Players in Quickly Growing Business Scramble to Figure Out Best Ways to Attract Users and Turn a Profit
Source Jessica E. Lessin and Spencer E. Ante – Wall Street Journal
Nearly five years after Apple Inc. AAPL +0.84% kicked off the mobile-apps craze, the industry is booming.
App stores run by Apple and Google Inc. GOOG +0.26% now offer more than 700,000 apps each. With so many apps to choose from, consumers are estimated to spend on average about two hours a day with apps. Global revenue from app stores is expected to rise 62% this year to $25 billion, according to Gartner Inc. IT +0.49%
The apps industry has matured in some respects. Some of the Wild West tactics of five years ago—like scams to accrue more downloads—have given way to more order as Apple and others tighten their rules. App developers are more methodical about marketing their apps and focusing on the few apps that work best.
For every Instagram, the wildly popular photo sharing app that Facebook Inc.FB +0.12% bought for $1 billion last year, there are hundreds of thousands of apps that don’t catch on.
As the battlefield shifts to new geographies, new categories and new devices, developers are still trying to figure out which business models are the most profitable.
The apps industry “is like cars at the turn of the last century,” said Simon Khalaf, chief executive of mobile analytics firm Flurry Inc. “You see the growth of roads and know they’re going to be big. But it is still early days.”
TinyCo Inc., a San Francisco-based game maker that released its first mobile game in 2010, is experiencing both the promise and the perils of the apps industry. Today it has 13 mobile games and revenue is doubling. But every day is a battle to acquire users, said Michael Sandwick, manager of strategic partnerships.
The cost of acquiring users through advertising continues to rise by double digits year-over-year, he said, sometimes more sharply when bigger companies seek to introduce a new game. That has forced the startup to better tune its spending based on data about how people are discovering their games.
“There’s an incredible amount of saturation,” said Mr. Sandwick.
Just a few years ago, the apps industry was simpler. In early 2010, Apple’s App Store had a commanding lead with around 140,000 apps for phones. The market was heavily focused on the U.S.
Apple and Google Inc.’s Play store are today neck-in-neck in terms of smartphone apps catalogs and usage, said analysts. Apple still dominates in terms of money made by more than three to one, according to App Annie.
And there are others also offering app stores—to different degrees of success—includingMicrosoft Corp. MSFT -1.59% , BlackBerry BB.T +0.88% -maker Research In Motion Ltd., and Amazon.com Inc. AMZN +0.40%
The app boom has spread to markets such as China, Japan and South Korea. That has led to some apps like social-networking service NHN Corp.’s Line leapfrogging U.S. app-makers in revenue by selling virtual items like stickers.
And apps are expanding their reach on devices. They’re no longer just for phones, but tablets and televisions too. The apps are taking advantage of hardware improvements like sensors that can tell an app how fast a person is moving.
In the past two years, consumers have doubled the time spent with apps to about two hours a day, according to Flurry. Yet people churn through apps fairly frequently, making it hard for developers to retain users.
About 63% of the apps used daily now differ from those used daily a year ago. Moreover, consumers focus on a handful—roughly eight apps—at a time.
Michael Duda, a New York-based marketing consultant and investor, said he regularly uses about 12 of the 70 or so apps on his Android smartphone that make his life easier, including Twitter, LinkedIn, Sonos, AmericanExpress and J.P. Morgan Chase.JPM +0.63%
“A bunch of the apps I downloaded sounded cool,” but he said but most don’t add “utility to my day-to-day life.”
App makers can have a difficult time breaking into a business dominated by incumbents.
Only 2% of the top 250 publishers in Apple’s App Store are “newcomers,” versus 3% in Google’s Play store for Android apps, according to research firm Distimo.
“The bar is so high to build something that is special and valuable and easy to use,” said Jake Mintz, co-founder Bump Technologies Inc., a four-year-old app that lets people share media across phones by touching them. To be more useful, the Mountain View, Calif., company has branched out to share media across laptops too, he said.
Others app makers are coping with the shifting landscape by being more selective about what they build and how they promote their apps.
Michael Bayle, senior vice president and general manager of mobile at Walt Disney Co.DIS -1.83% ‘s ESPN, said the company recently decommissioned 23 of its 30 Apple apps it had been maintaining, and kept alive its most popular ones.
ESPN dropped an app for Los Angeles sports but kept its popular ScoreCenter app that publishes scores, news and standings from sports leagues, teams and players world-wide.
“It’s easy to make an app but the real expense is in maintaining it,” Mr. Bayle said.
Some app companies are scrambling for new revenue streams and expanding beyond the current leading money pots: ads and in-app purchases.
When music-discovery app Shazam Entertainment Ltd, introduced its first cellphone app about seven years ago, its main revenue came from deals with mobile operators and licensing its audio-recognition technology.
Today it has five revenue streams, including selling ads in apps, a paid premium version of its app and charging television advertisers to integrate Shazam campaigns.
“We have seen revenue drivers change over the years,” said chief revenue officer Doug Garland, declining to comment on its results. “We are figuring out where the best opportunities are and doubling down.”