App store discovery is not broken

Posted on August 4, 2014 by Eric Benjamin Seufert

Mahadevan_GTC_telescope

VisionMobile's quarterly developer survey in July 2014 revealed that the majority of mobile apps aren't commercially viable: 50% of app developers make less than $500 per month in revenue. Some other interesting revenue statistics revealed in the report:

  • 69% of app developers make $1k per month or less and only 3% of app developers make more than $100k per month;
  • 33% of developers make games and 40% of downloads are games, yet 57% of game apps make less than $500 per month;
  • 80% of mobile app revenues are driven by games;
  • 70% of game developers have shipped less than 4 total mobile games;
  • Of game developers that have shipped more than 50 mobile games, more than half (51%) make at least $5k per month.

info5_visionmobile

This is fascinating insight into the nature of the app economy, characterized by a revenue distribution that is heavily skewed to the top firms and which rapidly declines into a long tail. A common refrain used to describe this distribution is that "app store discovery is broken", implying that revenues might be more evenly distributed if consumers were able to find apps with more precision.

There are three problems with this argument. The first is that, according to the VisionMobile report, only 23% of app developers release apps with the explicit intention of generating maximum app store revenues -- VisionMobile classifies this group as "Hunters". VisionMobile identifies another group of professional app developers as "Guns for Hire", or app developers that create apps for other businesses on contract.

info8_visionmobile

The picture of sustainability changes when the idea that 77% of app developers aren't earnestly pursuing a sustainable business is considered. Most app developers don't make a living through their apps, but most aren't trying to.

The second problem with this argument is that it implies that marketing isn't a form of app discovery; that in an app ecosystem populated by more than 2MM apps across Google Play and Apple's App Store, all apps should be equally visible and serendipitously "discoverable".

This isn't how these app platforms were designed to facilitate discovery; if they were, there would be no app featuring, and app install ads would not be possible. Marketing is as viable of a mechanism for app "discovery" as search or word of mouth; implicit in an app developer's large marketing campaign is that its app both monetizes beyond marketing costs and is broadly appealing. King, the developer of Candy Crush Saga, spent $400MM on marketing on $1.88BN in revenue in 2013; surely King wouldn't agree that app store discovery is broken.

And the third problem with the "app store discovery is broken" argument is that it ignores the fact that all markets with low barriers to entry ("perfect competition" in practice, not in the abstract) take the form of a long-tail, "winner take all" distribution.

In the March 2005 edition of the Journal of Economics & Management Strategy, Thomas Noe and Geoffrey Parker, both from Tulane University, described the state of the post-bubble internet ecosystem in a paper called Winner Take All: Competition, Strategy, and the Structure of Returns in the Internet Economy as:

The Internet economy is characterized by heavy expenditures on marketing and advertising, fierce competition, a few firms earning large returns with most incurring losses...However, these large expenditures on advertising and site development have frequently generated insignificant returns except to a few big winners. In pioneering academic studies of the real returns from Internet investment, Hand (2001, 2003b) documents reliably positive value generation from Internet marketing expenditures only for the largest spenders. Hand also documents significantly increasing returns to scale for the value of brand intangibles. In short, profitability is confined to a very small number of Internet winners. In fact, Hand (2003a) shows that increasing returns to brand-intangible expenditures are so large that for Internet firms expenditures can be inversely priced by financial markets, with valuation positively related to expenditures. As a sign of wider acceptance, practitioners have begun to use the paradigm of winner-take all Internet competition to predict the evolution of emerging internet markets.

Though structural differences do exist between the internet economy at the time of the paper's release (2005) and the app economy of today, the factors being analyzed are fundamentally consistent across both:

We model a market in which Website investments are sunk, marginal costs of increased patronage are trivial, tolls are not charged for site access, site patrons face zero site-switching costs, and patronage is highly sensitive to site quality.

No one asserts that "discovery" is broken on the web because a few websites generate outsized returns relative to the entire internet; it's similarly absurd to contend that app store discovery is broken because such is true for mobile apps. That the app economy, with its low barrier to entry and zero marginal distribution costs, is "winner-take all" is not a criticism but a statement of fact; the app economy was designed to be winner-take all, as are all low-barrier marketplaces.

  • Charles

    Though I partially agree with your argumentation, I actually think this study is off-topic.

    In my opinion, this study tends to show that the App economy itself is broken (as expectations from most developers and publishers are), and search on App Stores is not as it is simply non-existent. Allow me to shed some light through my experience.

