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]
Last year, Flurry reported that iPhone and iPod touch game sales surged from 2008 to 2009. From a standing start, and in just one year, iPhone games captured 5% of the mature U.S. video game market. A year later, we revisit how the increasing popularity of iOS (iPhone, iPod touch and iPad) and Android games continue to increase their U.S. video game market share. With an additional year of trend data, the magnitude of disruption is increasing, in particular within the portable gaming category.
For this year’s report, Flurry once again leverages publicly available market data in the news, released by companies such as the NPD Group (e.g., Gamasutra’s Behind the Numbers series). We combine this data with our own estimates of game category revenues from iOS and Android devices. Flurry Analytics, the company’s mobile application analytics service, tracks more than 12 billion anonymous, aggregated use sessions per month across more than 80,000 applications. Of this, nearly 40% of all consumer app sessions are spent on games.
For 2010, we expanded our iPhone and iPod touch numbers to include revenue delivered by tablets and Android devices. When running this analysis a year ago, the iPad had not yet launched and Android gaming revenue from 2008 and 2009 had not yet contributed enough revenue to meaningfully affect industry market share. For the sake of a consistent year-over-year comparison in all other aspects of this analysis, we continue to exclude retail PC game revenue, and once again do not include online digital game sales.
Apple and Google Platforms Push Forward into Video Gaming
From 2009 to 2010, iOS and Android game sales increased from 5% to 8% market share within the U.S. video game market. Specifically, we estimate that iOS and Android game revenue increased from $500 million in 2009 to more than $800 million in 2010. Of this, the significant majority of revenue was generated by iPhone games. And while we do not include retail PC game revenue in our total snapshot, which we estimate was $700 million in 2010, it’s worth noting that smartphone and tablet game revenue surpassed the U.S. PC game category for the first time in 2010.
Studying the chart above, console and smart-device games have increased at the expense of portable gaming. Overall, total U.S. game revenue from 2009 to 2010 is relatively flat, totalling $10.4 billion and $10.7 billion, respectively. However, while console game revenue increased slightly, from about $7.4 billion in 2009 to $7.8 billion in 2010, the combination of declines in portable gaming software and a jump in smart-device app sales has squeezed the portable game category down from 24% market share in 2009 to just 16% in 2010. It’s clear that prolific intalled base gains by Apple and Android devices, low priced games (including a very robust free-to-play model enabled by in-app purchases) and seamless digital distribution to games on devices so near to consumers 24-hours-a-day, is driving potent industry-disruption.
Over 2011, we expect to see continued and significant smart-device game growth fueled by the recent launch of iPad 2, iPhone coming into distribution on Verizon, the expected release of iPhone 5, a relentless expansion of Android devices by leading OEMs across all major U.S. carriers, and Google’s enablement of in-app purchase billing, a proven key driver in iOS game revenue.
U.S. Portable Gaming: Mario’s Burning Platform
Recently, Nokia CEO Stephen Elop, passionately described a burning platform Nokia had itself set ablaze, largely as a result of its own strategic choices. Allegorically, despite Nintendo CEO Satoru Iwata’s stated concern that “these [mobile] platforms have no motivation to maintain the value of gaming” during his keynote at the most recent GDC conference, Nintendo may also be struggling with its own burning platform: Nintendo DS. Let’s look at the numbers.
From 2009 to 2010, iOS and Android game sales have spiked significantly, resulting in nearly a doubling of their market share. With both Nintendo DS and Sony PlayStation Portable shrinking in sales, while smart-device game sales simultaneously grew by more than 60%, iOS and Android games now represent more than one third of the portable game category. The net effect is that the U.S. portable gaming category, as we define it, has declined from $2.7 billion in 2009 to roughly $2.4 billion in 2010.
Wedbush Morgan Securities video game analyst, Michael Pachter, points out that the “onslaught of $1 games is going to continue” and that "[Nintendo and Sony] are going to have to share the market with Apple and Android.” Our numbers quantify just how much. Further, as iOS and Android continue to change the paradigm of casual gaming, the battle between Nintendo against platforms such as iOS and Android will intensify. Mario may indeed be standing on a burning platform.
More than 30,000 games have been released in the iPhone App Store since its launch in July 2008. With titles that consistently dominate the Top Paid and Top Grossing lists, there is no question that the games category is the most lucrative category in the App Store. This report focuses on how Apple has affected the market share of U.S. video game and portable game revenue since the introduction of games sold through the App Store for iPhone and iPod touch.
Using publicly available market data, provided by NPD (mostly through Gamasutra's Behind the Numbers series), Flurry calculated U.S. console and portable game software sales for 2008 and 2009. We also estimated Nintendo DS and Sony PlayStation Portable game software sales, which make up the significant majority of the portable category, in order to compare these to iPhone game sales. We estimate iPhone game sales using a combination of data made available by Apple and using ratios and calculations from an aggregated set of data that we track through our analytics service.
We begin with a look at the U.S. gaming market, which NPD defines primarily as console and handheld. PC gaming, which has been declining over the last decade, and is currently approximately 5% of the total U.S. market, is not included. Also, for this analysis, we ignore online gaming revenue (e.g., virtual goods and subscription fees from social networking games and massively multi-player online games).
Below is our estimation of market share by platform among console, portable and iPhone platforms for 2008 and 2009.
NPD Group shows that combined U.S. console and portable software revenue was approximately $11 billion and $9.9 billion in 2008 and 2009, respectively. After estimating portable sales, we were able to back into console revenues. We then added our own estimates for iPhone game revenue, which total $115 million and $500 million for 2008 and 2009, respectively.
