During the month of November, Flurry reached a major milestone, measuring more than a trillion unique events completed inside of mobile apps by consumers. The magnitude of this number, and what it means to an industry barely over four years old, that has already generated tens of billions of dollars, is unprecedented. An industry has shot up around Flurry in a way that no one, anywhere, could have imagined.
So it was against this backdrop that I began reading a series of differing investment theses written by Fred Wilson of Union Square Ventures (What Has Changed), Dave McClure of 500 Startups (What Hasn’t Changed) and Chris Dixon of Andreessen Horowitz (The Product Lens). The gist was about the cyclical nature of investing between consumer internet and enterprise companies, with another suggestion to focus on product over finances. The debate is entertaining, and not surprising. It validates a theory I’ve held since the mid-nineties about the fundamental difference between entrepreneurs and investors. Simply put, entrepreneurs focus on opportunity while investors focus on risk.
The venture industry wants familiarity, so it talks about consumer versus enterprise. The web comes with an understood set of metrics like page views, visits, unique users, returning visitors and bounce rates, to name a few. And there’s still a standard way of buying traffic (SEM) and getting traffic organically (SEO). There’s a clear index and path to the web, called Google, and most VCs understand Google economics. They understand the lifetime value vs. cost per acquisition equation. They can value businesses accordingly.
What the venture industry doesn’t yet understand is mobile and apps. Traffic acquisition is still an art more than a measurable science. No one has defined a set of metrics that the venture industry can use to universally compare the value of one app property to another, and business models on mobile are still new. On Sand Hill Road, the best line I hear is that “99 cents is the new free,” referring to the freemium model, but few truly understand what it means.
Mobile and apps are gobbling up the web and consumer Internet, and that’s where the opportunity is. And the opportunity has never been bigger. All around me, I see entrepreneurs living it, loving it and collecting it “99 cents” at a time. Meanwhile, the VCs are debating it.
Mobile App Growth: Measured by Flurry
In the month of November, we measured over a trillion events from over 250,000 applications created by more than 85,000 developers. Events are actions completed by consumers inside apps such as completing a game level, making a restaurant reservation or tagging a song. In November, we also measured over 60 billion sessions, which is the start and a stop of an application on a mobile smart device. The chart below shows the growth in events tracked since May of 2008, when we first made our analytics service available to developers. This growth reflects the growth of the app economy.
Mobile Apps: Dominating the Web and Challenging Television
The chart below updates Flurry’s analysis comparing time spent in mobile apps on smartphones and tablets to time spent on the web using a browser. For web usage on desktops, laptops and smart devices, we build a model using publicly available data from comScore and Alexa. For mobile applications, we use Flurry Analytics data, now gathering data from over 250,000 applications. This time around, we add time spent on television using data released by the United States Bureau of Labor Statistics for 2010 and 2011. Note that the bureau hasn’t yet released their 2012 numbers, but given the maturity of the TV market, we assume that time spent on TV is flat year-over-year.
Between December 2011 and December 2012, the average time spent inside mobile apps by a U.S. consumer grew 35%, from 94 minutes to 127 minutes. By comparison, the average time spent on the web declined 2.4%, from 72 minutes to 70 minutes. By our measurement, U.S. consumers are spending 1.8 times more time in apps than on the web.
The chart also shows that time spent in apps already totals 76% of time spent on television. With new content released via thousands of new apps each day, we expect this trend to continue. In fact, we ultimately expect apps on tablets and smartphones to challenge broadcast television as the dominant channel for media consumption. Compared to the 60-year-old television industry, apps are just over 4 years old. In particular, tablets will drive growth in app consumption in 2013 as TV-style content and major programming moves to the tablet. Most TV Networks have already adjusted to a dual screen world and are synchronizing their TV content with their tablet app content. We believe that, with the introduction of connected TVs, TV shows will behave like apps.
Media, Games and Entertainment: The 80/20 Rule
Finally, we measured the time spent using mobile apps per app category across iOS and Android smart devices. For this comparison, we use Flurry data over the month of November 2012 as a baseline, and then adjust based on Flurry’s penetration per category. The chart below shows that 80% of the total time spent is across gaming, social networking and entertainment categories.
The stats on gaming are particularly interesting. Returning to the Bureau of Labor Statistics survey data, the average U.S. consumer spent 1.2 hours (72 minutes) per day playing a game, on any platform. Our data shows that 43% of time spent in mobile apps, 55 minutes, is spent in games. This means that mobile gaming on tablets and smartphones has absorbed 76% (55 of the 72 minutes) of the total time consumers spend on gaming, anywhere. Now, that's disruptive.
In just 4 years, mobile apps have overtaken the web and are beginning to challenge television, the top media channel. As we enter 2013, the app industry shows no signs of slowing. On the contrary, we continue to see a strong flow of new devices and new apps activated in our network. While VCs debate what part of the investment cycle we’re in and how to manage risk, all entrepreneurs need to know - from one entrepreuneur to another - is that you're witnessing the opportunity of a lifetime.
Marshall McLuhan popularized the idea of the “global village” in the 1960s through his books The Gutenberg Galaxy: The Making of the Typographic Man and Understanding Media. McLuhan, who is credited with predicting the concept of the Internet decades before it actually existed, described the instantaneous movement of information from every quarter to every point at the same time, enabled by electric technology. The result is that the globe contracts into a village.
