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Life and Death in the App Store

3 March 2016

From The Verge:

As last year began, the app developer Pixite held its company retreat at a converted Old West movie set outside of Palm Springs. They spent a few days dreaming about the future while eating barbecue and sipping whisky in the sun. But 2015 was not a good year, and by last month the company’s dreams had narrowed to survival. This year’s retreat took place at the company’s office in San Diego, a handful of rooms perched above a hair salon. The printer was broken, so the agenda was distributed by email.

“I’m sorry it’s called a retreat and we’re still in the office,” says Eugene Kaneko, one of the company’s co-founders, as the daylong meeting begins. The company’s six employees frown at their laptops, where the numbers in a Google Doc chart a steady decline. “If money were better, we’d be in the desert. Unfortunately — that’s not the case.”

Since Kaneko founded the company with Scott Sykora in 2009, Pixite has released eight applications dedicated to photo editing and design. Each has been featured by Apple as a Best New App; photo editor Tangent and design tool Assembly won year-end awards from Apple. Between 2013 and 2014, downloads of Pixite apps jumped from 395,472 to 3.1 million, and annual revenue doubled to $943,000. Pixite grew along with its cash flow, expanding from two to six employees as it explored ways to link its apps together and grow a loyal base of customers.

Then the bottom fell out. Last year downloads flattened, and Pixite’s revenues plunged by a third, to $629,000. Suddenly, a company that needed to bring in $2,000 a day to break even found itself making $1,000 or less.

. . . .

Last month, Apple announced it had paid $40 billion to developers since the App Store opened, saying the store was responsible for “creating and supporting” 1.9 million US jobs. More than half a million iOS developers have created apps; the company’s Worldwide Developer Conference is so popular that tickets have to be distributed via a lottery. “[Apple] made our company,” Sykora says. “If Apple didn’t exist, we wouldn’t have a company at all.” And the market for apps is growing: between iOS, Android, and smaller platforms, apps could generate $101 billion annually by 2020, according to market research firm App Annie.

But the App Store’s middle class is small and shrinking. And the easy money is gone.

For a time, Pixite was a shining example of the businesses made possible by the app economy. Like thousands of other developers, Pixite’s founders took what had been a side project and turned it into a full-fledged career. But the company’s recent financial problems illustrate a series of powerful shifts in the industry toward consolidation and corporatization.

For all but a few developers, the App Store itself now resembles a lottery: for every breakout hit like Candy Crush, hundreds or even thousands of apps languish in obscurity. Certain segments of the app economy remain vibrant — ludicrously profitable, even. Apps for massive social networks, on-demand services like Uber, and subscription businesses like Netflix and Spotify remain in high demand. Then there’s gaming: Last year, 85 percent of all app revenues went to games, according to App Annie. Supercell, the top-grossing developer of Clash of Clans, reported revenue of $1.7 billion in 2014. (It spent $440 million on marketing.)

But for a large swath of these app developers — particularly those without venture capital and sophisticated marketing tactics — the original App Store model of selling apps for a buck or two looks antiquated. In 2011, 63 percent of apps were paid downloads, selling for an average of $3.64 apiece. By last year, a mere 27 percent of downloads were paid, and the average price had fallen to $1.27. Today, profiting from the App Store most often requires a mix of in-app purchases, subscriptions, and advertising.

Meanwhile, a fatigue is setting in among customers. There are now more than 1.5 million apps in the App Store (Android users have 1.6 million to choose from), but by 2014, the majority of Americans were downloading zero apps per month. And it turns out people simply don’t use most of the apps they do download. According to ComScore, the average person spends 80 percent of their time on mobile devices using only three apps.

Massively profitable new software platforms come around very rarely — but when they do, consumers race to fill them up with utilities, productivity tools, and games. The gold rush only lasts so long, though. “After a while, the saturation of apps catches up to the user growth,” says Ryan Sarver, a venture capitalist at Redpoint Ventures. “And people are no longer searching — they’ve got the apps that they need.”

Link to the rest at The Verge and thanks to Will for the tip.

The Business of Writing

11 Comments to “Life and Death in the App Store”

  1. Fantastic article, thanks for sharing. I particularly like the line “But the App Store’s middle class is small and shrinking. And the easy money is gone.” Sound familiar to anyone marketing on Kindle? KU? KS?


  2. It sounds like Indie publishing

  3. If Amazon wasn’t making self-publishing so easy a lot of writers wouldn’t be doing it (and some are making pretty good money at it.)

    They are the ‘app’ store and we write the ‘apps’. (And there’s whining there’s too many of them — it’s hard to stand out and what not.)

    Before the shouts of those wanting to remind me of the many other ways to self publish; yes, I know of them, but then again I also know Microsoft has an app store — though few bother to write apps for it as there ‘seems’ to be more money in writing apps for Google and Apple.

    • Developers I’ve met online say there’s no money in Google’s App Store, either. Android’s main selling point is low price, so Android users are far less likely to spend money on apps than iOS users.

      But the fundamental problem is that most apps don’t do anything compelling that people are willing to pay for. Most are either simplistic phone games, which are pretty much interchangeable, or same old same old utility apps, but with different ads. To sell well, you need to produce something rare that people want.

      For example, the last app I bought was a plane-tracking app, which is a very hard market to break into because the people who produce it have thousands of volunteers around the world tracking planes for them. Whereas anyone can produce a new game that tries to convince users to pay to win.

      • Good points.

        I think ebooks are a little different from apps, in that once a reader has downloaded and read a book, she typically wants another book. But once an app user has the calendar she wants – or other utility – she doesn’t buy another calendar. And how many games does anyone need to occupy time in line or at the doctor’s office?

        • Good point. I guess the phone/tablet game market could have been similar to ebooks–play this game for a few hours, then buy another–except most of the games I’ve seen try to keep you playing forever, to bring in ad revenue or sell you more ‘in-app purchases’.

        • I think reading for pleasure is addictive, and even those of us who enjoy rereading books don’t want to read the same book too many times. We want new books. As I was reading this excerpt, I noticed how similar this story felt to the self-publishing story, but your post was a great reminder that games and apps are quite different when you get into the nitty gritty of it. Not really the same at all under the surface.

        • The other advantage of eBooks is you generally aren’t expected to keep updating them over the years as new operating systems or devices come out. There’s also no real expectation of customer support, other than maybe how to side-load eBooks outside the various online booksellers.

  4. Also, it’s difficult to create a unique app, one that no one else can provide.

    But how many people can write a Neil Gaiman book? A Caroline Leavitt novel? A James Patterson slice of spam?

  5. Al the Great and Powerful

    Hey now, no dissing the pork product. Call Patterson ‘Treet’ or maybe one of the mock meats, like Sei-tan instead.

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