The economic boom created by Apple and Google through their iOS and Android platforms has precipitated a renaissance among entrepreneurial developers. With some of the lowest barriers to entry in the history of software development and distribution, apps are getting built and downloaded at breakneck speeds. Earlier this month, Apple crossed a record 25 billion downloads from more than 550,000 available apps. Google announced in December 2011 that it had crossed 10 billion downloads from 400,000 available apps.
As markets mature, rational economic behavior emerges. Even the most passionate, idealistic software start-ups focus increasingly on markets where revenue generation is highest. In this report, Flurry compares the ability for app developers to generate revenue per user across the major app stores. We examine a basket of top-ranked apps that have similar presence across iOS, Amazon and Android. Their primary business models are in-app purchase, which is the revenue type we compare for this analysis. Additionally, earlier research by Flurry found that the in-app purchase revenue model generates the majority of revenue for apps. Combined, these apps average 11 million daily active users (DAUs). We measured their revenue per user over a 45-day period, from mid-January through the end of February 2012.
The chart above compares revenue generated per user across iOS, Amazon and Android app stores. We start by taking the revenue generated per user in the iTunes App Store and setting it to 100%. We then compare the relative revenue generated per active user from Amazon and Google to the amount of revenue per active user generated by the iTunes App Store. Doing so, we find that Amazon Appstore revenue per active user is 89% of iTunes App Store revenue, and Google Play revenue per active is 23% of iTunes App Store revenue. Another way to interpret the results is that, for the same number of users per platform, every $1.00 generated in the iTunes App Store, will also fetch $0.89 in the Amazon Appstore and $0.23 in Google Play. These results mirror those of a similar analysis conducted by Flurry last December, where we found for every $1.00 generated per user in the iTunes App Store, developers generated $0.24 per user in the Android Market.
Amazon's bet to fork Android in order to put consumers into their own shopping experience on Kindle Fire appears to be paying off. Showing its commerce strength, Amazon already delivers more than three times the revenue per user in its app store compared to what Google generates for developers.
For some possible insight, let's consider the DNA of each company. Apple runs the highest revenue-per-square foot generating retail store on the planet as well as the successful iTunes store. Amazon, who invented the one-click purchase, perfected online shopping with data, efficiency and customer service. Google’s strength is in scalable online search engine and advertising technology. Running a store, retail or digital, has not been Google's traditional core competency.
As developers make decisions to support different platforms, the ability to generate revenue per user will always be a key factor. Based on revenue potential, we expect to see an increasing number of developers support Amazon. We also believe that companies such as Samsung, the leading Android-supporting OEM, could also consider emulating Amazon’s move to fork Android. Google, who recently saw the departure of Eric Chu, the most public-facing proponent of Android Market improvement, will need to reduce commerce friction to maintain strong developer support. From an ecoystem perspective, the emergence of Amazon as an additional distribution channel appears to be a boon for developers.
[UPDATE: For clarity, I went back through this post and specified, where appropriate, including in the title of the chart, that the revenue comparison in this analysis was per user, not total revenue generated. Peter]
In just two years, tablet computing has gained unprecedented traction. According to research firm Strategy Analytics, global tablet shipments more than doubled during the last three months of 2011, rising to 26.8 units, up from 10.7 million a year earlier. And while Apple continues to dominate the tablet category, having sold a record 15.4 million units during the final quarter of 2011, Android OS tablets have increased their share of the tablet category, growing from 29% in Q4 2010 to 39% in Q4 2011.
The increase in market share is due largely to the entry of the Kindle Fire by Amazon. With Flurry in tens of thousands of Android apps, including many of the most popular, the company estimates that it tracks over 20% of all consumer sessions on more than 90% of all Android devices each day. A session is defined as the launch and subsequent exit (or pause for more than 10 seconds) of an app. For example, a consumer may play a game in one sitting for five minutes. Let’s take a look at the data.