With these figures, our main finding is that iPhone (and iPod touch) is a gaming platform to be reckoned with. Controlling 5% revenue of a $10 billion industry in just a year and a half is significant. From a market share perspective, console games lost ground to portable platforms and iPhone. While the downturn in the economy may have dampened sales of the more expensive console games category, there is no denying that iPhone has generated substantial revenue and entered strongly into a mature industry.
More interesting to us than iPhone's impact on U.S. gaming was its impact on the portable category, which we estimate totaled $2.25 billion and $2.55 billion in 2008 and 2009, respectively. Michael Pachter, managing director at Wedbush Morgan Securities and a prominent video game analyst, suggests "iPod touch is the most dangerous thing that ever happened" to game publishers. As prices come down for the iPod Touch, and games sold through the App Store continue to have lower price points, more of the young gaming generation may switch to Apple devices over Sony PSP and Nintendo DS for gaming. Further, Apple has squarely positioned the iPod Touch as a gaming machine. Check out a TV spot here to get an idea.
From what we calculate, consumers are downloading iPhone games in droves. Comparing iPhone against Sony and Nintendo games sales shows that Apple has taken nearly one fifth of the portable market in 2009, largely at the expense of Sony PSP. With Sony PSP Go, Sony's latest effort to revive its portable sales, having fallen short of expectations, Sony finds itself now challenged by two competitors in this segment.
Looking forward, with the iPad set for an April release, the traditional gaming giants may yet again be disrupted by Apple. With companies like Electronic Arts and Gameloft joining Apple on stage during its January unveiling of the iPad, the tablet device will enjoy elite game publisher support on day one. Further considering data that Flurry released in its latest Smartphone Industry Pulse report, where we determined that more than one third of iPhone game developers come from the traditional gaming industry, Apple has already established broad third-party game publisher support. With the iPad featuring a larger screen and more processing power, games on the tablet take a step closer to PC and console gaming. Unless the other major video game platform providers (i.e., Sony, Nintendo and Microsoft) respond accordingly, Apple could continue to roll up video game market share.
Flurry Estimates 20,000 First Week Nexus One Sales:
Not an Apples to "Apple" Comparison
The Google Nexus One launch has become the most controversial and confusing Android handset launch to date. With publicity "leaks" over the holiday season, the Nexus One handset received unprecedented buzz. This same hype helped create the expectation of a revolutionary Android handset and its potential to be an iPhone killer. To gauge the success of Google's first handset launch, Flurry leveraged its analytics reach to estimate launch week sales of the Nexus One.
Flurry monitors usage of more than 10,000 developers' applications on iPhone and Android platforms. In total, Flurry tracks applications on approximately four out of every five iPhone and Android handsets in the market, generating over 25 million end user sessions per day. To estimate first week sales totals for the Nexus One, myTouch 3G, Droid and iPhone 3GS, Flurry detected new handsets within its system, and then made adjustments to account for varying levels of Flurry application penetration by handset. Flurry additionally crosschecked its estimates against Apple actual sales, released for iPhone 3GS, which totaled more than one million units over the three days, June 19 - 21, 2009. Flurry first week sales estimates can be found in the table below.
While Flurry estimates that Nexus One was outsold by Droid by more than 12 times, myTouch 3G by 3 times and iPhone 3GS by a staggering 80 times, it's worth noting there are significant differences in the marketing, distribution and perception of the device as revolutionary vs. evolutionary. In short, key business decisions and other factors related to the Nexus One launch make an "apples-to-apples" comparison difficult.
As a product, the Nexus One boasts the most advanced Android OS to date as well as unique features, such as Google Voice and Google Maps. However, potentially due to the heightened "promise" created by early buzz, the handset has ultimately fallen short on sales expectations. Without the "wow factor" now expected with each new challenger to the iPhone, especially the first smartphone with Google's own branding, demand generation has been modest.
Next there is distribution, pricing and marketing to consider. For its release, Google executed an online "soft launch" of the Nexus One, a very different go-to-market strategy compared to Verizon's launch of Droid, on which it spent a record-breaking $100 million on marketing, including aggressive TV advertising spends. Instead, Google chose to market and sell the device to consumers directly through its own website. While this distribution strategy is among the most innovative facets of the Nexus One launch, and a threat to carrier control of the consumer relationship, a series of customer service and other mistakes reveal Google's lack of retail experience. Further, Google chose to launch its Nexus One after the holiday season. While selecting this launch time may have been designed to avoid competing unnecessarily with its carrier and OEM partners over the all-important holiday season, this also adversely affected sales.
Additionally, T-Mobile, Google's carrier partner for Nexus One, did not provide the same carrier co-marketing support as it did for the myTouch 3G launch. Cannibalization may also be playing a role as the Nexus One competes against the myTouch 3G for any new T-Mobile customer. In effect, sales are now split between the two handsets. And while Google, in an effort to avoid channel conflict with T-Mobile, appears to have set the direct-to-consumer price for the handset at over $500 dollars, the high price point combined with the fact that the handset is only considered an "evolutionary" improvement over previous Android devices, indicates that Google did not take the steps to maximize first week sales. This is especially evident when one considers that among the most expensive costs associated with the launch - marketing - has not been incurred, and could have been applied to lowering the direct-to-consumer price point.
With each consecutive Android launch, consumers are enjoying more choices in the market. The flipside of this, however, is that it will take increasing innovation and decreasing price points to attract new smartphone consumers. Further, for Android to continue to chip away at Apple's third-party app developer support - key to delivering consumers more value - it needs to aggressively grow the Android device installed base. Only then will application developers more fully support Android.