Post-Internet, the explosive adoption of iOS and Android smart devices best extends his theory. Enabled by this new computer-mediated platform is the distribution of apps, from every quarter to every point, at the same time. Consider that in the United States today, right now, teams from Finland, Japan, Israel and the UK share top grossing positions alongside U.S. teams in the iTunes App Store and Google Play. Today, in the top Chinese app stores, one can find American, French and Japanese companies alongside Chinese companies for a top share of revenue. And in the top UK app stores, companies from Serbia, Finland, Japan, China and the U.S. are counted among local UK companies as top revenue generators.
Welcome to the new global village built on a foundation, per Flurry’s count, of three quarters of a billion active iOS and Android smart devices, simultaneously running across more than 220 countries and territories that will generate revenue approaching $10 billion in 2012. This report focuses on the further shrinking of the global village, driven by the prolific spread of global smart devices over the last 12 months. We show which countries have the largest active smart device installed bases, are experiencing the fastest growth and how the distribution of app usage is shifting to become increasingly international. For its analysis, Flurry uses data from more than 250,000 applications that it tracks, running on more than 750 million devices worldwide. With its application coverage, Flurry estimates that it can reliably detect over 90% of all iOS and Android devices active in the world during a given month.
Let’s start by looking at which countries make up the world’s largest app markets.
The chart above shows the top markets by their active iOS and Android user bases during October 2012. The US and China tower over the next group of top markets by at least five times. And while the U.S. has added a whopping 55 million net active devices since October 2011, China has added a dizzying 125 million, a figure that totals the sum of the UK, Japan and South Korea’s combined, current active user base. Flurry predicts that China will surpass the U.S. in total installed base by the end of Q1 2013, delayed only by the upcoming massive holiday season that will spike the U.S. installed base.
The chart above shows the growth in active devices per country between October 2011 and October 2012. China leads the world with an impressive 293% year-over-year growth rate, spurred by the potent combination of its vast population and rapidly growing middle class. For this chart, Flurry selected countries that had a minimum of a half a million active devices as of October 2011. Compared to prior Flurry international growth studies, we note that a new set of fast-growers has now entered the top 10 including Colombia, Ukraine, Venezuela and the Philippines, further demonstrating the shrinking global village.
Lastly, we look at the volume of application usage across the globe tracked by Flurry, which we estimate comprise of approximately one fifth of all worldwide app sessions on iOS and Android, the world’s largest cross-platform sample. Year-over-year app sessions in the U.S. declined as a proportion of WW sessions between October 2011 and October 2012, from 48% to 29%. The balance of the top 10 (ranks 2 -9) grew from 27% in October 2011 to 39% in October 2012. The rest of the world also made gains from 25% in October 2011 to 32% in October 2012. In total, 71% of all app sessions now take place outside the U.S.
Over the last century, the distribution of the world’s information has migrated from print (e.g., books and newspapers) to mass media (e.g., radio and television) to computer-mediated media (i.e., the Internet). Over just the last five years, however, we’ve taken the most significant step forward in the evolution of media distribution with the unprecedented adoption of smartphones and tablets: portable, broadband-connected super computers connected to The Cloud. Applying McLuhan’s point of view that “the message is the media,” apps are the new message.
Regardless of a company’s earlier success, thriving in the new mobile app economy depends on engagement and retention. After acquiring users, the real battle to keep and ultimately monetize consumers begins. In the brave new world of “mobile first,” engagement is the new battleground.
This research is a redux to one of Flurry’s most popular reports, entitled Mobile Apps: Money, Models and Loyalty. Released three years ago, the initial report organized app category usage into a loyalty matrix. We do the same again now, while also acknowledging that a lot has changed in the app economy since then. To start, there is an order of magnitude more available apps in the App Store, now brimming with over 700,000 app choices for consumers. We are three generations beyond the then-new iPhone 3GS. We have since met the iPad, and perhaps tomorrow will meet the iPad Mini.
Combined, smart devices – iOS and Android smartphones and tablets – are the fastest adopted technology in history; adopted faster than electricity, televisions, microwaves, personal computers, cell phones, the Internet, dishwashers, stoves, and a whole lot more. Last month, Mark Zuckerberg, CEO of Facebook – the number two most visited website on the web – declared “we are now a mobile company” explaining that “you just could do so much better by doing native [application] work” versus using languages like HTML5 on top of browsers. Each month, approximately 600 million of Facebook’s 1 billion monthly active users already accesses Facebook via mobile.
Each app category has different user engagement and loyalty characteristics. Understanding a given app audience based on the category to which it belongs can inform a company’s app acquisition, retention and monetization strategies. For this analysis, we use a sample of apps used more than 1.7 billion times each week. In total, more than 80,000 companies use Flurry Analytics across more than 230,000 apps to understand consumer behavior and improve their apps.
The above matrix plots application categories by how often they’re used compared to how long consumers continue to use them over time. Specifically, we plot the 90-day retention rate of app categories on the x-axis against the frequency of use per week on the y-axis. We lay the “scatterplot” out in a Cartesian coordinate system with four quadrants. For our categories, we started by taking the application categories defined by Apple in the App Store. In cases where a cluster of applications within a parent category showed meaningful usage differences, we created a sub-category. For example, Flurry divides games into Social Games and Single Player Games given how differently consumers use these sub-categories.
