AppStore Economics

The Apple AppStore sure is an interesting phenomenon. For $99 and the cost of a small Mac computer, everyone can now develop and ship applications for the Apple iPhone and publish them online through the AppStore. And right now it seems that this is exactly what happens. While Apple proudly announces that the AppStore now comprises  over 10 000 applications, with no upfront cost per applications people have now begun to exploit the AppStore system by spam posting applications. As an example, checkout the application Call Mike (AppStore link):

Developer Jerry Beers has a suite of 15 $1 apps in the iTunes Store along the lines of “Call Mike” — a home screen speed dialer designed for calling someone named Mike. I.e. each of the 15 apps is hard-coded with a different first name. Don’t worry, there’s also “Call Michael”, in case Mike is too casual. No “Call John” or “Call Amy” yet, so it looks like our family is out of luck. This is not a joke.
From daringfireball.net

When I checked out the AppStore link today, Jerry Beers have now added even more names, up to TWENTYSIX applications, all named “Call <someone>”. They are all identical, with the single difference that the application name differs between the applications. And they all cost a dollar each. This massive flooding of applications will make it increasingly difficult for the small software houses that do not have a dedicated marketing team to launch their applications, since just publishing applications to the AppStore will make it drown in a sea of quickly put together and cheaply priced applications, effectively making their newly developed application invisible to most end-users.

So how do people find applications to buy on the AppStore today then? Simple, they use the top downloaded list in the AppStore. The top downloaded list however is only sorted by volume, which benefits applications that cost little and appeal to an extreme wide range of users, or applications created by large software houses that have the experience and resources to market their applications worldwide. Where does that leave the medium-sized developer companies then that put several man-weeks into developing a single quality application that might not suit all iPhone users? Good question. Because applications that do not make it into the top downloaded lists are very hard to find for the end-user, simply due to the sheer amount of applications available in the AppStore and no way to sort on daily revenue per application, only by volume sales.

Joel Comm, an expert in Internet Marketing, is also the guy behind the iPhone application iFart. It’s a simplistic application that plays back different fart sounds. The application costs a dollar and was the #1 top downloaded application on the AppStore over Christmas. Joel Comm has been very open about application sales, and here’s what it looks like (format is date – daily units sold – overall ranking – entertainment category ranking):

12/12 – 75 units – #70 entertainment
12/13 – 296 units – #16 entertainment
12/14 – 841 units – #76 overall, #8 entertainment
12/15 – 1510 units – #39 overall, #5 entertainment
12/16 – 1797 units – #22 overall, #3 entertainment
12/17 – 2836 units – #15 overall, #3 entertainment
12/18 – 3086 units – #10 overall, #3 entertainment
12/19 – 3117 units – #9 overall, #2 entertainment
12/20 – 5497 units, – #4 overall, #2 entertainment
12/21 – 9760 units – #2 overall, #1 entertainment
12/22 – 13274 units – #1 overall
12/23 – 13349 units – #1 overall
From Joel Comm: iFart App Sales

The chart above is from idev.in. What’s interesting about these figures is that sales follow a hyperbolic curve. In fact, many others such as Oz Weather AppStore sales confirm this sales curve and numbers (see graph below for Australian sales figures for Oz Weather, total sales are approximately 30 times more than local Australian sales).

So what does this mean in practice?

1. It means that you need to market your application like crazy to make it stand out from all the other 10 000 applications in the AppStore. Otherwise end-users will not be able to find your application. Just browsing the AppStore in itself is not really useful when applications like Call Mike are flooding the lists.
2. You have to reach the list of top most downloaded applications. Think hard about what application it is that you are creating. If you do not see your application reaching the top downloaded list worldwide, think again, because users will not find it unless you put huge amount of resources into marketing. Look at what is currently appealing to end-users in the top-25 list, and make something with a similar appeal. And then go market it like crazy.
3. Thanks to Oz Weather and Joel Comm you can now actually calculate what number in the Top 25 list you need to hit to break even in your project budget. For example, say you aim to be in the top-10 list for at least two weeks. A number 10 slot equals around 3000 daily downloads, meaning you will sell at least 40 000 units during these two weeks. If you aim to be in the top-5 for two weeks you will sell at least 70 000 units. With a unit price of one dollar, an application in the top-5 list of the iPhone will make around $50 000 during these two peak weeks of sales (after Apple’s 30% cut). If you have a premium application costing $10, you will make $280 000 if you make it into the top-10 list for two weeks. The key to making really good money out of the AppStore seems to be hitting the #1 or #2 slot in the most downloaded applications list. And today it’s very clear that succeeding in reaching that goal requires a good combination of application appeal, marketing and timing (Joel Comm also likes to mention application quality here, but that is such a subjective matter so I have chosen to not include it). Investing heavy money into an application and then having to rely on the timing factor I guess is what makes the game industry what it is, and I believe it’s even more visible on the iPhone platform than on stationary computers.

What myself and many others are asking now from Apple is for more ways to make end-users find titles from middle-sized developer houses that put several man-weeks into a title and need some way to differentiate themselves from the numerous low-prices applications that do virtually nothing. Because right now the applications are being published at such a pace to the AppStore that the only applications that sell well are the ones in the top-10 download list, and those applications are either a simplistic low cost application or a big title that has been marketed extensively. Sorting the top-downloaded list by sales income instead of just unit sales would make premium applications more clearly visible, and most probably also help for the middle-sized companies to visualize their applications that sell at prices above $1 per title.

To conclude, here are how Joel Comm worked to market his iFart application, and it’s clear that they put a huge amount of time in making it the #1 download slot on the AppStore:

We promoted iFart Mobile a number of ways. Press releases, direct contact with publications like TechCrunch, networking with associates to get Twitter action, etc. You can’t just make an app and expect it to go viral. There is too much competition now. Joel
From The Unofficial Apple Weblog

For further reading, please see:

How To Estimate App Sales from iTunes Ranking (Ajnaware’s Weblog – author of Oz Weather)
More exciting app store news (Joel Comm – author of iFart)
iPhone AppStore numbers revealed: Ranks-to-Sales connection (Mobile Game Developer)
Rank and sales data could help figure out App Store popularity algorithm (TUAW)
App Store Pricing (It’s not a free market!) (AppCubby)�
The App Store: First Comes Power (Deal Range)
The Hack Store (Polar Bear Farm)