Looking at smartphone and tablet sales, Google’s Android ecosystem should be printing money for developers. After all, not only are Android device sales outpacing Apple’s iPhone and iPad sales, but Google also shares more Android-related revenue with its ecosystem than Apple does with the iOS ecosystem.
And yet iOS developers earn more than Android developers. What, or rather who, gives?
The answer is in efficiency. Apple is able to centralize its revenue stream while Google shares with a wide variety of partners. But Android, on pure volume, may soon outstrip the mighty iOS.
Android’s Larger Ecosystem
It’s no surprise that Android devices have been outselling iOS devices for some time. Given Apple’s insistence on charging a price premium, falling behind was a foregone conclusion. Analyst Mark Hibbens estimates Android’s widening lead over iOS in shipments.
Which means, of course, that in the first quarter of 2013 the population of Android’s installed base surpassed that of iOS and will almost certainly never look back.
And yet this hasn’t translated into more money for the Android app economy.
Who Does Android Pay?
According to a new VisionMobile study, Apple’s app economy is considerably larger than Google’s Android, at $163 billion:
Google’s is smaller at $149 billion:
But there’s a key difference between the two economies, from hardware to apps to accessories: Apple claims much of its ecosystem’s revenues, whereas Google shares among manufacturers, developers, carriers and advertising partners. To highlight this point, both Apple and Google take a 30% from developers for paid app downloads and in-app purchases. Google used to hardly keep any of this money, passing it along to distribution partners (like cellular carriers and payment processors) and paying fees. As of Google I/O 2014 though, that policy has changed and Google will keep nearly all of the revenue from Google Play. Apple keeps nearly all of the 30% it takes from app developers.
Not that Google is necessarily playing a charity here. Part of Google’s problem, as ABI Research notes, is fragmentation. While ABI says Android was used in 77% of smartphones shipped worldwide in the fourth quarter, 32% of those 221 million devices used forked versions (up from 20% of shipments the year before and up from 27% in Q3 2013).
So a fair amount of Android’s adoption does not generate revenue for Google, even if it wanted to. Google is trying to minimize the negative impact from fragmentation “by giving primacy to Google Play Services as the hub for new Android capabilities,” as Crittercism’s Michael Santa Cruz highlights, but it has a long way to go.
Even so, Google’s strategy inherently shares more with its ecosystem: by design, Google doesn’t care about capturing hardware or accessories revenue, and even in software it is less concerned with app revenue than ad revenue. Google’s goal has long been to get more people on the Internet, using the Web, searching for more items. Google’s view is that the more eyeballs there are on the Internet, the more potential it has to advertise them through search.
Google announced that it payed app developers about $5 billion dollars between Google I/O 2013 and I/O 2014, with a rate increase of 2.5x in that span.
And yet iOS developers make more. $500 – $1000 per app per month, according to VisionMobile, compared to Android’s $101 to $200 per app per month.
At least, for now.
Go East, Young Man
While Hibbens suggests that Apple’s higher app spend per device accounts for the chasm between the Android and iOS economies, and that this gap will only widen over time, this feels like a short-term perspective. Yes, it’s true, as Andreessen Horowitz’s Benedict Evans posits, that Apple benefits from a “wealth gap” between its customer base and Google’s.
Apple enjoys market share superiority in the comparatively rich North American and Western European markets, as VisionMobile illustrates:
This isn’t something to celebrate, however. As I’ve written before, emerging economies can’t afford Apple’s price premium. And when “emerging economies” include China, set to become the world’s largest economy in 2014, and India, another market serving over one billion people, the future for Android looks very bright indeed.
It will likely continue to be the case that Apple will earn more app revenue per device than Google, but that’s just fine for Google. Android has always been a volume play. With few exceptions, Google’s business model is always about skimming small amounts of money from vast amounts of transactions.
Which is not to say Apple is doomed. It’s simply to argue that developers should tune their monetization strategies differently for iOS and Android … just like Apple and Google do.
Article updated to correctly reflect Google’s cut of Play app earnings.