Quadrant I includes apps that are used intensively and to which consumers are loyal over time. News and Communication apps are the two categories that appear in this category. On average, because these apps tend to have stable, growing audiences, they are best positioned to generate advertising revenue or charge a subscription. Consumers perceive these apps to deliver enduring value over time.
Quadrant II is comprised of apps that are used intensively, but for finite periods of time. They are perceived by consumers to deliver value in bursts. Streaming Music, Dating and Social Games best typify this quadrant. Consider for a moment why Dating is a category that appears in this quadrant. For most people, we can assume that finding a long-term “significant other” is the ultimate goal of dating. As a result, the app maker should expect customer churn. While usage may be high during the time when a consumer looks for a suitable partner, once that person is found, usage stops. An implication could be that to maintain a growing audience, apps in this category require heavy, constant acquisition to find consumers who are “in the market” for dating. Ironically, the better the app is at match making, the more churn it should expect.
Quadrant III contains apps that are used infrequently and have high churn. They contain the most “one-and-dones.” Personalization is an example that makes sense for this quadrant, since a consumer uses this app to change her screen saver or select a theme for her operating system. Once this set-up is complete, it’s unlikely that the user will need to re-use this application. Since the app’s value is diminished almost immediately, applications with this kind of usage pattern are best served with premium pricing models; that is, charging the consumer before providing access to the content.
Quadrant IV is made up of apps that are used infrequently but deliver very high value when used. Even though they’re used only occasionally, these apps can remain on a consumer's handset almost indefinitely. For example, consider how useful an airline, hotel or rental car-booking app is to a business traveler. While the app remains unused between business trips, its value spikes as soon as the next business trip needs to be scheduled.
Which Pill to Take
The quadrant an app falls into can help the content creator decide what business model is best. On average, Quadrants I and IV (the right-hand side) are better suited to subscription and advertising-supported models. The main reason is that these apps have perceived enduring value by consumers over a long period of time, and therefore more successfully retain their user bases. For ad-supported apps, high repeat usage translates into more ad impressions served. Categories on the left-hand side, Quadrants II and III, are better suited for one-time download fees. Additionally, quadrants II and IV (top left and bottom right) are likely best for in-app purchase models. For Quadrant II, the intense usage means that consumers find very high value during a short window. This creates the opportunity to offer new content or functionality during “binge” usage. Adroit social game makers are masters at driving in-app purchases during a consumer’s greatest moment of engagement. For Quadrant IV, because the user will return again and again, there also exists the possibility to find new ways of increasing value, which includes offering add-on functionality or content for a fee.
For more data, the table below provides 30, 60 and 90-day retention rates as well as weekly frequency of use numbers. Note that some of the categories included in the table below are not included in the matrix chart above.
Compared to Flurry’s 2009 analysis, 90-day retention rates have increased from 25% to 35%. Additionally, frequency of use has decreased from 6.7 in 2009 to an average of 3.7 now. We attribute increased retention rates to increased quality in the market, driven by more competition. With tens of thousands of more companies building apps and hundreds of thousands of more available apps, the quality of apps has risen dramatically. Simply put, app makers are getting better at holding a consumer's attention longer. Additionally, we believe usage rates are lower because consumers have more choice than ever and are splitting their time across more applications. While Flurry included 19 categories in its 2009 report, we now include 30 distinct categories as the industry has matured and more distinct verticals have appeared.
Brave New World
With more than a billion smartphones and tablets now in use, as well as the eventual move of apps into the living room through connected TV efforts by the likes of Apple and Google, digital distribution is changing the way the world does business. No matter what category your app belongs to, understanding and improving user engagement is the new currency of doing business in the new digital world.
The rate of iOS and Android device adoption has surpassed that of any consumer technology in history. Compared to recent technologies, smart device adoption is being adopted 10X faster than that of the 80s PC revolution, 2X faster than that of 90s Internet Boom and 3X faster than that of recent social network adoption. Five years into the smart device growth curve, expansion of this new technology is rapidly expanding beyond early adopter markets such as such as North America and Western Europe, creating a true worldwide addressable market. Overall, Flurry estimates that there were over 640 million iOS and Android devices in use during the month of July 2012.
This report reveals which countries have the largest active smart device installed bases, are experiencing the fastest growth and are most penetrated. We also show how the distribution of app usage is shifting to become increasingly international. For this report, Flurry uses data from more than 200,000 applications that it tracks, running on more than 640 million devices worldwide. With its application coverage, Flurry estimates that it can reliably detect over 90% of all iOS and Android devices active in the world during a given month. Let’s start by looking at which countries make up the world’s largest app markets.
Compared to July 2011, the United States and China continue controlling the top two spots, with China dramatically closing the gap on the United States. Year-over-year, Flurry calculates that net active devices in the U.S. grew by approximately 30 million, while China saw more than 100 million new active devices enter the market. At this rate, China’s active installed base could overtake the United States as early as the 2012 Holiday season. Please note that Flurry detects actual active devices upon which apps are running, and that these numbers will differ than reported hardware sales by OEMs. Compared to last year, 9 of the top 10 countries remain unchanged, excepting Brazil, which pushes Australia just out of the top 10, into the 11th position.