The chart above compares application sessions among all Android tablets before and after the holiday season. For January, we use month-to-date figures, at the time this report was written. Since we’re looking at proportions of use, estimating the remainder of January would not change percentages. For an easier visual comparison, we label Amazon Kindle Fire in orange and Samsung Galaxy Tab in blue. On the left, in November, we see that Samsung Galaxy Tab dominated application session usage on Android, with the Kindle Fire only having recently launched. At that time, the Samsung Galaxy Time was widely considered the only viable competition to the iPad, though a distant second. In January, after the holiday boom in devices and in apps, we see that strong adoption of Kindle Fire, combined with significant downloads driven from the Amazon App Store, resulted in a massive surge in session usage that just edges out the Galaxy Tab. Unrounded, Kindle Fire represents 35.7% of sessions and Galaxy Tab represents 35.6%. Remarkably, and from a standing start, the Kindle Fire overtook the Galaxy Tab in just a few short months. Total Android tablet sessions in January more than tripled over November, with Galaxy Tab sessions increasing by more than 50%. Overall, Android Tablets are growing aggressively as a category.
Amazon Uses Its “Fork” to Eat Samsung’s Lunch
So how can a late entrant like Amazon, with little-to-no hardware DNA, waltz in and knock off a consumer electronics juggernaut like Samsung, a company that also enjoyed strong growth in 2011? This is where we believe things get interesting. In short, Amazon’s launch of Kindle Fire had more in common with an Apple-style launch than it did with aligning with the Android system. To date, the Android world has focused on marketing the operating system and the “power” of the devices, with quality of content and the consumer experience subordinated in priority. With Google managing the Android Market, which lacks content control and a seamless commerce experience, inertia pushes those developers who choose to build for the platform toward advertising models. Developers who monetize through other means tend to make less on the platform. To ensure that it could take full advantage of its unique digital store prowess, Amazon forked the Android operating system.
Apple, on the other hand, understands that great content is the key to increasing the attractiveness of hardware. They learned this hard way during the 1980s when an inferior combination of PC hardware and operating systems overtook Apple computers, primarily due to a lack of software. This time around, for the iPhone and iPad, Apple created a robust economy in which developers could thrive, ensuring their allegiance to innovating for the Apple platform, ultimately making Apple hardware more desirable, and creating a rare, but powerful virtuous cycle. To understand how well Amazon might attract developer support, we studied how well Amazon drives paid downloads in its store versus the Android Market through the Kindle Fire and Galaxy Tab, respectively.
To build this chart, we gathered download data from a “basket” of 5 paid apps that ranked in the top 10 apps in both the Amazon App Store and Android Market during January 2012. We then compared how many of these paid downloads were downloaded to the Galaxy Tab versus the Kindle Fire. From our analysis, we found that the Kindle Fire drove over 2.5 times more paid downloads to consumers than the Samsung Galaxy Tab. This shows that for tablets, the Amazon App Store can already deliver more direct revenue to developers than the Android Market. Even more impressive is that the Galaxy Tab, launched in November 2010, has a much larger existing installed base than the newly launched Kindle Fire. Flurry estimates that the active number of Galaxy Tabs in the market is at least twice that of the Kindle Fire.
Amazon Thinks Different
Amazon’s go-to-market strategy for the Kindle Fire is ground breaking among the Android guard. With its offering, Amazon takes the focus away from the device and operating system, emphasizing content, a differentiated consumer experience and commerce. For its launch, it lined up key content such as Facebook and Angry Birds, as well as offering Amazon Prime, its own streaming TV and movie service. Beyond leveraging its cloud and e-commerce infrastructure, Amazon controls its own store, commanding among the largest aggregations of consumer credit card accounts on the planet. Upon launching the Kindle Fire, consumers must either link to their Amazon account or enter credit card information. This makes the user base 100% payment enabled.
Amazon’s approach to the distribution of digital content is the ultimate razor-razorblade model, where the “stalk” (tablets) is given away for as little as possible and profits are made from the sale of razors (content). Understanding that Amazon is a high volume seller of goods, now becoming ever more digital than physical, sheds light on why they embrace the end-user experience and the religious focus on making the sale of content compelling and easy. Further, it shows us why launching with an aggressive low price penetration strategy for their hardware, priced at $199, was critical to its strategy.
Making the Old New Again
Amazon, who once moved the world from buying goods at retail to buying them online and having them shipped to doorsteps, is now distributing the new form of mobile store via tablets. In a move that reduces the possibility of its own disintermediation, Amazon’s distribution model starts with its own roots: books, music and video (aka “BMV”). Through this move, Kindle Fire is changing the rules of engagement on the Android platform to shape the playing field into one where they, the consumer and the developer win.