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Rising App Marketing Costs Create Challenge for Start-Ups
 

Thanks to bigger companies focusing on their mobile apps, smaller developers have found themselves in a more expensive and competitive market.

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As the number of mobile app downloads increases across the United States, the cost for app developers to gain loyal customers has risen to its highest rate in two years, according to a new study by Fiksu.

The Boston-based mobile app marketing company found that the cost for acquiring new loyal app users through advertising has reached $1.80 per customer, an increase of 20 percent since June. Fiksu defines loyal users as people who open an app three times or more.

Fiksu's App Store Competitive Index, which tracks the volume of downloads per day in the top 200 ranked free iPhone apps, shows a four percent rise, from 5.6 million daily downloads in June to 5.8 million in July. Last year, that number was just 4.37 million. Because of this rising demand, a greater number of name-brand companies are focusing on mobile strategy.

"The continuing surge in mobile app users is attracting bigger brands eager to use apps to create long-lasting, ongoing engagement, and their spending is pushing up costs," Micah Adler, chief executive of Fiksu, said.

This is bad news for smaller developers, especially for the ones building free apps, as they often rely on their customer base to make in-app purchases. While established brands have bigger budgets that can keep up as marketing costs rise, start-ups have to take on larger risks to capture those loyal users. 

Adler said there are two additional factors "applying upward pressure on user acquisition costs." First, Apple's new App Store ranking algorithm forces low-ranked app creators to spend more money to enhance their rating. Second, larger companies are flocking to Facebook's mobile app advertising platform, which came out late June, driving up the price of ads.

In short, as the growing mobile app market becomes more tempting to larger businesses, it will only become harder -- and more expensive -- for start-ups to compete.

IMAGE: Getty
Last updated: Aug 29, 2013

WILL YAKOWICZ is a reporter at Inc. magazine. He has covered business, crime, and politics at Patch.com, and his work has been published in Tablet Magazine and The Brooklyn Paper. He lives in Brooklyn, New York.
@WillYakowicz




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