The chart above shows the growth in active devices per country between July 2011 and July 2012. China leads the world with an astounding 401% year-over-year growth, demonstrating the power of the country’s vast population coupled with its rapidly growing middle class. Notably, all four BRIC countries (Brazil, Russia, India and China) are represented in the top 10-ten growth countries for smart devices, reinforcing their new stage of advanced economic development. For this chart, Flurry selected countries that had a minimum of a half a million active devices as of July 2011.
In addition to the fastest growing countries, Flurry also measured which markets are mostly rapidly nearing saturation. Specifically, we compared the number of active devices in each country relative to its adult population, between ages 15 and 64 years old. While Singapore, Hong Kong and Sweden form the top three countries in terms of smart device penetration, indicating their strong consumer technology economies, each country has a relatively small total population, ranging between 5 to 10 million. By comparison, the United States, the fifth most penetrated country with 78% of its adult population using smart devices, has a total population of more than 310 million. South Korea and the United Kingdom have the 2nd and 3rd largest populations among the top 10 penetrated markets, with roughly 50 million and 60 million respectively.
Finally, we look at look at the volume of application usage across the globe tracked by Flurry, which we estimate comprise of approximately one fifth of all worldwide app sessions on iOS and Android, the world’s largest cross-platform sample. Year-over-year app sessions in the U.S. declined as a proportion of WW sessions between July 2011 and July 2012, from roughly one-half to a little over one-third. The balance of the top 10 (ranks 2 -9) grew from 27% in July 2011 to 36% in July 2012. The rest of the world also made gains from 21% in 2011 to 28% in 2012. In total, 64% of all app sessions now take place outside the U.S.
Enabled by digital distribution across the unprecedented growing base of iOS and Android smart devices, global software distribution has never been so frictionless. After building an application, a development team can distribute its app on Android instantaneously and, after review by Apple, can be in the App Store within roughly one week. With international growth accelerating, there has never been a better time, in the history of technology, to be a software developer.
The iTunes App Store and Google Play now offer more than 600,000 apps each. And Apple’s most recent earnings call revealed that the company has paid out more than $5.5 billion to developers since the launch of the App Store. With unprecedented consumer adoption of iOS and Android devices, low barriers to entry for developers and throngs of paying customers, Apple and Google have created massive economic opportunities for developers.
In particular, iOS and Android have made it possible for independent developers and mobile app start-ups to thrive. As industries mature, however, we expect established players and brands to invade from other platforms, depressing opportunities for many early entrants. Along with this, we expect to see market revenue concentrate among fewer larger players. For this report, with these typical patterns in mind, Flurry modeled worldwide mobile app revenue, revenue sources and revenue concentration among top-ranked mobile apps on iOS and Android. For this report, we used data from over 200,000 mobile applications in the Flurry Analytics data set. Let’s start with market growth.
The chart above compares worldwide revenue generated by iOS and Android apps in 2011 vs. 2012. For 2012, we modeled the first half of the year based on actual data, and then applied growth rates to estimate the rest of the year based on the proportion of revenue observed in 2011 between the first and second half of that year. In 2011, Flurry calculates that iOS and Android applications generated a total of $5.4 billion across premium, in-app purchase and advertising revenue. Advertising made up 18% of the revenue. In 2012, Flurry forecasts that revenue will grow by 60% over the previous year, reaching $8.7 billion. Advertising is the fastest growing revenue category with growth forecasted at more than 100%, from $980 million in 2011 to $2 billion in 2012, delivering 23% of 2012 total revenue. Likewise, premium and in-app purchase revenue is also increasing at a rate of 50%, from $4.5 billion in 2011 to $6.7 billion in 2012.
Next, we look at the concentration of revenue among top ranked apps from 2010 to 2012. Please note that for this analysis, we focus on premium and in-app revenue only, excluding ad revenue. Comparing these two years shows how dramatically the distribution of revenue is shifting across the long tail. Starting on the left, in 2010, the green part of the column shows that 28% of revenue was generated by the Top 25 ranked titles on iOS and Android. In 2012, we estimate that the Top 25 will drop to commanding about half of total revenue, or 15%. Likewise, comparing the grey sections of each column, the rest of the Top 100 apps will drop from earning 27% of revenue in 2010 to 17% of revenue in 2012. Conversely, revenue generated by the long tail significantly grows from 2010 to 2012. Comparing the blue sections, any apps ranked beyond the top 100, we observe that long tail revenue explodes from earning under half of all premium and in-app purchase revenue in 2010 to over two-thirds in 2012.
Finally, we rank the revenue generated by each of the top 100 positions across the iTunes App Store and Google Play. For each year, we set the revenue generated by the top spot at 100%. Then, relative to the top spot, we take the percent each position generates from the 2nd rank all the way through the 100th. By normalizing each curve in this way, we can compare the relative revenue generated per ranked position in the top 100 per year. For example, we can see whether ranking number 50 generates more relative revenue in 2012 versus 2010. Most interestingly, this kind of analysis shows whether the developer “middle class” is better off today than its “parents’” generation.
