What Will Be the Mobile App Development Business Model?

"As of this writing, there's no contest: ship mobile apps if you can afford it."
– Jakob Nielsen, Mobile Sites vs. Apps: The Coming Strategy Shift, February 13, 2012

"If you can afford it." Ay, there's the rub. Jakob Nielsen is the master of usability.  When it comes to the mobile app development business, who will be the master of profitabilty?

What will be the mobile app business model?At Handshake Media, we're attempting to be.  We have a mobile division and a portfolio of mobile apps developed over two years.  Two of our apps are products offered directly for sale to consumers. One is the Minimum Viable Product (MVP) version of a larger decision-support software platform we're developing.  Our other apps are versions of the Handshake App for our corporate clients.

We developed our first mobile app in-house at our own expense in 2010. Curious about the market value of our efforts, I did research in November, 2010, asking How Much Does a Mobile App Cost?  Based on that research, I concluded, "A mobile application that took 500 hours to develop at $100 per hour would cost $50,000." Deducting our learning curve time, that's a good estimate of what we would have billed a client for that first app.

"Mobile app development" is mobile software application development, i.e. it requires the writing of lines of code, line after line after line, by a programmer with the hard-won know-how to write those lines.  And that's only part of the process of taking an idea to Store or Market.  Every step, from design (our mobile app design infographic shows even that step has steps), to coding, to testing, to uploading for distribution takes human labor and human time.  Kent Nguyen writes, "Dear business people, an iOS app actually takes a lot of work!"  And that work costs.  Whether a company has a paying client or start-up founders are paying with hope, somebody's paying.

It's not consumers.  They want their apps for free.

Yet we keep hearing statements like these from a ReadWriteMobile post: "The fact of the matter is that there will be money to be made by some smart entrepreneurs looking to make some great apps in the near future. Developers, it is time to cast your net. Working across both iOS and Android, there is a decent living to be made writing mobile applications."

And we read reports like this like this one from Flurry in January of 2012, that people are spending more time with mobile apps. 

But CNN cites Flurry's report and points out that the data has other meanings:  "What's driving the growth in time spent in mobile apps? According to Flurry, consumers are using their apps more frequently. That is, the number of daily sessions is growing, although the duration of those sessions is not."

And USA Today reports on a Pew Research Center survey:  "Of smartphone owners, 68% open only five or fewer apps at least once a week…Seventeen percent don't use any apps. About 42% of all U.S. adults have phones with apps, Pew estimates…[Anindya Datta, founder of Mobilewalla, estimates] 80% to 90% of apps are eventually deleted."

So, let me see if I've got the current mobile app development business model:  Create complex products with high labor costs that are time-intensive to build – of which hundreds of thousands of similar products already exist – for a market that is growing but expects the products for free.  If kept at all, the product may be used often, but briefly.  However, that market, upon acquiring the free product, abandons it 80% to 90% of the time. 

How do businesses make money?  They create products that enough of the market needs and wants - and is willing to pay for – to generate revenue and profit to fund business operations and growth.

How do mobile app development companies make money?  If the consumer market won't pay for apps, but wants them, are businesses and organizations then the market?  Businesses would pay mobile app development companies to make apps for them which the businesses, in turn, would offer for free to their customers or potential customers, hoping that, like a free, logo-imprinted t-shirt, the mobile app will generate brand recognition and loyalty and a later product or service purchase?

Jakob Nielsen advises, "Ship mobile apps if you can afford it."  How many mobile tchotchkes can a business afford?  What's the ROI of mobile swag? Will mobile apps as the equivalent of logo-imprinted promotional items result in the mastery of profitability? 

I don't have the answers, but I'm in the business of finding out.

Images for Handshake 2.0
Mobile Knickknacks for Utilitarian Marketing

Comments

  1. Great analysis of all the questions surrounding the mobile app business model! Who is actually “paying” for these products and to what benefit?

  2. Alex Edelman says:

    It’s true that some businesses can afford to pay developers to produce pure trinkets – see e.g. http://itunes.apple.com/us/app/audi-a6-experience/id459214436?mt=8

    But others (and I don’t know what’s developed in-house and what’s outsourced to independent developers) have substantial function that people will actually use. For instance, all the apps I have from airlines let me find and book flights and look at points and that sort of thing. Even the Intelligentsia coffee app has a mildly useful coffee timer and brewing instructions for various methods, so I’ll occasionally open it. Broadly speaking, it seems that there are some businesses which consider mobile apps a way to plaster their logo across more stuff to synergy-leveragize and engagementize and that sort of stuff, whereas some businesses can legitimately expect that users on mobile devices will want to interact with them on the phone, in which case it makes perfect sense to craft an app with a decent interface to facilitate that interaction. In the former case, yes, the market need and sustainability of the strategy is questionable, but in the latter, it makes some sense.

  3. >businesses can legitimately expect that users on mobile devices will want to interact with them on the phone, in which case it makes perfect sense to craft an app with a decent interface to facilitate that interaction.

    Yes, it makes sense from a development point of view, but does it make sense from a business point of view? Will $50K spent on an app directly or indirectly result in $50K+ in revenue? Apps can be built. Does it make business ssense to build them? That’s the question I continue to explore.

    Here’s an example of the hype around mobile development that I think doesn’t help at all:

    Apple Launches ‘Start Developing iOS Apps Today’ Guidebook

    “…the guide splits up the process of app development into five separate chunks, and each is punctuated with links to additional resources that are designed to help turn a wannabe developer into the next Zynga.”

    http://www.pcmag.com/article2/0,2817,2400471,00.asp

  4. Interesting from Flurry:

    “…we pulled a sample of in-app purchase data from a set of top apps with versions on both iOS and Android, comprising of several million daily active users (DAUs). Running the numbers, we find that, on average, for every $1.00 generated on iOS, the same app will generate $0.24 on Android.”

    http://blog.flurry.com/bid/79061/App-Developers-Bet-on-iOS-over-Android-this-Holiday-Season

  5. I think you’ve really zeroed in on the dilemma for app developers. They are expensive and unless you hit the Angry Birds-like jackpot, consumer apps are a very expensive bet

    At least they are for now–I think our technology and consumer habits are changing so radically that there may be revenue models for these apps–or apps will be less expensively designed for niche markets that will use them more–that could address this gap in the future.

    Regards B2B apps, I think the paradigm is different. That is the place where mobile developers have a market. B2B marketers that want to engage more deeply with customers can do the math on the cost of the app versus the potential loyalty generated by its target customers. I think this is the model where Nielson’s “ship mobile apps if you can afford it” applies. B2B folks should do the due diligence and determine if the return is cost effective for them, from the “shwag” point of view.

  6. Thank you so much, Lorie, for confirming some of my concerns – and offering possibilities for new ways to think about the mobile app development revenue model.

    With appreciation,
    Anne

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