Monday, April 25, 2011

Software : In Depth: How to make money from app development

Software : In Depth: How to make money from app development

In Depth: How to make money from app development

Posted: 25 Apr 2011 04:48 AM PDT

According to the media hype, the new phone app market is like a modern day gold rush.

Headlines like 'Infinity Blade makes $1.6million in five days', 'Make $100,000 a year selling Android apps' and 'Angry Birds makes $2million a month' are enough to make a lot of hobbyist programmers sit up and listen.

Developers from all walks of life are rushing into previously unexplored territory and staking their claim in the hope of finding their fortune in them there hills. So should we all get involved? Who's really making the money here? Are the app markets truly a level playing field?

Make no mistake, mobile phone apps are big business. The potential profits are now big enough for people to dedicate themselves to app-building as a career choice.

The Apple App store alone has already had 10 billion apps downloaded since its creation. Add to that the millions more from Google's Android Market, Nokia's Ovi Store, Research in Motion's App World, Microsoft Marketplace and Samsung Apps, and you can see why this growing marketplace is encouraging a hive of activity in app creation.

The creation of the phone app has been a revolution - it's a whole new way to sell software, to advertise, to provide avenues for social networks and to inspire brand loyalty. Best of all, the app users carry their phones with them 24 hours a day. It's no wonder so many big brands now have their own apps, and that increasingly professional outfits are competing with the amateur developers for a place on customers' phones.

At the moment, though, it's still a wide open market, where anyone can strike it rich. All you need is a laptop and the willingness to have a go at some programming. And people are. Individuals, small groups and major corporations are all joining in the frenzy to exploit this burgeoning market, and it's led to some impressive and unexpected success stories.

As Donald Mustard, the man behind game app Infinity Blade, told us: "It really is like the Wild West."

Bubbles vs Birds

One of the most famous examples of the unpredictable nature of success in the app world is the battle between Angry Birds and Bubble Ball in the game download charts. Angry Birds is the most popular game in the app world: it's been downloaded over 50 million times since its debut in 2009, it took eight months to make and cost a reported $100,000.

In December 2010 it was knocked from its top spot on the App Store by Bubble Ball - a simple physics game with very basic graphics, cooked up by a 14-year-old called Robert Nay from America with the help of his mother and some books from the library.

With four million downloads in a month, Robert is the latest App Store success story. Don't be fooled, though, there is a big difference here - the paid-for Angry Birds is making millions a month for Rovio, the company that created it; the free download Bubble Ball has made its creator nothing. Well, nothing apart from worldwide fame and the likelihood of his choice of programming jobs when he leaves school, of course.

Cut the rope

COMPETITIVE MARKET: Cut the Rope was hugely successful, but was eclipsed by Infinity Blade

And here's the crux - half of the apps that make headlines for achieving a million downloads in a matter of days are free. Yes, these people are 'app millionaires', but they won't be seeing a single penny from sales.

Free the adverts

That isn't a problem with foresight. Rovio released a free version of Angry Birds on the Android Market with an advertising bar on it, and the ads are now making the company more per month than the paid-for version - millions of dollars.

This isn't an option for every app, though. This revenue system relies on the amount of time people spend playing Angry Birds - and they play it a lot.

As Rovio spokesperson Ville Heijari told us, "What has been most impressive for us is the estimated 200 million minutes that our users spend on average with the game every day." That's the equivalent of the viewing figures for a small TV channel.

That didn't happen by accident - a great deal of research went into creating Angry Birds. As Heijari said, "Rovio had produced 52 mobile games prior to Angry Birds since 2003, so the core team [already] had a pretty solid experience at developing games."

Rovio specifically concentrated on the retention of users - it didn't want to create an app people would download once then forget about. To help this, every month the Rovio team releases an update for the app (and 80 per cent of people with the game accept that update).

Oddly, these free updates also lead to an increase in new downloads of the app, probably because as the updates encourage people to play it again so new people (users' friends, for example) are exposed to it.

With all this experience and the eight-month development cycle, did Rovio expect the success it got? "When we released the game," said Heijari, "we had a strong gut feeling that we had a hit game in our hands, with the potential for at least 200,000 downloads. So we can honestly say that we did exceed our every expectation."

Rovio may not have expected the response it got, but it quickly turned it to its advantage. Angry Birds is now a brand, and Rovio is examining a whole wealth of possible profit-making spin-offs - keep an eye out for the Angry Birds TV series, board game, soft toys and PC games coming your way soon.

Smaller scale profits

Don't be put off by the Angry Birds figures, though - there are developers out there making a tidy profit from advertising on free apps that are nowhere near that scale.

One of them is Neil Inglis, the creator of Sleeps to Christmas, who took time out of his busy schedule to talk to us. We asked him how he got into developing apps:

"I've been a software engineer for six years, but always on large systems that took months to develop and even longer to deploy!" he said. "The idea of being able to produce a small, self contained app that satisfies the needs of a user and lets you see results instantly really appealed to me."

Inglis has developed a few apps, but what has been his best creation so far? "Sleeps to Christmas has been my most successful. It's a small, fun application that really appeals to children and families. I've had over 1.5 million downloads and [the app has] spent some time as the number one top free app in the UK. The app is ad-supported and brings income in the tens of thousands of pounds a year."