Now that we have relative earning power mapped per ranked position, we can study the heights and shapes of the curves. Comparing 2010, the green curve, to 2012, the blue curve, we notice that two things are happening simultaneously. First, each position in the top 100 is more valuable now, which makes sense because the market has grown overall. Second, the blue 2012 curve is flatter. Unlike the green 2010 curve, which steeply drops during the top 10 ranked positions, indicating the wealth is more concentrated at the top, the blue 2012 curve stabilizes shortly after the top 5 positions and then maintains a high, gently sloping plateau all the way through the 80th position, where it then settles just above the green curve, ostensibly continuing to “fly” at an altitude higher than that of the green curve out across the long tail. In short, this means that the middle class has more earning power, taking a substantial share of total wealth in the economy.
With the app economy booming, companies like Facebook, Twitter and Zynga are under tremendous pressure from investors to seize the opportunity presented by this new platform. However, with software delivered in the form of downloadable applications, unguaranteed network connectivity, different consumer behavior and control exerted by platform providers such as Apple and Google, the mobile app landscape creates different, meaningful challenges for companies attempting to enter the app space from other platforms. Combined with a marketplace that reduces the power of brand recognition (e.g., apps are free for consumers to try risk free), market wealth unexpectedly continues to shift to the long tail, funding continued R&D, advertising budgets and other activities that increase their competitive strength. The age of middle-class app developer has arrived. In this economy not only are the rich getting richer, but so too are the poor, and gaining on the rich.
This week, wedged between Apple’s WWDC and Google I/O is Microsoft’s Windows Phone Summit in San Francisco on Wednesday, June 20. Additionally, Microsoft is holding a last-minute press conference that “you don’t want to miss” tonight in Los Angeles. Barnes & Noble claims they are not part of the announcement, and others speculate that Xbox Live streaming will be part of the offering. Given the popularity of gaming on smartphones and tablets, and the strength of the Xbox platform, this would be a strong move for Microsoft. Because the development community is strongly made up of gaming studios, a move such as this could help galvanize the 3rd-party development community. Over the last couple of years, there has been an all-out war among Apple, Google, Microsoft, RIM and others to win the hearts and minds of developers. It appears that Microsoft is now making its move.
This report follows up on another released by Flurry earlier this month, showing that Apple continues to hold a strong lead over Google’s Android for developer support. Looking beyond the top two platforms supported by developers, Flurry evaluates the possibility for a 3rd legitimate platform provider to emerge at this stage of the game. At Flurry, we track developer support across the platforms that compete for their commitment. When companies create new projects in Flurry Analytics, they download platform-specific SDKs for their apps. Since resources are limited, choices developers make to support a specific platform signal confidence, as they invest their R&D budget where they expect the greatest return. Flurry Analytics has been adopted by more than 70,000 companies across more than 190,000 applications. Let’s start with a comparison of the Research in Motion (RIM) versus Microsoft.
Microsoft Blows by Beleaguered RIM
The chart above shows the percent of new project starts represented by Microsoft and RIM among all platforms Flurry supports (e.g., iOS, Android, BlackBerry, Windows Phone, etc.). A new project start in the Flurry system is when a developer sets up an application for analytics tracking prior to the launch of that app. Over the past 12 months, Project starts for Windows Phone have grown by more than 600%, now accounting for 6% of all new project starts in the Flurry system during June 2012. As a percent of new project starts, RIM has remained flat. Overall, on an absolute basis, total new project starts within Flurry have grown by approximately 50%.
Microsoft Sets Its Sights on Android
We next combine all new projects across the top 4 platforms within the Flurry system, comparing Q2 2011 versus Q2 2012.
The chart above compares the percent of new projects built by developers per platform within Flurry. For this snapshot, we compare Q2 2011 versus Q2 2012. Year-over-year, developer support has shifted, with Microsoft’s dent becoming more visible, now representing 4% during Q2 2012. iOS and Android share continue to oscillate mildly now clocking in 67% for iOS and 28% for Android. BlackBerry remains flat. What is important to note is that all four platforms are growing, just at different rates. Specifically, growth rates per platform for year-over-year growth are: iOS 66%, Android 82%, Windows Phone 521%, BlackBerry 13%. Viewing the relative growth rates show just how much Microsoft is gaining against the market.
Considering the first chart in this report, Microsoft growth has been accelerating within Q2. If we look at just Android and Microsoft in the month of June, for every Windows Phone new project started, 4 have been started for Android. Considering the much smaller Windows Phone installed based compared to Android, Microsoft is currently over-indexing. From Google’s point-of-view, this must elevate Microsoft from an “also-ran” to a potential competitive threat with the resources and know-how to kick-start momentum and mount a campaign to reel in the second place player.
Generally, Windows Phone could be gaining against the entire market as a result of developer frustration for Android fragmentation, concern for increasing competition on iOS and a lack of faith in BlackBerry. Whatever the reason, it’s clear that Microsoft still knows how to attract third party developer support. With its Nokia-partnership and high anticipation around today’s Microsoft Tablet announcement, Flurry expects Microsoft to make continued headway over the course of 2012.
