iPhone App store economics

If you believe all the hype about iPhone apps, you can just hammer out an App in a few weeks, let that nice Mr Jobs take care of all that sordid marketing for you and then sit back to collect a big cheque every month. However the numbers in a recent sobering post about the economics of paid iPhone apps tell a rather different story:

  • average annual income for a paid iPhone app (after the App store 30%): $3,050
  • median annual income for a paid iPhone app (after the App store 30%): $682

The numbers are based on various published data from Apple and other sources, plus a few assumptions. I haven’t gone through the numbers and the analysis with a fine tooth comb, but I can’t say I am surprised.

The disconnect between the hype and the reality is so large because Apple (understandably) only want to tell developers about the success stories. The media and the public seem quite happy to go along with this because it makes a more interesting story. But when there are 225,000 apps shouting for attention, only one way to access them via a notoriously dictatorial third party and $5 is considered expensive, it is likely that the majority of developers will do badly. Hence the median is so much worse than the mean. Before you write your iPhone App I think you should ask yourself if it has got a realistic shot at making the top 10 in its App store category. If not, don’t give up the day job just yet.

Further reading:

The Sparrow problem

How to Evaluate a (paid) iPhone App Idea

17 thoughts on “iPhone App store economics

  1. Tony Edgecombe

    I don’t think this is confined to the app store, some years ago one of the directors of Digital River told me their average per developer revenue is $400 per year.

  2. Alwin Hoogerdijk

    I agree with Tony. I think the same holds for every platform or software distribution channel.

    Selling iPhone apps can still be a very interesting business. But you just should not expect to get sales automatically just by putting your app in the App Store.

    For most apps, the visibility you get in the App Store is negligible. But isn’t that the same for Windows or Mac software?
    I mean, if you create a new Windows product you cannot expect to sell many copies just by putting it on a website and/or submitting it to a couple of download site.

    For iPhone apps, you should do the same marketing as you would do for other software: promote it yourself, on your own website. Do SEO, Adwords, get bloggers to write about your app, etc…

    Or better yet, create an app that you can cross-sell to your existing customers, like we did at Collectorz.com. For us, that was easy money as we found that over 45% of our existing customers owned either an iPhone, an iPod touch or an iPad:


  3. Chuck Brooks

    Relying on passive sales channels might seem easy and can be tempting, but the only way to take direct control of sales is to sell. Always good to have a mix of sales activities, but those that consistently involve direct contact with prospects and customers, either phone or face time, have a higher chance of being successful and generating revenue. At the least, learning what what customers want can lead to more informed product development and, even better, an integrated awareness of the larger world we live in.

  4. Chris

    I think the analysis you put forth is very sobering. That being said, I am pursuing Android and WP7 development as a way to make an existing web application more marketable. I think online users are now beginning to expect access to their data from various devices. So, although I don’t think I’ll make money on the mobile device alone, it might add to the number of users who will buy my online services if they know they can access their data from a mobile device too.

    Best regards,

  5. Jonathan Matthews

    @Tony ShareIt’s figure doesn’t surprise me too much. Many people will start a business and figure it’s not profitable after 2 months with 0 marketing effort and so their revenue will be low if any. I bet a large percentage of their accounts are owned by these people.

    There’s also another group (of which I’m a member) of people who used to use ShareIt but then defected. My account has been inactive for about a year now but I bet they’re still counting it.

    More generally about the mobile app. market… it’s just like other software. Many try thinking they’ll make a million dollars but do no marketing whatsoever. I’d like to see some figures for the iPhone which take into account product quality (perhaps based on customer reviews?) and marketing points. I imagine people who have those things on their side are doing much better in the app. store.

  6. Andy Brice Post author

    >I don’t think this is confined to the app store
    >I think the same holds for every platform or software distribution channel.

    Absolutely. I am sure the Windows and Mac markets also contain a long tail of developers making very little. But I think the hype surrounding the App store has given developers unrealistic expectation that they probably don’t have for other platform.

    >Are you considering doing wedding planning software for the iPhone?

    Am I trying to put other people off developing iPhone apps so I get less competition? ;0)

    No plans at present. But never say never!

  7. S. Tanna

    The trouble with all distribution channels for downloads, is that most developers do little or no marketing. (If you do *any* one of SEO/Adwords/email/affiliate marketing, you’re probably in the top 20% already).

    You may be right, the impression for many Appstore developers, is they don’t need to do any marketing… but I think it’s necessarily that unique. I’ve had people tell me they won’t need to do any marketing once they’re listed in the Clickbank marketplace for example (along with 10,000 other vendors).

  8. S. Tanna

    > but I think it’s necessarily that unique

    but I DON’T think it’s necessarily that unique

  9. Tarek Demiati

    Well, keep on shipping until you win the lottery ticket, after all it’s just a few weeks of investments ;-)

    Hear what an Iphone rock star developer, has to stay on this topic :

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  11. PPC-Coder

    What would be more interesting is a breakdown of the sales by category. I’m guessing the majority of the money-makers are games and entertainment apps. The App Store is set up for volume, when you’re selling price is 0.99 to 9.99, you’ll need to sell lots of copies to make money. Games have mass appeal and unlimited demand – we all love to be entertained! Going after a niche market is doomed from the beginning unless you can use the app as a gateway to other revenues.

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