Developers – just want to make a nice income by building apps Entrepreneurs – want to use Apps as the touchstone for building/extending a business Maximize the return on the effort you put in.
So maximizing return is usually phrased as free vs. paid. What I’d like to do is show the likely returns from free vs. paid – and then show another alternative worth considering that has the potential to dramatically outperform both.
Let’s start with free. Revenue is a formula: how many times do they download? How much do they do use it – how much activity is there in which you can place ads? And what do you get in revenue – every 1000 impressions is worth what?
So, what are the numbers on average, across all the apps out there? Here’s some data from the iPhone? Its actually not good. On average…
Most people are optimists and think they’ll do way above average. It turns out, actually, that the median is much lower. That is, the median is around 1k downloads – so now we’re down to $75 – a really nice dinner. Fully 80% are less than 10k actives – not enough to buy a good mountain bike. Only the top 20% of apps make any return this way – with the top 5% really being the ones that take all the ad revenue. Not that different from the web, actually.
So who are the top 5%? If you’re going to be above average… You better do one of two things: 1) Extend an existing brand (AIM – where AOL can market the app to AIM users left and right) 2) Somehow excite the store to feature you. 3) And you’re up against both – since often the featured apps are the ones with the large followings. In fact, if you look at the Top 25 on BB, only one app doesn’t easily fit these categories – and even it sort of does.
80% of all apps are used 1 time, the first day, and that’s it. ~1% active after 90 days Again, the median number of uses is actually less than ‘1’, even if the average is higher. So the odds are, even if you get a lot of downloads, people will abandon your app – and you can’t get a lot of impressions.
Well, the last hope is: I won’t get a lot of impressions but they’re going to worth a lot of money. Unfortunately, that’s not the case: Suppose you are sticky and people run you a lot? Then you’re going to get low CPMs ($2 CPMs here) – this is an app that’s run every other day. Some apps seem to do better that are run occasionally – but then you’re not making much (infrequent, high specialized, very targetted).
Even worse – this is optimistic. Here’s a google done Friday “admob CPMs”. 45c? 1c? 13c? Essentially mobile CPMs are turning into web CPMs. So unless you get an enormous number of impressions…. So what have we seen for a minute: hard to get a lot of downloads, very hard to be sticky, and ads are worth little (on average). So let’s talk for a second about how “to be above average”.
The playbook. It all starts with downloads. Best bet is to be an extension of something that’s already out there (e.g., Facebook’s iPhone app has 6.7m users). The closest bet here is to draft – which is build something using an API (the twitter family of apps), where you can get marketed by the parent or by its fanatical audience. If you can’t do that – which is most of us – try make it something that’s worth featuring. Solve a problem everyone has. Have a cool factor about you. Look at what’s being featured by the AppStores and see what you can apply to you app. Make it viral. Either by word of mouth/publicity – people talk. Or by product features – people use your app to communicate with others (e.g., some of the free chat messages – it’s only useful if they bring others on) None of these are easy – but without them, you won’t get the downloads.
Most apps aren’t sticky. You need to make it sticky so people come back over and over and over. Try to find something that’s habit forming – tap into a daily behavior (calendar apps are a good example here – once people start, they can’t really stop). But you have to think about why someone is going to be repeatedly using your app, and it’s not just fun for a few minutes.
The only real way to get eCPM up is to target - have an audience that’s known for paying. For example, if you build a financial application used for people age 35-49, you’re likely to do well with CPMs. Or a travel price comparison app – same thing. The net is: it’s really tough to make a free app pay. If you’re going down that path, you need to really think through and address getting downloads, keeping the users around, and trying to target your audience.
Let’s turn to paid. It’s much easier: $X/download * downloads, - the stake the store gets (the ePrice)
Turns out paid is better, on average. Stats are much harder to come by here – the Price/Download is around $2.65, with 20-30% to the store, depending on the store, so that’s straightforawrd. # of downloads is estimated based on reported revenue and reverse engineering starting with the price of the average app. But it’s worth digging in here.
The biggest thing is that making something paid, by and large (iFart and other exceptions), dramatically decreases the number of downloads. Here’s a game, GalaxyImpact – they lost 400 downloads for everyone they kept (15,000 down to something like 25/day) once they made it paid. If you have traction with free, don’t change to paid. But if you go paid, you can assume far fewer than free (on average).