This month, the world’s two largest mobile app platform providers, Apple and Google, enter what is arguably the most critical month of the year for each company, when each hosts their annual developer conference, the Apple Worldwide Developer Conference (WWDC) and Google I/O. While engaged in a multi-year platform war, their success largely depends on innovation provided for their platforms by the third party developer community. If the developer community embraces one platform over the other, developers will build the software that infinitely extends the value of the consumer experience, giving a platform a meaningful edge. The perceived availability of a large, steady stream of high quality apps is a key reason for consumers to initially choose an Android or iOS device, and then to remain loyal. Moreover, given that the mobile industry is among the leading sectors in the worldwide economy, the outcome of these two conferences can largely impact the fate of some of the most prolific, innovative forces in the world’s economy today. Combined, Apple and Google have a market cap of approximately three quarters of a trillion dollars.
This report compares developer support for iOS versus Android and explores the underlying factors that could explain varying levels of developer loyalty. We use the data set collected by Flurry Analytics, now powering consumer insights for more than 70,000 companies across more than 185,000 mobile apps. Each day, Flurry tracks more than 1.2 billion anonymous, aggregated end user sessions across more than 100 million unique devices. Each month, Flurry tracks over 36 billion end user sessions across more than a 500 million devices, a number that is more than 60% of Facebook’s monthly active user base.
Oh Captain, My Captain
At Flurry, we track developer support across the platforms that compete for their commitment. When companies create new projects in Flurry Analytics, they download platform-specific SDKs for their apps. Since resources are limited, choices developers make to support a specific platform signal confidence, as they invest their R&D budget where they expect the greatest return. Further, because developers set up analytics several weeks before shipping their final apps, Flurry has a glimpse into the bets developers are making ahead of the market.
The chart above shows that Apple continues to garner more support from developers. For every 10 apps that developers build, roughly 7 are for iOS. While Google made some gains in Q1 2012, edging up to over 30% for the first time in a year, we believe this is largely due to seasonality, as Apple traditionally experiences a spike in developer support leading up to the holiday season. Apple’s business has more observable seasonality.
The Apple 2-for-1 Proposition
Among the reasons iOS appears more attractive to developers is the dominance by Apple in the tablet category. Not only does Apple offer a large, homogenous smartphone base for which to build software, but also when developers build for smartphones, their apps run on Apple’s iPad tablets as well. That's like getting two platforms for the price of one. Apple offers the most compelling ‘build once, run anywhere’ value proposition in the market today, delivering maximum consumer reach to developers for minimal cost.
The pie chart above demonstrates just how much Apple dominates the tablet category. The Galaxy Tab and Amazon Kindle Fire hold very distant second and third places in terms of consumer usage. To build the chart, Flurry aggregated total worldwide user sessions across the first five months of the year, January through May.
Android Fragmentation Pain
Opposite to the efficiency Apple offers developers through their homogenous device base, Android fragmentation appears to be increasing, driving up complexity and cost for developers. Further, this fragmentation is concentrated primarily in just smartphones, as there is no serious Android tablet contender to the iPad. For Android, Flurry observes fragmentation along two significant vectors, devices and firmware. Let's look at device fragmentation first.
The chart above shows the number of consumer application sessions across the top 20 Android devices in May 2012. Four major OEMs – Samsung, Motorola, HTC and Amazon – have Android devices in the top 20. 17 of the top 20 hold a share of 6% or fewer, among the top 20, meaning that each additional device a developer supports will deliver only a small increase in distribution coverage. However, on Android, both devices and firmware contribute to fragmentation, so let’s look at firmware fragmentation next.
The above chart reveals that the majority of devices in the market run Gingerbread, which is only the third newest iteration of the Android OS. Honeycomb, more optimized for tablets, and Ice Cream Sandwich, which put a lot of effort into the user interface, have a combined 11% of penetration in the market. Froyo, which shipped before Honeycomb and Ice Cream Sandwich, alone has a higher share of firmware penetration than the two newer, more advance firmware versions combined. This means that the majority of consumers are running on an Android operating system that is three to four iterations old.
Running a comparison of revenue generated by top apps on both iOS and Android, Flurry calculates that the difference in revenue generated per active user is still 4 times greater on iOS than Android. For every $1.00 a developer earns on iOS, he can expect to earn about $0.24 on Android. These results mirror earlier findings from similar analysis Flurry conducted in Q4 of 2011 and Q1 of 2012.
At the end of the day, developers run businesses, and businesses seek out markets where revenue opportunities are highest and the cost of building and distributing is lowest. In short, Android delivers less gain and more pain than iOS, which we believe is the key reason 7 out of every 10 apps built in the new economy are for iOS instead of Android.
Over the next two weeks, the momentum of two of the world’s most innovative, influential and prolific technology companies will be impacted by the reaction of the development community to their conferences, Apple WWDC and Google I/O. And as developers watch Apple and Google, the world should watch developers.
With the frenzy created by the speed and price for which Facebook bought Instagram, app entrepreneurs and investors are excitedly looking for where consumers will next flock within mobile apps. In a recent report, Flurry quantified the dramatic increase in usage among social networking apps on smartphones. For the first time since the App Store launched in summer 2008, the Games category found itself rivaled by another category in terms of time spent in apps. The rise in popularity of apps like Instagram, Path and Skout signals a new era of content consumption on mobile phones where consumers are finding new, compelling ways to spend their time beyond just games.