So, is developing apps now his only source of income? "I'm at the point where I could sustain myself purely on developing apps," he says, "but I'm somewhat nervous about the stability of the income so I'm not quitting my day job - yet."

What model does Inglis think works best - selling apps for free with advertising, or just publishing paid-for apps?

"It very much depends on the type of application," he explained. "For apps marketed at the 'mass market', advertising works really well, but you need to ship in large volumes. For specialist apps, you'll never make enough out of advertising, no matter how targeted, so paid is the way to go. There are still issues convincing users it's worth paying the price of a cup of coffee for an app, but I hope this changes in the future."

There's another way you can make money from free apps, but you have to be in for the long haul and you could be disappointed at the end.

Some creators of totally free apps are concentrating on the advantages that come with building a social network. One such app is Instagram, a photo-sharing app that hit the headlines in December and already has investors showing a keen interest.

Instagram

INSTAGRAM: Photo-sharing site Instagram had a million people download its app within three months of its launch

We asked Josh Riedel, Instagram's Community Manager, whether the company expected the app to take off as it did:

"We never expected the overwhelming response we received," he said. "We went from literally a handful of users to [being] the number one free photography app in a matter of hours after our launch. In just three months, over a million people are using Instagram as a way to communicate with their friends through photos. We've also seen huge adoption internationally, and as a result, we've translated the app into seven different languages."

He was a little less forthcoming about exactly how the company plans to make money from the app. "Our focus is on producing the best possible product for users and growing the user base," he explained. "We have many potential business models, but all of them make sense at a larger scale."

In-app purchasing is yet another way for developers to make money from free apps. This begins with you offering your app for free so it can get to the greatest number of people possible. Then, once you've proved that it's something people want in their lives, you offer them the chance to extend its functionality for a small fee.

With games, this could mean granting access to more levels, removing the advertising bar, or even just kitting the player's character out with personalised clothes or better weapons. Utilities would simply offer more functions, or the ability to share data with more devices.

With in-app purchasing, you're advertising to the most direct market possible - people who have your app and are using it.

Bad Piggy Bank

In-app purchasing is clearly of interest to the big players in free apps, as the planned appearance of the Bad Piggy Bank in the Android version of Angry Birds demonstrates.

The Bad Piggy Bank is an in-game payment model, which lets users remove advertising from the free version of the game or purchase the upcoming Mighty Eagle update. Rovio is currently testing it in Finland, and provided it can negotiate the necessary deals with mobile phone operators in other territories, it will be making its way elsewhere too.

A major advantage of getting payment this way is that the cost of the additions is simply added to the user's phone bill, so no credit card is needed. Rovio is also planning to let other Android developers use the technology.

With all these possible routes to make money from free apps, what about those developers doing it the old fashioned way and putting their apps up for sale?

There are a few things to consider. Android and Apple will charge you 30 per cent of your revenue for hosting your creations on their app markets. This is attractive in that if you don't sell anything you lose nothing, but if you do, you only see 70 per cent of what you make.

Also, with Apple, you have to put up with its submission process, meaning all your hard work could be for nothing if your app is rejected. Lastly, with the way the app stores are structured at the moment, it takes a lot to knock those at the top from their lofty perch, because they get the most exposure and are likely to be the ones new users download.

Building the hype

Playing the long game in building interest in your app is a sensible business model, but it's possible to take a shortcut to success by piquing the media's interest.

Chair Entertainment, creator of the role-playing game Infinity Blade, managed to do just that by creating the most impressive looking game ever seen on a phone. It uses the Unreal game engine - the same platform behind the likes of console and PC games such as BioShock.

Infinity blade

BIG MONEY: Infinity Blade is the fastest app to make $1million to date - it took just four days

This led to a lot of hype before its release, which may account for the fact that Infinity Blade is reportedly the fastest game to make a million dollars - it was just four days, halving the previous record held by Cut the Rope.

To find out how Infinity Blade achieved this remarkable feat, we spoke to Donald Mustard, Creative Director of Chair Entertainment, about how useful the hype was in generating sales.

"Well it's actually a kind of a danger too," he said. "It was a worry that people were expecting a lot, but we were just making the best game we could."

Mustard was coy about how much the game cost to develop. When we mentioned that Angry Birds reportedly cost $100,000 to make, he replied, "Blade cost a lot more than that! Mostly because it's 3D, which takes a lot of time."

So does he think it was a risky strategy to invest so much money on a £3.49 phone app? "It was a calculated risk," he explains, "although we didn't really know."

Dot com 2?

With millions being generated by apps big and small, are they truly the future, or are we just experiencing the same kind of buzz we saw when the internet started to take off? Is the app trend all hype and no real substance?

There's undoubtedly a lot of silly money being thrown about by venture capitalists and investors in the hope of being in at the start of the 'next big thing', but with real, substantial profits now being generated, and proven ways to monetise apps being explored, there seems more hope that we can avoid financial meltdown than last time.

Of course, the surest way to make money from apps is to own Apple or Google - they're the ones making 30 per cent on all app sales without lifting a finger.
Posted by at

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)