In Part I of this series, Indie iPhone App Developers, we explored the breakdown of new vs. established developers in the App Store, focusing on the largest App Store category, Games. Evaluating over 10 months of data, we concluded that new entrants outrank incumbent mobile game developers in the top paid games category, and with no signs that established game publishers are gaining ground. We call this new group of developers the New Middle Class.
This blog post further explores how key changes in the ecosystem, driven by Apple, have enabled the growth of the New Middle Class. Simply put, a year ago, the new darlings of mobile gaming - companies like Bolt Creative (Pocket God), Backflip Studios (Ragdoll Blaster, Paper Toss), Storm8 (World War, Racing Live) and Firemint (Flight Control, Real Racing) - could not have flourished in mobile.
At the highest level, this can be explained by friction points in the industry that included significant development and porting costs, impossible distribution challenges and rampant consumer risk. If a game maker did not license a big brand, they were basically dead on arrival. Very few companies, most notably Digital Chocolate, were able to survive this era of mobile, but largely due to a formidable streak of exceptionally innovative and well-made games.
With the iPhone and App Store, Apple has leveled the playing field for garage developers. In today's mobile world, an indie game maker can invent an original game, distribute it and compete with the likes of Electronic Arts and Gameloft. In other words, content is king again, and it doesn't need to be licensed. With that in mind, our analysis focuses on original vs. branded content in the gaming category.
Hypothesis: With reduced friction to get into the App Store, and less friction for consumers to try and buy games, original games compete more effectively against branded games in the App Store vs. carrier decks.
Baseline: In July, Flurry compared top selling games in the App Store vs. the Media Mall, the AT&T managed storefront. Specifically, we looked at the breakdown of original vs. branded titles, and present these in the table below.
A quick inspection reveals that branded content dominates the traditional carrier store front. Out of 25 titles, 20 of them are branded (80%). However, in the App Store, original titles hold roughly two thirds of the Top 25 slots (17 of 25, or 68%). Even more striking is a comparison of games that are both branded and shipped by established companies. In this case, we find that AT&T's store front has 3.5 times as many branded titles by established companies versus the App Store (20 vs. 6, or 80% vs. 32%).
Test: To ensure July's snapshot accurately reflect the success original games have on the iPhone, Flurry took a mid-month snapshot of the Top 25 App Store Top Paid Games category from September 2008 through July 2009. We then sorted games into two categories: (1) original titles created just for the iPhone; and (2) existing brands, whether licensed (e.g., movies, sports, music, board games, etc.) or ported from other platforms (e.g., social networks, classic arcade, web, console, PC, etc.). We tallied the results and generated the following charts.
Conclusion: When it comes to the Top 25 Paid Games on the iPhone - the largest App Store category - Original games dominate Branded games by a ratio of nearly 3:1. Further, compared to the kind of companies appearing in the Top 25 games (55% New vs. 45% Established), covered in Part I of the New Middle Class series, Original titles trump Branded titles by an even wider margin (72% vs. 28%). This can be attributed to the fact that established companies also ship original titles, and some of these rank better than their branded counterparts.
Apple can be credited with enabling the Rise of the Middle Class in two historical, groundbreaking ways. First, Apple provides the most egalitarian access for all developers who want to sell apps in the App Store. Love or hate the App Store submission process, it is worth remembering that only the most privileged, dogged or lucky companies were granted access to the carrier decks. And while the number of available games now totals more than 10,000 in the App Store, most carrier decks listed no more than several hundred games at a time, regularly sun-setting any title that "under-performs." Second, Apple has significantly reduced the amount of risk that consumers face when trying and buying new games on the iPhone. The App Store provides rich point-of-sale information (e.g., long descriptions, screenshots, videos), has enabled free trial, provides a forum for consumer reviews and has created an efficient market whose equilibrium outputs lower price points. By stark contrast, carriers set minimum pricing around $4.99, frequently blocked free trial, provided no voice for consumer reviews, and as described above, offered minimal information about a game a consumer might consider purchasing.
The App Store has created a level playing field, enabling a steady stream developer Cinderalla stories. Unlike the carriers, previously charged with managing mobile store fronts, Apple has provided more choice to consumers while simultaneously empowering them with all the tools to make informed decisions. The resounding result is that indie developers are thriving in mobile like never before.
The data in this report is computed from a sample size of over 1,600 live applications and 60 million consumers across four platforms: Apple (iPhone and iPod Touch), Google Android, Blackberry, JavaME.
No End in Sight for New iPhone Apps
Just as "New Housing Starts" is an important indicator in the US economy, we believe "New Project Starts" among developers using Flurry Analytics provides a reliable supply-side indicator for the App Store economy. Since Flurry Analytics often is integrated early in an application's development cycle, as early as six months before a new application ships, measuring this statistic tracks the strength of the application pipeline heading to market. Specifically, it measures 3rd party developer support for the App Store, a key to Apple's iPhone strategy, and support which has been increasingly sought after by companies like Google, RIM and Palm.
Over the last six months, the number of available applications in the App Store has more than doubled, from 25,000 applications in January to over 65,000 in July, which equates to 14% month-over-month growth. Flurry's month-over-month rate for New Project Starts has been holding steady at 30% for the last several months. Assuming that roughly half of those new project starts are for new applications, the pipeline to the App Store shows no signs of slowing. At this rate, by the end of 2009, the App Store will easily surpass 100,000 apps. To put this in context, the App Store soon will carry more items than the world's largest retailer, Wal-Mart, which merchandises about 100,000 items per store.
Google Android: We Have Lift Off
iPhone growth has been nothing short of spectacular, propelling Apple to an early and seemingly insurmountable lead over all other smart phone rivals. Looking across the competitive field, Android, with its touted open platform, appears to have the best chance of mounting a comeback against Apple's infamously closed platform. In no uncertain terms, many are comparing the Google vs. Apple showdown to the PC vs. Mac wars of the 80s. With a wave of 18 more Android handsets shipping in 2009, the chase pack is growing and looking for signs of fatigue from the leader.
As it does for iPhone, Flurry tracks developer interest in Android by monitoring "New Project Starts" in its analytics system. While iPhone new projects have steadily increased by 30% month over month, Android's growth rate is accelerating, increasing by over 50% from June to July alone. Though iPhone still commands the majority of developer interest, Android is beginning to close the gap in an undeniable way. The chart below compares iPhone vs. Android share of new application starts in the Flurry system, showing distinct, early signs of convergence. In total, the percent of new Android applications integrated, relative to iPhone, has more than doubled over the past six months.
You Trying to Swindle my Kindle?
The iPhone and iPod Touch have become impressive portable media centers. Extending on the functionality of Apple's first media business, iTunes, the iPhone acts as a fully functional iPod, playing music as well as showing movies. Somewhat unexpectedly, the iPhone and the iPod Touch have been heralded as killer gaming devices, suddenly creating formidable competition for both the Sony PSP and Nintendo DSi. However, most surprisingly, we have observed that just behind the largest category, games, eBooks has emerged as a strong second.
Examining active user sessions tracked by Flurry within the eBooks category, the chart above shows steep growth, over 300% from April to July. In July, Flurry tracked nearly three million active users in the eBooks category, or 1% of the US population. According to Apptism, an App Store tracking service, eBooks represents the second largest application category in the App Store with 14% share, only behind Games, which comes in at 19%.
With Amazon investing heavily in Kindle, iPhone has quickly emerged as a direct competitor in the eBooks category, further demonstrating the impressive reach of Apple across all digital media.