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ONLINE BUSINESS

The $25B App Market--and the Odds You'll Get a Piece of It

The so-called app economy is said to be worth billions. Sounds promising, right? Here's a reality check.

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The promise of the app economy can seem especially alluring to the tech entrepreneur set. Mobile is a hot market. The major smartphone and tablet platform owners have established marketplaces to let you get to customers and in exchange you give up only 30 percent in per-unit sales. That's still better than retail stores. Plus, people are making bazillions. Well, an estimated $25 billion this year, according to Gartner, as reported by the Wall Street Journal.

Now everyone will want to become a programmer and take a chunk of that big number. The problem is, it's a little too early to get excited. That big number is misleading, and most apps will be lucky to make enough to pay for their cost of development, never mind profits.

For years, the media, set off by Apple's trying to tout the advantages of developing iPhone and iPad apps, have concentrated on the total money in the market. Only, there are some caveats.

One is that the $25 billion isn't just money being spent on apps at the Apple or Google marketplaces. It also includes advertising and in-app purchases. That's because Gartner also says that 90 percent of apps are free downloads. Why? Because if you don't charge, you remove a barrier for people to at least try your app.

So, the $25 billion is being spread out over more than 1.4 million apps between both Apple and Google, according to Gartner. Time for some arithmetic: That translates into $17,847 dollars per app. That works out to $214,285 a year, or probably less than two salaries for full-time experienced developers, not counting benefits. In other words, two developers have to build that flashy and attractive app in one month. That's a tight schedule.

Then you have to realize that the average amount listed is just that: an average. App downloads are not a level terrain. According to a report from analytics firm Distimo, in November 2012, the number of apps responsible for 10 percent of iPhone free app downloads was 31. The number of apps responsible for 10 percent of paid revenue was seven. The Journal refers to another Distimo stat that states only 2 percent to 3 percent of the top 250 publishers are newcomers.

According to iPhone app metrics firm 148Apps.biz, in November 2012 there were more than 721,000 active apps in the iPhone app store. Currently, there are 803,137 active apps.

Chances are slim that you're going to make big money on paid apps. So say that you go the free route. That means you need people to keep using your application to see ads and place in-app purchases. Unfortunately, 63 percent of apps that people use daily are different from a year ago, and people focus on about eight apps at a time. Getting and keeping attention is far worse than a crap shoot.

It may be that you could have a hit with a new app. But keep those rose-colored glasses off the bridge of your nose. Not matter how attractive the total number is, making a significant amount of money on apps is a lot tougher than the media makes it sound.

IMAGE: picfix/Flickr
Last updated: Mar 6, 2013

ERIK SHERMAN's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.
@ErikSherman




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