    First, from my experience since 2008 with Apple App Store, I haven't seen much done with the search engine, be it on iOS or MacOS devices. Having tried to implement SEO strategies (not at, or for Apple) I know for a fact that downloads from SEO on App Store is close to nothing. The engine is not instinctive to use (or actually find) and works basically like an auto-fill module. Same can be said with the reference system that appears on each app's page. One reinforcing argument on this is that no one at Apple or third party ad agencies are trying to monetize SEO services, even less so evangelizing them - there is simply no SEO services because simply SEO doesn't exist on App Stores. Of course, SEO from without the Apple ecosystem is another story, but that's not what the main topic is about.

    Second, other famous companies have had successes with mobile search (and desktop search before) that Apple hasn't followed. The best examples that come to mind, when it comes to ecommerce (or appcommerce if you prefer), are eBay and Amazon, who are if not but the synomym of long tail marketing online. It's powerful, relevant to me as a consumer and
    still makes the existence of so called featuring a reliable but perhaps not as a fundamental business proposal to resellers. More importantly, the UX with Amazon and eBay is undeniably vastly superior to the one offered by Apple: it's fluid, it has a UI with windows of multiple sizes
    that are editable (in both cases I can delete choices and offers I'm not interested in - in other words the real estate is customizable), it is transparent in terms of user feedback and reseller ratings, it offers relevant product alternatives to my tastes, and has a very reassuring and encouraging pull factor in the sense that charts renew constantly ie you'll rarely ever see the same product number 1 for a year - on Apple and Google Play the top 20 Games is crystallized for months if not years, and in the mind of the consumer that doesn't really equate in any desire to search for anything. Actually, I think Apple has made the UX such a burden to the end user that the only benefit I can identify for the user is that, once they think they see or hear of something basically new and unusual they're going to download it almost immediately, not question the choice that is made for them and not going to spend more time to look for anything else (as a Amazon or eBay user would do).

    So one might wonder, why is Apple not doing more in terms of SEO? Well, perhaps because the app economy is not so much of a concern to them than their concern of how many apps the store offers (let's remind ourselves of how often we heard this argument - "the App Store is the biggest store", though that doesn't play as much in 2014 as before since Google closed that gap), how many users use them and what is the relative rating score across the most used apps. An interesting analysis can also be made between Apple TV and ROKU, a comparison made multiple times for a while now (the first time I read something about it goes back six months ago), with a July 2014 analysis here for example: http://www.streamingmedia.com/Articles/ReadArticle.aspx?ArticleID=98068
    And if one tries to enhance iOS search through an app of their own, their fate is most always to have a fast growth and an even faster death (App Gratuites) or steep decline (TapJoy). So it's basically not the case that they can't do it or don't have the manpower to do it, it's simply that it is not key to the whole Apple economy in the sense that better search isn't going to sell more devices in China.
    This said I see two factors that might change how search happens with Apple devices, and subsequently with Google (as it is common to see Apple innovate and others follow in that domain). First, the new iPhone 6 / iOS phablets will offer more real estate thanks to bigger screens, and second new batteries will (probably) be more powerful and support multi-tasking while not using the whole battery in half a day ie when more apps can be used at the same time for a longer period of time thanks to more powerful batteries, then it'll be more relevant for Apple users to find more apps that are relevant to them. Given the importance of the Chinese market to Apple's growth in the coming months, I think it'll be fundamental to observe how China mainland consumers behave in that regards.

    • Grow Mobi

      I think there are quite a lot SEO (ASO) companies (including us) around though. I don't agree with that part of the argument. Maybe you didn't do much of an investigation.

    • Extra

      great insight, thanks

  • many good points. Here some highlights and thoughts

    1. majority of apps do not deserve to be discovered. low quality, not maintained, outdated...
    2. discovery is not broken in the sense that discovery mechanisms are in place (ie featured, search...) but they are not implemented in a way that is optimal to apps who do deserve to be discovered. I would suspect 30% of total apps avail
    3. app stores are far from efficient. they are built the same for any users and do not consider each user's taste. Therefore create huge point of friction to find what s right
    4. Some mechanisms work better for certain type of apps. Search should work better for long tail need based app (eg calendars) but search is poorly implemented on iOS. Featured work well for Franchise based title. except they apply to a limited number of apps. Deep browsing apply to many apps but the browsing experience on mobile + the fact your attention is limited does not help

    App stores can do a lot more to improve the fluidity of discovery. And maybe a good way to start would be to make a clear difference (clean?) with the apps of very low quality

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