It's getting harder to make a dent in the mobile app market, especially for Apple and Google. While it's easy to point to the billions being paid to app developers, the reality is that Apple's and Google's 30% cut on such revenue is a rounding error. Given Apple's struggle to fend off Google, and the comparative peanuts it makes on mobile app sales, it may be time for Apple to give even more revenue back to developers to encourage a continued "iOS-first" policy.
Apple CEO Tim Cook crowed at an investor conference earlier this year that Apple had paid $8 billion to developers since the App Store's launch. While this may sound impressive, that equates to around $3.4 billion to Apple over five years, or about $170 million per quarter.
Sound like a lot? It's not.
The $170 Million Rounding Error
After all, just last quarter Apple notched $54.4 billion in revenues, nearly $31 billion coming from sales of the iPhone alone. $170 million in mobile app sales? Apple makes 3X that amount in the first day of a quarter.
Not that app sales are immaterial to Apple's business. On the contrary, apps make Apple's hardware more appealing. As beautiful as Apple's devices are, few would bother to buy them if they didn't come with a massive app ecosystem.
So apps matter to Apple. It's just the app revenue that really doesn't matter. Not even with the overall mobile app market blossoming to $25 billion in 2013, according to ABI Research. That's not where the real money is.
The Mobile App Economy
At least, not for Apple. But developers? They could use that money.
Even as app sales boom, generating revenue from mobile apps is something of a bust for developers, and it's getting worse. According to a VisionMobile report, 35% of mobile app developers "live below the app poverty line," in that they don't make enough money from app development to sustain themselves. Furthermore, research firm research2guidance recently released data indicating a 27% drop in average revenues per paid app, from $26,720 in 2011 to $19,560 in 2012.
That drop in top-line revenue is already hard to swallow, but becomes even more so for iOS developers, given how pricey they are to create relative to other platforms:
Hey, Apple, Can You Spare A Dime?
As such, and given Android's continued market share domination, it may be time for Apple to further encourage developers to stick with it by dropping its App Store cut. While dropping its share from 30% to 20%, 10%, or 0% won't hurt Apple's revenue profile, it could go a long way toward keeping developers' pockets full.
Of course, Google could (and likely would) simply follow suit. After all, Google, like Apple, doesn't rely on app revenue, instead monetizing mobile through advertising.
But by moving first, Apple would not only generate goodwill, but it would reinforce developers' preference for iOS, as a recent Appcelerator and IDC survey shows:
Apple, in other words, doesn't need to win over developers, so much as it needs to give developers a bit more incentive to keep it top platform for them. As volumes start to shrink relative to Android, letting developers keep a bigger chunk of their App Store haul could go a long way toward encouraging developer loyalty.