This report reveals emerging trends in mobile app category usage. By studying how consumer time is shifting across app categories, we provide an early, clear demand signal. In other words, we see where consumers are spending an increasing amount of time in apps beyond Games and Social Networking to show what’s next in mobile app popularity. For this study, Flurry leverages a sample of 8 million active mobile app users across all app categories. Flurry Analytics tracks more than 180,000 applications for more than 67,000 companies across iOS, Android, HTML5, Windows Phone and BlackBerry. The chart below shows the fastest growing app categories based on where consumers are spending their time.
The above chart shows the top five app categories based on growth in minutes spent from October 2011 to March 2012. Starting on the left, the Photo & Video category has grown the most, by 89%, in minutes spent per active user. Music, Productivity, Social Networking and Entertainment round out the top five with growth of 72%, 66%, 54% and 40%, respectively. These categories represent the fastest growing categories in mobile apps over the last 6 months. When considering what’s hot beyond the gaming category on mobile, this gives us a strong indication. Beyond the topical Instagram success story, chances are that future hits are among these categories. Some apps with momentum today include Path, Skout, Viddy, SocialCam, Evernote, Spotify and more. Please note that for iOS and Android, Flurry looks at equivalent categories (e.g., Photos & Videos in the iTunes App Store vs. Media & Video on Google Play). For all charts we use iOS category names.
Trendspotting: The Instagram of Video
We next drill down into the Photo & Video app category to better understand growth in this category. Expanding the time range in this chart, we show the number of minutes spent by active user per month from July 2011 through March 2012.
The “overnight” sensation of video sharing apps like Viddy and SocialCam has actually been more like a 9-month tsunami gaining power. Looking at growth from July 2011 to March 2012, time spent in Photo & Video has grown by 166%. Video sharing apps offer a compelling benefit to consumers, allowing them to conveniently capture, edit and share videos on-the-fly using the powerful mobile computing devices in their pockets. Trained by the sharing behavior of Facebook, and enabled by a confluence of underlying technology like built-in HD video cameras, hardy on-device processors, increased network bandwidth, cloud storage and user-friendly applications like Viddy and SocialCam, social video apps are taking off. It’s a meaningful example of the unique innovation possibilities afforded by mobile apps.
Cool Kids with Pumped Up Kicks tell YouTube: “You Better Run Faster than My Bullet”
Back in 2006, Google acquired the buzzy YouTube for $1.65 billion after its own Google Video service could not keep pace. Now it appears new “cool kids” in the form of Viddy and SocialCam threaten to disintermediate the web juggernaut’s acquisition. In a recent Forbes article, Eric Jackson laid out a hypothesis that the new breed of social companies, typified by Instagram, view mobile as their primary, often exclusive platform. “They don’t even think of launching via a web site. They assume, over time, people will use their mobile applications almost entirely instead of websites.” He concludes that “we will never have Web 3.0, because the Web’s dead.” Just consider that it’s now possible to capture, edit, share and view engaging, meaningful videos among friends, all from your phone, without ever touching a computer. In this perspective, a threat to YouTube begins to feels real.
To generate a comparison between mobile app and Internet video consumption, Flurry combined its data set with publicly available comScore Video Metrix data. In the chart above, we show the number of minutes consumers spend per month using smartphone video apps versus Google Sites on the Internet (primarily YouTube). Over the course of 2011, minutes spent viewing video content online grew from 276 minutes to 472 minutes, or 71%. Over the same time period, video apps grew from 63 minutes to 152 minutes, or 141%. While mobile app video consumption grew more than online consumption, the gap in usage at the end of 2011 was still meaningful. During 2012, however, is where things get interesting. As online video consumption dropped by 10%, mobile app video consumption increased by another 52%. By then end of March, consumers were spending 54% of amount of time in mobile video apps compared to Google Sites online, 231 minutes in apps versus 425 minutes online.
While it cannot be concluded that mobile video apps are cannibalizing YouTube, the shift in time spent between these two platforms appears to be a signal of disruption. Think of it this way: With every mobile video you share of friends, family, vacations, parties and weddings, you are likely loading another bullet in the chamber for Web 3.0. For YouTube, it appears they need to run, outrun your gun.
The app revolution has changed the way software is distributed and used among consumers. With a perfect storm of digital distribution, free content and powerful touch screen devices, the success of mobile apps has disrupted industries from telecommunications and games to music and news. To date, no category of apps has been more successful than Games, directly disrupting the traditional gaming industry. Flurry recently wrote about the impact iOS and Android game popularity has had on Sony and Nintendo. And with low barriers to entry for armies of entrepreneurial developers, indie game developers continue to thrive on iOS and Android.
Something Disruptive This Way Comes
Consider for a moment Facebook’s speedy billion-dollar acquisition of Instagram, a service that succeeds by delivering Facebook’s core value proposition of photo sharing, but only on mobile. When one understands that consumers now spend more time in mobile apps than they do online, Instagram’s value begins to make sense. With over 500 million iOS and Android devices in the market, mobile apps are the new battleground for consumer engagement. If Facebook feels compelled to snap up Instagram in this way, perhaps this is an indication of how relevant social networking has become in mobile apps, or simply how relevant mobile has become overall. In this report, Flurry focuses on the rise of the Social Networking category in mobile apps. Let’s start by looking at where consumers spend their time by application category.
