Editor's Note: This is a guest post by Matthäus Krzykowski is a co-founder of Xyologic, a mobile app search engine.
The number of iPhone apps that hit the Top Free 100 rankings in the U.S. Apple App Store has decreased by 35%, according to a study we've completed at app search startup Xyologic. In April 2011, 422 apps got into the Top 100 Free iPhone apps, while in April 2012, just 277 apps made the cut.
The number of new apps that hit this ranking sank from 58 to 33. This compares with 6,497 new free iPhone apps in April 2011 and 11,545 new free iPhone apps in April 2012. During the same time, the number of apps that hit the top 100 free rankings in the U.S. Google Play store stayed about the same, albeit at a smaller scale.
The table below shows the summary of the study – the number of apps within the top 100 free apps and their respective ages year over year (April 2011 vs April 2012) for both the Apple App Store as well as Google Play U.S.
Number of Apps and Their Age in the Top Free 100 – April 2011
Number of Apps and Their Age in The Top Free 100 – April 2012
What can be concluded from the data? Our findings can be seen as a further signal of the maturation of the platform, just as Kim-Mai Cutler recently pointed out.
Because of the way Apple's app store is designed, once an app breaks into the top charts where it can be seen by real users, it gets a huge increase in downloads per day. There are different arguments to made about Apple's role in this system.
Is Apple responsible for fewer new (indie) apps/developers getting into the top free rankings? Is it Apple's role to provide exposure for the "small" guys? Have Apple's well-documented interventions in the market in the last 12 months favoured the "big" guys?
Or were the "big guys" just able to use the app store's dynamics to their advantage? Is getting onto these charts for publishers "too" hard, causing publishers "have to" buy their way onto them to acquire users?
In my view these questions, while valid, are not important for the overall industry. The current model of content discovery and user acquisition in the Apple app store is still the best deal publishers have gotten in the history of the mobile industry.
Mobile user acquisition has gone through a number of distinct epochs since I was a product manager at Admob's largest publisher in 2007, mobile-only social network Peperonity. In each of the epochs, the competitive balance, key success factors, and market opportunity shifted and upset the status quo.
In my view, the history of the space can roughly be broken down into 3 "eras" since its carrier-centric model broke in 2008: First, the emergence of the open mobile web; second, the emergence of the app economy, third the rise of the paid distribution model & analytics.
User Acquisition In The Operator Ecosystem Era Until 2007
While mobile has never been hotter with the rise of iOS and Android, you would have never expected it to happen until 2007. Until then mobile operators were the kings of the mobile industry: The mobile content industry and other industry other vendors would line up at trade shows to try to show their wares to any operator executive who would listen. Phone users in the U.S. were mostly using mobile operator portals/decks when they wanted to access the mobile Internet. Hence mobile content startups would attend meeting after meeting to make sure they "get that Verizon deal" or "that Vodafone deal" & usually ask consumers to pay up front for mobile content and give carriers a large chunk of the business.
The Emergence Of Open Mobile In 2008
In 2008 the creaks of this system began to appear. Increasingly, U.S. phone users were accessing the mobile Internet using browsers, pushed by the emergence of Myspace and Facebook in mobile.
In April 2008, TC's Mike Arrington covered Loopt and set off an early hype around mobile in the Valley. An increasing amount of entrepreneurs wondered how to benefit from the trend. As these entrepreneurs launched their startups they, in turn, were looking to find marketing strategies going directly to the consumer, bypassing the operator. The notion of "open mobile" user acquisition entered the mobile realm and above all, Admob was at the receiving end of this trend. A very significant percentage of its revenue growth in 2008 came out new, with many VC-driven mobile content startups entering the fray. The industry was off to the races it seemed.
The Rise Of The App Economy
It is easy to forget that as the financial crisis hit the U.S. economy in Autumn of 2008 and rumors of stagnation in mobile advertising abounded. A lot of mobile content advertisers pulled out of the mobile web-based advertising market and many VCs put their mobile consumer investments on hold.
It wasn't until the launch of the iPhone that anyone saw dollar signs in mobile.
Mobile developers, VC-backed startups and advertisers only jumped on Apple's platform once the App Store launched, as the ad requests on Admob network show.
Iryna Newman, Head of Mobile Marketing at Groupon: "A big reason for optimized monetazation in apps is that apps finally solved the problem of user authentication, transaction history and payments. For example, within an app, you only have to log in once and provide your credit card information… you're then stress-free every time you come back and all your transactions will be seamless.=
With mobile web, cookies are still unreliable and users often face obstacles as they try to sign up, purchase or complete everyday actions, having to remember their passwords and constantly re-enter credit card information. For the most part, mobile web users are having a frustrating experience."
Back in November 2008, more than a year after the iPhone launch, Jason Spero (then the VP of Marketing at Admob) told me: "The iPhone market is exploding, Inventory is growing and advertisers are hungry for it." Two drivers pushed revenues up at some ad networks that were tuned into the changes — specifically AdMob and Quattro Wireless. Above all, user acquisition based apps hit it off: Publishers of new mobile applications started paying other publishers every time a user clicked on their ad to download their applications. Second, brand advertisers sought to reach iPhone users as they surfed more frequently on their applications. Quattro was particularly good with these.
As the year unfolded, a new mobile platform gained traction on AdMob's network: Android. By March 2010, Android surpassed the iPhone in terms of available inventory in the advertising market, accounting for a greater share of smartphone-served ads in the United States.
