David Barnard, creator of apps such as Gas Cubby, wrote this excellent piece yesterday which summarizes my thoughts on the “App industry” fairly well:

“The pool of time users spend on smartphones is staggering and growing rapidly, but it is not infinite. The more time people spend with useful/entertaining free apps, the less need they have to actually pay for apps. That doesn’t mean people will never pay for apps — the market for paid apps has continued to grow alongside free and freemium apps — but users have been conditioned to expect more and more for less and less.”

My view is that most iPhone users today have dozens, maybe hundreds of games and other apps they have paid for over the years (my experience is that Android users don’t yet seem to be as likely to pay for apps). Looking at my own iPhone 4S I have dozens of high quality mobile games installed that I have not even started once. Getting people such as myself to pay for mobile games, where they already have dozens or hundreds of games installed, is getting increasingly difficult.

It seems that the App Store business have taken two distinct paths:

1. Paid apps primarily purchased by new mobile users. As an example, on Christmas day 2011 6.5 million copies of Angry Birds were downloaded, compared to 6.8 million iOS + Android activations on the same day. Nearly all new iPhone & Android users got a copy of Angry Birds. This explains why the same titles continue to stay in the Top-25 lists, month after month.

The key to succeed in the “Paid apps” business is massive marketing (either directly or through a publisher) so your app or game is one of the first dozen apps new users download after they have bought their new device. There are few exceptions to this, mostly from games such as Angry Birds and Cut the Rope that have been on the top lists for years and have been mentioned in both TV and print media.

2. Free apps with in-app purchasing. If a game differs enough from the dozens (or hundreds) of games most people have installed on their smartphones, people might be intrigued to download it if it’s free. If they are hooked and enjoy it, they might even be inclined to pay through in-app purchases. Some people will never spend a single dollar on an app, but they might spread the word, so the loss in revenue from that single user might be compensated by having their friends download the app and pay through in-app purchases.

The key to succeed in this business is to have an interesting enough game or app that differentiates from all other free games or apps, and have appealing in-app purchases that increase game value. If the game or app is not something people want to show to or talk to with others, it’s probably not something people want to download, even for free.

Of course it is still possible to develop and launch a paid app or game that is successful, that even people who have owned a smartphone for a few years will pay for. Examples include games such as Tiny Wings, Tintin & Infinity Blade 2. The criteria of succeeding with that however is becoming increasingly difficult. One example is Fruit Ninja: Puss in Boots for Android. An excellent game that only just passed 10 000 paid downloads on Android Market, earning the developer something around $7000. The game is great, but very few people are paying for it. I believe this is because new users are not aware of it, and current users have enough installed games to care about it.

For independent developers, such as David Barnard, succeeding financially (whatever that means) in the App Store is proving to be increasingly difficult. With prices approaching zero for apps and games, only those apps that reach mass market global volumes have a chance of going break even with their projects. If your app is not following one of the above two paths, you might want to re-think your app strategy.