A mobile app reality check: Few paid apps make money

The big money from mobile apps is coming from in-app advertising and app-enabled purchasing of goods and services, Gartner says

If you possess programming chops and have dreams of chucking your day job to build a cash cow mobile app in your basement, here's an irksome reality check.

Research firm Gartner says that fewer than 0.01 percent of consumer mobile apps, or one in 10,000, will make enough money through 2018 to be considered a financial success by their authors.

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"The stories of mobile app developers making $1 million in their first month are just the extreme case," said Gartner analyst Bob Hafner in an interview. "Some apps are going to make a ton of money, but they are in the 1 percent that are regularly downloaded."

With more than 1 million apps in each of the major app stores -- Google Play and Apple's App Store -- there are indeed millions of downloads in a year, but only about 5 percent of the apps in each of those stores are even trying to make money, Hafner said. "With millions of downloads, the chances are really thin of making a killing."

In 2011, 88 percent of the 26 million mobile apps downloaded globally were free, according to Gartner. By 2013, 91 percent of the 102 million apps downloaded were free. By 2017, 268.6 million apps are expected to be downloaded, and 94.5 percent of them will be free.

Gartner's analysis may come as a big buzz kill for the thousands of computer science students and programmers who dream of writing the next Angry Birds. Wasn't there supposed to be a big apps economy to employ tens of thousands of programmers?

In fact, yes. The apps economy is still there, but is functioning differently and laying a golden egg only for a few hot shot developers. The big money from mobile apps is coming from in-app advertising and app-enabled purchasing of goods and services.

Research firm App Nation reported in July that the combined value of goods and services purchased through apps, plus paid apps and in-app advertising had reached $72 billion, a figure expected to more than double to $151 billion in 2017.

Less than $1 billion of that $72 billion came from paid app downloads, and revenue from such downloads is projected to just slightly surpass the $1 billion mark in 2017, AppNation said.

Of all paid applications, about 90 percent are downloaded less than 500 times a day and make less than $1,250 a day, Gartner said in a recent report. "This is only going to get worse," the report added. "There will be greater competition, especially in successful markets."

Apps will need to be more sophisticated to do well in the future, while the cost of operations, development, testing, deployment and support will continue to grow, Gartner said. Those factors will apply to both lone wolf developers and developers building new apps at big corporations. In many cases, corporations will build apps to draw attention to its brand and not to generate revenue except through purchases or advertising.

Gartner issued a separate report in November that said in-app advertising will grow in 2014 by 4 percent, then decline by 2 percent in 2015 and surge ahead by nearly 6 percent in 2016. In 2017, Gartner also said in-app advertising will reach $10.6 billion, but that in-app purchases will reach $36 billion.

Hafner's advice was that solo programmers probably shouldn't try to write an app in the hope that it will pay the mortgage or an early retirement. Instead, they should write apps for big businesses and retailers "where they can get paid and generate revenues from other means."

Successful apps, generally speaking, are intended to generate more hits on a website, more stops at an online store, build brand awareness or sell ads, Hafner said. "The apps economy may bolster the overall national GDP, but there are only a few really key ones that drive the revenue."

This article, A mobile app reality check, was originally published at Computerworld.com.

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed. His email address is mhamblen@computerworld.com.

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This story, "A mobile app reality check: Few paid apps make money" was originally published by Computerworld.

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