These days, the vast majority of U.S. mobile ad spend is in native mobile apps and not the mobile web. To web purists it may be surprising that developers continue to release thousands of native mobile apps each month. However, as U.S. advertisers continue to focus on advertising in apps and not the web and apps is where the monetisation of "free" mobile content in the U.S. is at.
A Note On Virality in mobile
One of the most common misconceptions of developers who entered mobile in recent years was their notions around the viability of "viral strategies" in mobile. Traditionally viral strategies that are successful on the web had been destined to fail in mobile.
Some have argued that Kik's early success was viral. However it was actually due to a clever use of the address book and invites and not viral in the strictest sense of the word. Not surprisingly this strategy got copied a lot, that it is until Path's Addressbookgate more than a year later put an end to that.
An exception to the argument that "viral does not work in mobile" can be made around in-game mechanics in apps, specifically games.
The Rise Of The Paid Distribution Model & Analytics
The key ingredient for the emergence of the paid distribution model is the discovery that the most successful apps and especially some of the top mobile games were monetizing at impressive rates. Known economics has important implications. Developers now had apps where the cost of acquiring users through paid channels was less than the projected lifetime value of those acquired users. The revenue from these apps was used to subsidize the development and marketing of other titles in those publishers' portfolios. They could continuously improve their apps using analytics.
While this approach has been known to social gaming, it's been new to mobile.
Behind this a new set of mobile monetization and offer companies rose to the fore, particularly Tapjoy and Flurry.
The heyday of the associated practices so far was, probably, March 2011. In that month, Tapjoy was making more revenue than Admob, according to various sources I talked to.
How I Interpret The Data Of Our Study – This Trend Has Clear Winners And Losers
What that has meant is – and this is how I interpret the findings of our study – targeting and marketing spending has become far less efficient on iOS over the past few months. Says Christian Henschel, CEO of mobile monetisation company Adeven: "It is still very challenging for app developers and publishers to generate new (valuable) users. Banner advertising is not really working as costumer acquisition costs – specifically cost per downloads – have become very cost intensive."
Michael Oiknine, CEO of mobile analytics company Apsalar, adds: "With the increasing number of apps in the market, the challenge for app developers and marketers is to not only get discovered, but also to drive engagement, retention, and monetization from their users."
Alex Rosen, Director of Business Intelligence at Japanese gaming giant GREE, agrees: "It's still very hard to uncover actual user demographics and therefore more challenging to direct marketing spend. The ability to better understand user bases and figure out the best analytical tools to make that happen is where the industry is going. There are great opportunities for developers, platforms, and advertising companies as analytic tools improve."
In April 2011 Apple cracked down on the practice of incentivized pay-per-install, where developers offer their apps in other games and pay for downloads when players install their titles for virtual currency. Earlier this year Apple went against bots that have been used for well over a year to download apps until they reach the top of the charts where they can be seen by real users.
Then the cost to acquire users for mobile apps declined last month as ad networks and other channels scrambled to find a replacement for UDIDs, according to Fiksu. "As we've discussed in depth over the past several months, Apple's planned phase-out of the UDID has resulted in significant confusion across the iOS app community. During this time of uncertainty, some marketers are looking more closely at Google Play to fuel their continued growth in mobile. And while we'd never suggest that the iOS market be ignored, Android's Google Play offers a very compelling opportunity that can benefit app businesses in exceptional new ways" says Viki Zabala, Director of Marketing at Fiksu.
Iryna Newman, Head of Mobile Marketing at Groupon: "Imagine that there are only 50 spots on the front shelf at a department store. If you manage to get on that front shelf, you are guaranteed tens of thousands of high-quality "organic" buyers per day. And there is a clear path of getting there: get as many downloads as possible and get more than the next guy. The simplicity of this algorithm, fierce competition for the same rank spots and the powerful lift it provides, forced the whole mobile space to become very creative: from incentivized downloads to bot-farms. Rank in the App Store became the single most powerful marketing tool for all iOS developers, and under pressure of everyone competing for the same spots, developers became desperate for ways to boost their rank."
Says Deng-Kai Cheng, Co-founder of a productivity stealth startup: "While supply is up, overall paid distribution volume has been flat relative to user growth, and prices have stayed consistently high and will likely continue to go up. This is driven on the demand side mainly by two advertiser sources: game developers that can usually justify the high CPA, and big brands or VC backed startups that are flush with capital and are willing to pay the high prices. As paid distribution becomes more and more difficult on iOS, discovery will continue to increasingly become a game of winners and losers. It thus becomes a self fulfilling cycle for large developers. They have a large install base to cross promote new apps from and they have the cash flow to pay the high prices for distribution."
Alex Rosen, Director of Business Intelligence at GREE, is more optimistic: "I think it's becoming less about driving the most users and more about finding the right users and although it's doable, it is still not an easy process. The analytics are getting there but still need to evolve to meet the needs of the changing market. "
Mobile Platform Competition Is Good For Mobile Publishers
On the face of it iOS is still – by a wide margin – more lucrative per user than Android or Facebook, according to data from analytics provider Flurry and top-tier developers like EA Popcap. Revenues on iOS have grown considerably year over year.
But a smaller amount of developers benefiting from it must be concern for Apple.
In sheer reach for user – measured in monthly app downloads – Android is already considerably outpacing iOS.
In a publisher world of reduced efficiency of distribution and raised costs, Apple is creating a flaw in its ecosystem that hopefully will not grow with time.
Publishers, either way, should continue to be bullish about creating mobile content. For the first time in history they can truly rely on competition between platforms – especially from Android and Amazon – to be a major incentive for all players that drives discovery and marketing of their content forward.
Photo: Kathy Quirk-Syvertsen/Getty
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