In past years, I’ve heard from people who bought into stories about the app store being a gold mine, but that has reduced recently. By now, many people have understood that news reports/stories about some big individual app store successes often presented a distorted picture of the iphone app store.
However, people continue to have an exaggerated perception of app store revenues. This incorrect perception is exacerbated by shoddy analysis in the tech media.
Today’s TechCrunch post “Eat The Rich: The App Economy’s Middle Class Is Booming…And So Is The Poor” is a good example of how flawed analysis in the tech media can mislead readers with erroneous conclusions.
Bad premise and incorrect definition of “long tail”: The TechCrunch post states its premise by asserting that “the long tail is responsible for 68% of the revenue generated, with the top 25 at 15% and the top 26-100 at 17%”. So they are saying that the top 100 apps earn 32% of app store revenue.
However, this premise turns the “long tail” definition on its head. A long tail distribution would suggest that the bottom 80% of apps earn most of the iOS app-store revenue. So a reasonable long-tail analysis would need to review revenue earnings of around 130,000 apps (20% of the 650,000+ apps in the app store). However, the TechCrunch post only looks at 100 apps (i.e. the top 0.015% of apps) and then mistakenly defines the remaining 649,900apps (99.985% of apps) as the long-tail.
It may be true that that the top 100 apps (i.e. 0.015% of apps) earn only 32% of app-store-revenue and that the remaining 649,900+ apps (i.e. 99.985% of apps) earn 68% of app-store revenue. However, this doesn’t say anything about the long-tail for iPhone and iPad apps. On the contrary, it suggests a very lopsided distribution of revenue with revenues highly concentrated in a tiny sliver at the top.
Bottom 80% of apps: A developer post from StreamingColour suggests that the top 20% of apps make around 97% of all app-store revenues. The StreamingColour data was limited to the exceptionally lucrative games category. As the post states, the numbers weren’t based on a rigid statistical analysis and the study had several limitations. Note that Apple is the only entity that has precise data relating to the top 20% and bottom 80%, so any outside (i.e. non-Apple) assessment cannot provide precise revenue numbers.
Based on my discussions with other developers, the monthly iOS/Mac developer meetings I run, my own app store experience etc. I’d guess that on any given day, the revenue earned by most apps is zero (or close to zero). So while numbers (in the StreamingColour post) are certainly inexact, I’d say that the post is reasonable in estimating that the bottom 80% of apps probably make somewhere around 3% of total app-store revenues.
An erroneous conclusion: The TechCrunch post concludes by saying that “Bottom line, in the new app economy, there’s no struggle of the 99% here. The richer are getting richer, but so are the middle class and the poor. And those last two are gaining fast.” Note that the TechCrunch post is based on an analysis/report from Flurry Analytics which also talks about the so-called long tail and asserts that “The age of middle-class app developer has arrived. In this economy not only are the rich getting richer, but so too are the poor, and gaining on the rich”.
However, the TechCrunch (and Flurry Analytics) conclusion is a fallacy because their analysis only looks at data regarding the top 0.015% of apps and makes long-tail assertions without discussing revenues earned by the 20% or bottom 80%. Their analysis doesn’t consider other “rich” apps (e.g. thousands of apps that are in the top 1% ) or apps in the bottom 99%. It asserts a boom for the the middle-class and poor, but doesn’t review any data regarding revenues earned by the “middle-class” (e.g. 65th percentile app) or “poor” apps (e.g. 35th percentile app).
All available evidence suggests a lopsided revenue distribution with revenues heavily concentrated in a tiny sliver at the top (i.e. head) and very little revenue in the bottom 80% (i.e. tail) of apps . This distribution is the opposite of a long tail.
Cascade Software Corporation 
Hi Ram;
Nice post! It’s very interesting to see an overview of these analytics.
Groups should note there are other ways to generate app revenues. For example, building apps as as service to others is a model that many successful groups employ including Evernote, Flipboard, Instagram and Pandora. For a more positive experience, developers should view app stores as a “marketing / distribution” platform instead of a source for direct revenue.
Good point, Wayne. I agree that there are other ways to generate revenue. In fact, we have built a “Yellow Pages” product with a business model similar to the B2B model that you describe. We have made one sale of this product and the app is slated to be released this month. B2B is generally a good model (as long as the tough sales cycle can be managed).
That said, B2B is seen as somewhat unglamorous and the media generally looks at B2C apps that make money directly in the app store (through app store purchases or advertisements) Of course, B2C apps that make no money (e.g. Instagram) are also in the news because of venture funding and/or successful user acquisitions and/or company acquisition.
The TechCrunch article as well as http://www.businessinsider.com/mobile-app-revenue-has-a-long-tail-2012-8 focus solely on app store purchases (not on B2B). Both look at a sliver of data and erroneously assert that the app store has a long-tail distribution.
However, as discussed above, the reality is that app store revenue distribution is the opposite of a long tail (and in reality, there is very little revenue in the tail)
The long tail lack of downloads is very true and I can say this from personal experience. Also it is not very tough to get out of the long tail to the front to make some decent money. May be not millions but enough to justify the work which goes into developing an app.
Also, the lack of success for long tail apps is not surprising considering that a lot app developers seem to think when you build an app people will automatically find the app and get downloads.
Believe it or not this is the biggest reason for the lack of downloads for most apps. The app developer community needs to completely change the way they think about marketing their apps. You cannot just create an app and expect magic to happen.
I am surprised that a huge number of developers do not take advantage of free and paid resources which can help them market their app and start making some serious money.
Here is a free resource which app developers should definitely join: facebook.com/groups/appentrepreneurs/
And here is a paid resource which can help: udemy.com/become-an-app-marketing-expert/
Disclaimer: I work actively with developers to educate them about the importance of app marketing.
Hi Puneet, you’re correct about the absence of an app-store long tail.
However, on the main theme of your comment, I don’t think that developers are going to see a big difference by buying a $99 service
To be clear, this is not a specific comment on the free service or the $99 service which you’re selling (and for which you provided links above). I’m just making a general statement
In a gold rush, you’ll often see a lot of people trying to make money by selling shovels. In this case, a lot of people are trying to sell services to the app-store-developer community. However, imo most of these services aren’t going to help developers.