to app store developers. At the end of May, there were 167,050 active apps in the app store. At the end of June, the number was 183,521. Divide the difference by four and you get about 4118 added a week. Therefore, let's say that there were 171,168 apps at the end of the first week of June.

According to 148Apps.biz, about 29.6 percent of apps are free today. Assume that the same percentage was in place in June. That would mean about 120,500 apps were paid.

Now things get a little sticky, because we don't have any details of the patterns in which apps make money. That's why I'm going to take a flat average of revenue divided by the number of apps, which means the gross revenue app developers saw from sales alone would be about $8,300 per app.

So what does it cost to create an app? Again, there are unknown variables, so we'll have to estimate. Although the temptation for owner-developed apps would be to discount their time, that's a common mistake. A developer could always do other work on the side, so the opportunity cost is significant. Figure that a developer could make a gross salary of $100,000 and add 20 percent for benefits, so the fully-loaded cost is $120,000, or $2,307 a week. In other words, the average app can afford about 3.6 weeks of work by one developer.

How hard is it to write an app in that time? It would depend on the complexity and how familiar the developer was with iOS developer, or at least with Objective C, Apple's superset of the C programming language. According to one person who tried to develop an iPhone app in two weeks without previous experience, he hadn't allocated enough time.

Notice that I've assumed no business overhead, marketing, graphic design, or multimedia content costs. I've also assumed only one person devoting time and no potential revenue from ads.

Of course, the revenue distribution isn't flat, so the big winners will make a lot of money and most apps will probably make next to nothing, suggesting that most apps as a business venture would actually lose money. In fact, last January, GigaOM, working on analytic data from Flurry, found that only a quarter of downloaded apps are paid, which is not the same as saying that the 25 percent of downloaded apps are all evenly divided among all apps. Chances are the 80-20 rule is an overly generous model for iOS app developers.

Related: Image: RGBStock.com user sailinjohn, site standard license.
  • Erik Sherman On Twitter»

    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.

Comments