Are iPhone Apps Worth The Cost Of Developing Them?

If you happen to own an Iphone, head over to the App Store and download iSteam. It’s free. Play around and see what it can do. It’ll take about 30 seconds to understand the FULL breadth of functionality. Another 30 seconds to get bored of it. Maybe you’ll use it once or twice to impress friends. Before long you’ll delete it to make room for something else.

iSteam could be the most useless application I’ve ever seen, Iphone or anything else. It places virtual steam on your screen when you blow into your microphone. That’s it. Yet the creators of this negligeable blip in the space-time continuum have pocketed over $100,000 from it. WTF?

Here’s another one: iFart. The free version makes a fart noise when you touch the screen. The paid version allows you to have variations of fart noises and other extremely useful features. As for the developer? He was pocketing a cool $10,000 - per day.

With stories like these popping up on a weekly basis, it’s no wonder everyone and their grandmother has jumped on the Iphone app goldrush bandwagon. The question is, are these things really that easy to make money with?

For starters, consider the sheer number of Apps in the store. Last November, the store surpassed the 10,000 app milestone. By the end of the first year (this coming July) it’s predicted there will be 25,000 apps in the store.

How about users? According to Apple’s fiscal fourth-quarter numbers, almost 7 million iPhones were sold for the quarter. Latest total figure is at 13 million iPhones sold in 51 countries.

At the time of that report, there were 5500 apps in the app store, which had been downloaded 200 million times - those numbers are misleading, though, because the vast majority of those downloads are obviously free. Nonetheless, according to those numbers, there are about 2364 users per app in the App Store. By my calculations, that would suggest that by the 1 year anniversary of the App Store, that ratio will be 1120 (28 million phones / 25000 apps).

In other words, if you were to develop an app and sell it for the average price of $3 and have it downloaded and paid for by the average number of users per app, you’d generate $3360. However, since Apple takes 30% of revenues from apps sold in the store, that number would actually drop to $2352.

That’s significant in that it means that apps are being generated at a ratio greater than new iPhone owners.

It’s also fiscally frightening when you consider that the cost of an iPhone app can run anywhere from $10,000 to $150,000 to produce.

Of course, the vast majority of Apps are either a hit or a miss. Lucky for us, Joel Comm, the genius who came up with the iFart App, has generously provided his day-to-day sales stats for the app, which recently hit #1 in the store. Here are the numbers for his first 10 days:

12/12 - 75 units - #70 entertainment
12/13 - 296 units - #16 entertainment
12/14 - 841 units - #76 overall, #8 entertainment
12/15 - 1510 units - #39 overall, #5 entertainment
12/16 - 1797 units - #22 overall, #3 entertainment
12/17 - 2836 units - #15 overall, #3 entertainment
12/18 - 3086 units - #10 overall, #3 entertainment
12/19 - 3117 units - #9 overall, #2 entertainment
12/20 - 5497 units, - #4 overall, #2 entertainment
12/21 - 9760 units - #2 overall, #1 entertainment
12/22 - 13274 units - #1 overall

As you can see, the balloon effect is remarkable. In the span of 10 days, Joel generated $42,000 and pocketed almost $30,000 of that. Great work if you can get it!

It would be interesting to see what his numbers were on Christmas and up to today. According to the App Store’s listings, the app is currently placed #26, which would mean about 1500 sales per day.

In other words, if you hit a homerun in the App Store, you’re laughing. But how difficult is it to hit a homerun? Based on the same set of numbers, we can see that #76 overall generated about 850 sales in a day. Out of 10,000 apps, that’s still well within the top 1% of all apps.

Considering these figures, I think it’s safe to assume that if you’re not in the top 10% (top 1000 to 2000 apps), you just won’t be pulling in enough sales to justify the development costs. Of course there are exceptions to this - for instance if you develop an app that sells well for $34.99 to a very niched crowd that finds it very useful - but for the most part this should be a safe rule to follow.

Not surprisingly, there are lots of app developers that have been disapointed after expecting the cash registers to flow. Some find it too difficult to hit a homerun app, while others are just not accepted into the store to begin with.

Here’s the good news: If you’re confident your app can generate the interest, there are great reasons for you to go ahead and develop, not the least of which is the need for minimal marketing. It seems most app sales are generated from eager iPhone users exploring the app store. Furthermore, from a developer’s perspective, the app store platform is a godsend.

For these reasons we’ve made the decision to start focusing some of our resources on iPhone App development. If you’re thinking about doing the same, I would say proceed with caution, but definitely proceed. The gold rush should be going on for a while longer!

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