You might think this is a one-off – and most apps wouldn’t suffer the same fate. Well, it turns out that there’s a pretty easy way to validate this across the board. First, most apps are paid, with the ratio by category in the App Store ranging from 4 to 1 paid to 10-12 to 1 paid.
But the Top 100 downloads are almost all free – and that’s where the vast majority of downloads are. So we have maybe 1 in 5 of the top downloads being a paid app, yet 4 out of 5 apps are paid?
And in fact, if you look at the “dead zone”, it’s almost paid – so there’s a very good chance that your paid app will get almost no sales.
Well, you might think: “I may not get a lot of downloads, but I can charge a lot”. That’s going against the grain – here’s a chart from last fall showing how quickly the price of the top 100 have dropped. It looks lke it’s flattened a bit, but it’s a rare app getting more than $4.99, and there’s a huge chunk of apps in the 99c range.
So who are the winners on the paid? It’s almost all games/entertainment Half of those are extensions of existing franchises. The remainder were very cool applications that really took advantage of the iPhone and tapped into popular culture in an interesting way (and by the way, almost all were featured by Apple). So with paid, you have some of the same issues with free – you don’t care about sticky, but you do need to get featured and/or be viral.
So this is depressing especially at a developer conference – on average, you won’t make money, and it’s really hard to create a winner. Is there another way? One answer is to combine free/paid. The idea is to try to get the maximum downloads/feature/viral from free – so you get the largest possible audience – and combine that by trying to get revenue out of the fraction of the free base willing to pay, and then in fact, use that revenue to actually market the application, and get the virtuous cycle going.
I want to do this with a case study – using YouMail, showing how this is working for us. Our app is actually pretty boring – voicemail that’s unlocked from the carriers. The basic app lets you see and play voicemails, forward them around easily, block telemarketers and exs from leaving voicemail, and have personal greetings – plus you can do this all on the web. We made it free – there are paid apps in the space (Verizon charges $2.99 for less than we offer), so we wanted the widest possible audience. We had an existing YouMail audience, of which there was a core BB audience, which we could use to seed (so it’s a bit of an “extension”), and though we’ve never been featured, that’s been enough to make and keep us as a top 25 download. We’re particular sticky – we’re your voicemail, so you need to get pissed at us to stop using the app, and we’re viral given voicemail forwarding, stickiness, and the word of mouth around a free offer when everyone is charging. We get the same CPMs that everyone else gets. That said, put it all together and each user we get is worth a $ - they stick around for a year on average (vs. the median app which is less than a day), they get 30-50 voicemails/month – driving lots of interaction. When you put it all together, it’s a $. We’re way into the 100k+ user mark, so this is putting together a fair amount of revenue from an app perspective. However, that’s just the start.
We provide paid services – here’s an iPhone app v1 which was just released. Users pay us for transcription on a monthy rate - $3.99 to $27.99/month. We charge users for “customer support/premium storage” and for content (recording their greetings). The app markets it – if you don’t have transcriptions on, the player page reminds you that could read the voicemail there, for example. When you run out of storage, the app lets you know you can buy more. Etc… Interestingly enough, this is netting out to a LTV of about $150/user, because they pay for many months, and many paying users stick around.
So put all of this together. Our premium users vary between 3-7% of our base – meaning each use we get is worth $6-$11, depending on how you calculate. Now suddenly, each 100k users is worth ~$1m or so – a real business. And what’s good is we can then, and are starting to, plow the paid revenue into actual paid marketing of the free – and the virtuous cycle is starting.
So what does all this mean? It’s worth thinking about Can you make your app free – get the most popular downloads/exposure. 2) Can you make your app sticky? Can you find things to sell within your app and a way to sell them? Whether it’s services, or content, or anything else? Once you get that going, pump the paid money back into to goose the free. Not every app can do this, but it’s worth thinking hard about whether this makes sense for your app. Thank you.
Making Real Money with Mobile Apps
Making Real Money With Apps Inside Mobile 2009 Alex Quilici CEO [email_address] www.youmail.com Reader Favorites