Making money from apps has changed significantly...
In the beginning there were paid apps, little competition and life was a tropical island for those lucky enough to get in early. Fast forward to today and there are over 700,000 apps on Apple’s Appstore and around the same number Google Play, all competing for the consumer’s eye. And most of them are free - at least at the initial download.
Adding to that, the price charged for the majority of paid apps (“Tier 1”) on the iTunes store has not changed in 5 years. Once inflation is taken into account, this is a relative loss of 7.3% in price for app developers.
It’s easy to see that selling paid apps has become an unattractive proposition for app developers. Nevertheless, Apple’s AppStore is paying out more and more to developers. So what’s going on?
The two other direct sources of app income for app developers are ads and in-app purchases. Ads can be discounted almost immediately for the majority of developers unless they are moving apps in the volumes of 100,000s per day. According to SmarterAdServer, for every 200 times an ad is shown, 1 person clicks on it. And for each click the developer is likely to get around 30 cents. So to make just $10 a day from your app, you’d need it to be downloaded around 6,600 times a day.
The real money spinner is in-app purchases - extra purchases made inside the app once it has already been downloaded. There are accusations that this approach is a bit sneaky as people are “tricked” into thinking the app is free and then end up spending much more than if it had been a paid app. Certainly it’s a little bit clever, but that’s business and at the end of the day the user has to agree to every little in-app purchase they make.
More importantly for developers, it’s true that people often end up spending much more on the in-apps. Take Candy Crush Saga for example. Candy Crush Saga is a game where you clear pieces of candy by rearranging it to create certain combinations. It is genius when it comes to milking cash out of users, yet has no ads. It’s a completely “free” download and you get to play underhindered through about five or six very fun, very addictive levels.
Once you’re hooked on the candy fix, things begin to change. By about the seventh level onwards, it becomes increasingly difficult to finish the task. On the screen you’re provided with tools - called “boosters” - that make the level a whole lot easier to finish by clearing more candy. And of course, you have to purchase them.
As the game progresses, and gets harder, you earn additional, stronger boosters through good gameplay. But even these you have to purchase in order to use. In a psychological masterstroke, the game plays to a user’s sense of pride in their achievements. They’ve “earned” those boosters and they’re going to get to use them, whether that costs or not. And to top it all off, you have a finite number of lives - but when they’re all gone, guess what? You can just buy some more....
So the average user may buy, say, 2 boosters and at least 1 life refill. With 70c cut to the developer a pop, that’s $2.10. For the app to have made that much money through advertising, the user would have had to click on the ads seven times. At an average click through rate of 1 in 200, this would require the user to see some 1400 different ads, something which just isn’t going to happen.