In the chart above, Flurry compares the time consumers spend across different application categories when using smartphones. Starting on the left, we look at the average number of minutes a consumer spent each day, over the course of Q1 2011, across different app categories. For this period, we calculated that consumers spent 25 minutes (37%) of their app-using time in Games. They additionally spent 15 minutes (22%) of their time in Social Networking apps. News and Entertainment were the next most popular categories, garnering an average of 11 (16%) and 10 (15%) minutes per day, respectively. All other categories combined made up the final 7 minutes (10%) of time. During Q1 2011, Flurry tracked approximately 30 billion application sessions worldwide.
On the right, we conduct the same analysis for Q1 2012. Compared to the same quarter in 2011, time spent per consumer each day increased from 68 to 77 minutes. Additionally, the distribution of time spent per category shifted. Games usage dropped by 4% down to 24 minutes per day, while Social Networking increased by 60% up to 24 minutes per day. Games and Social Networking categories each controlled 31% of consumers’ time. News, Entertainment and Other categories commanded 12 (15%), 10 (13%) and 7 (9%) minutes, respectively. Flurry tracked approximately 110 billion application sessions during Q1 2012.
The most significant trend is that, for the first time in the history of applications (Flurry began tracking application usage in 2008), another app category is rivaling Games. We take the rise in Social Networking apps as a signal of maturation for the platform. As game demand may be hitting its saturation point, consumers are also discovering other apps, namely Social Networking. The year-over-year growth in Social Networking has been staggering. Not only has time spent increased by 60%, but also within a growing amount of total time spent in smartphone apps among consumers, from 68 to 77 minutes, or a growth rate of 13%.
Money Pools Where Audiences Aggregate
Through its mobile app traffic acquisition network, Flurry AppCircle, the company can also see how apps with growing audiences earn revenue through advertising. When app developers amass larger audiences, among the chief ways to monetize their businesses is by showing ads to their consumers. In the chart below, we show revenue earned by publishers in the Flurry AppCircle ad network for each of the last three months. Flurry AppCircle reaches over 300 million unique devices per month, making it one of the industry’s largest ad networks by reach. The columns in the chart grow from month-to-month at the same proportion as AppCircle publisher revenue growth. From just February to April of this year, Flurry AppCircle publisher revenue has grown by 23%. Please note that we forecast the remaining few days of April for the chart below.
From inspection, ad revenue in apps is driven primarily by Games and Social Networking categories. In other words, audiences using these apps a combination of the largest and most receptive to ads. For February, March and April, Games apps earned 35%, 35% and 36% of total ad revenue in the AppCircle network. Over the same three months, Social Networking climbed from 24% in February to 25% in March, and then to 37% in April. This is the first time in Flurry’s history that any category has surpassed Games in ad revenue generated (Flurry launched AppCircle summer 2010).
SoLoMo Not So Loco?
Over the last couple of years, the term “SoLoMo” was coined to describe the convergence of social experiences on mobile devices that leverage some element of proximity (i.e., location) to the experience. While a Silicon Valley term in origin, it speaks to the new consumer experiences possible when dreaming up any combination of these three factors. Phones are powerful, connected and always with consumers. And they are considered personal devices that easily enable sharing of personal content and information through apps. Build a clever app that leverages these aspects in a compelling way, and you could have the next Pinterest or Instagram.
As business ventures, the ability for Social Networking apps to engage consumers in a meaningful way is driving a wave of investment and bullish valuations. Social networks like Pinterest, Path and Skout are raising major venture capital rounds. This month, Andreessen Horowitz invested $22 million into Skout, and Greylock and Redpoint helped plow $30 million into Path. Pinterest, which has a strong mobile component, has become the third most popular social network behind Facebook and Twitter, and ahead of LinkedIn, Tagged and Google+. With so much innovation, coupled with high engagement among consumers, this appears to be only the beginning.
Games Don’t “Like” Social Networking Apps
The rise of Social Networking apps also signals the end of the era of gaming dominance within mobile apps. While the free-to-play business model performs extremely well, enabled by in-app-purchases, it does so primarily for simulation games, a sub-genre of the total games category. As long as the total iOS and Android installed base grows, all categories will continue to grow naturally. However, as we reach saturation for mobile gaming on a per user basis (one consumer can play only so many free-to-play games), the Games category could start behaving more like a “zero sum game” from here on out, meaning that game companies would have to fight over a finite group of consumers in order to grow their businesses. For one app to grow, it would have to take from its competitors. Even with an influx of new consumers into the market, the expected would-be casual gamers will be increasingly wooed away from games by compelling Social Networking and other apps. Going forward, the Games category will have to look to innovate on mobile to maintain its dominance and growth.
A Note about Methodology
For the comparison of minutes spent in this blog post, it’s important to clarify that these figures exclude tablet usage, and focus on smartphones only. While Flurry calculates that consumers spend an average of 94 minutes per day using mobile apps, that figure is a reflection of total usage spread over both smartphones and tablets. When we isolate just smartphone usage, as we’ve done in this analysis, the number of minutes spent on apps is lower.
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]