The iPhone App Store has changed the rules of competition for mobile application developers. Among its major achievements include granting equal access to the store for all developers, providing consumers with rich product info and free trials, and giving developers unprecedented control through app updates, marketing materials and price setting. As a result, more developers are making more money, and we are seeing the emergence of a New Middle Class.
Because of the iPhone, the days of a few established mobile companies gaining privileged access to consumers via carrier decks is ending. Still, some say larger companies will dominate the iPhone App Store now that it has proven to be a lucrative, relevant marketplace. Earlier this month, at MobileBeat 2009, a panel moderator asked "What happens now that the first wave of applications gives way to a new wave of apps from large companies?" insinuating that it's only a matter of time before indies are overrun by the historical mobile content leaders.
To understand the viability of the New Middle Class, we decided to compare companies and apps across Top Sellers lists on traditional carrier decks vs. the App Store. Below is the distribution of the now well over 60,000 apps in the App Store across categories. Wading through thousands of applications, we narrowed our focus to the largest App Store category, games.
With a focus on the games category, we will test several hypotheses over the next few weeks, the first of which is addressed in this blog post, that speak to the attractiveness of the App Store vs. carrier decks for indie and established developers.
Hypothesis: Based on the number of top slots occupied by established game publishers on carrier decks (e.g., Verizon, T-Mobile, Vodafone, etc.), we similarly expect established game publishers to increase their share of top slots over time in the App Store.
Baseline: For the month of July, Flurry took a snapshot of the top 25 selling games from the traditional AT&T storefront, the AT&T Media Mall, and compared that against the top selling games in July for the iPhone App Store. This serves to show how different the distribution of game publishers are today on the closed carrier decks vs. the more open App Store. However, this does not show any trends over time, which we explore next.
From the pie charts above it's clear that the App Store is not only more fragmented, but also driven by new developers. The top publishers in mobile gaming that regularly dominate top slots on carrier decks do not have the same presence on the iPhone. EA Mobile is notably absent from the App Store Top 25 snapshot. However, this can be somewhat attributed to the fact that several of their titles are priced at signficantly higher price points, between $4.99 and $9.99. If we had expanded our view to the Top 50, EA would have fared better. Additionally it's worth noting that Gameloft is trending better in this snapshot than usual, given that just before we captured this ranking, Gameloft had simultaneously dropped all of its price points, most of which were $4.99, to $0.99. This aggressive price drop spiked its sales across the board.
Test: To understand whether the strong showing of new developers in July wasn't an anomaly, Flurry took a mid-month snapshot of the top 25 games from the App Store Top Paid Games category from September 2008 through July 2009. We then categorized the applications by whether they were made by established or new companies, tallied the results and generated the following charts. Note that we decided not to include free games since carriers did not offer free games at any time.
Conclusion: New game developers not only hold their own against established game developers, but also outrank them, on average, among the Top 25 games on iPhone. With speculation that more incumbent mobile gaming companies are investing more heavily in the iPhone platform, we would have expected to see an increase in the number of top slots held by established companies over the last several months. However, new developers continue to rank well. To be fair, these observations are independent of price points, and established companies tend to price higher, and hold their higher price points longer. At the same time, it's worth appreciating that when providing consumers with ample information, free trial and abundant choice, consumers are interested in far more than simply what is offered by "The Establishment." Independent developers tend to take more risks and deliver more innovation. In the right marketplace, the best products rise to the top, regardless of who makes them.
Continue to Part II of the New Middle Class series, where we study how well new, original apps competes against big brands.
The data in this report is computed from a sample size of 200 applications, 25 million consumers and four platforms: Apple (iPhone and iPod Touch), Blackberry, JavaME and Google Android.
Google Android: Maintaining Market Share
When Flurry released its March 2009 Pulse, we declared iPhone the undisputed winner, leading by a wide margin over Google Android in all key categories: number of developers, applications and consumers. Since then, the number of developers, applications and consumers in Flurry's network has grown by more than three times. Revisiting market share, we find that Android has maintained its percentage share over this rapid period of growth. While the iPhone still dominates the application market, Google Android has managed to prevent Apple from widening the gap. With 1) reports that roughly 20 more Android handsets will ship during 2009, 2) continued application saturation in the App Store making it harder for developers to compete for consumer downloads and 3) the relative ease required to develop for Android versus iPhone, Google appears well positioned to chip away at iPhone's dominant position.
For Blackberry and JavaME, however, our sample shows that Apple continues to cannibalize those platforms.
App User Retention: Android Users More Loyal than iPhone Users
Comparing a group of applications available on both iPhone and Android, we found that Android consumers use their applications longer. To measure this, we tracked the percent of users who still use an application after downloading it over different periods of time. Across all time periods, Android users continue to use their applications longer. For the longest period of time measured, 90 days, the proportion of Android to iPhone usage was approximately 50% greater. Please see the specific figures in the graph below.
One reason we believe retention rates vary is that Android offers far fewer applications compared to iPhone. With applications coming out on iPhone at a faster rate, iPhone users move onto other apps more quickly. For Android users, they make more use of what's available, with less temptation to move to the next application. Other factors that could also play a role:
- The Android base tends to be "older," have less time and interest to try new applications. Once they find an application they like, they stick with it.
- The Android base is more tolerant, tend to be more tech savvy and find ways to appreciate what they have, even if their applications aren't perfect.
Regardless of the underlying drivers it's clear that at the current volume of available Android apps, usage is stickier.
App Usage Frequency: Android Usage Heavier than iPhone Usage
Further studying our set of applications with both iPhone and Android versions, Android consumers used their applications significantly more frequently than their iPhone counterparts. 37% of iPhone consumers who downloaded applications used those applications fewer than 5 times per month ("superlight users") with Android having only 11% in the superlight usage category. Toward the other end of the spectrum, 35% percent of Android users can be defined as "heavy users," using applications more than 50 times per month, compared to only 15% on the iPhone.
We believe differences in frequency of use are driven by the same underlying factors affecting length of use; namely, fewer available applications for Android and different behaviors exhibited by an older, more tech savvy user base. Overall this creates opportunities for Android application developers who are seeing saturation in the iPhone App store. Finally, a lot will hinge on the Android Market becoming a better shopping experience as well as the need for better design of upcoming Android OEM handsets than the existing HTC G1.