App Cost Evolution: iPhone users pay average of 19 cents per app, Android users pay just 6 cents

Many consumer surveys point to an obvious conclusion: most people hate seeing ads on smartphones and tablets. But the truth is, contrary to the desire for an ad-free experience, when faced with the choice between free apps with ads, or paying even $.99 for apps without ads, consumers overwhelmingly choose the free apps and tolerate the ads.

In this post we explore that revealed preference for free content over content free of ads by examining four years worth of pricing information for the nearly 350,000 apps that use Flurry Analytics.

Our Apps Tell A Story

Each time we download an app, we reveal a little bit about ourselves. A glance at the apps on your phone can indicate whether you are a fan of sports, gaming, or public radio, and whether you love to hike or cook or travel. But our choices of apps also reveal our individual tolerance for advertising, and how we feel about the trade-off between paying for content directly, or paying indirectly by (implicitly) agreeing to view ads.

In many cases, apps are available in two forms: free (with ads) and paid (no ads). If you truly can’t stand to see ads in apps, you can usually pay $.99 or $1.99 to eliminate the ads and possibly get some additional functionality too. Even when a specific app does not come in paid and free versions, there are often other apps to choose from, free and paid, that perform very similar tasks like calling a taxi or looking up recipes.

So what are consumers choosing? Let’s start by considering iOS apps since they have been available for longer than Android apps. Note that all of our measurements in this post are weighted by user numbers so the apps with more users contribute more to the total trend.

People Want Content To Be Free

The chart below shows how the proportion of free versus paid apps has changed over the years in the App Store. Between 2010 and 2012 the percentage of apps using Flurry Analytics that were free varied between 80% and 84%, but by 2013, 90% of apps in use were free.

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Some might argue that this supports the idea that “content wants to be free”. We don’t see it quite that way. Instead, we simply see this as the outcome of consumer choice: people want free content more than they want to avoid ads or to have the absolute highest quality content possible. This is a collective choice that could have played out differently and could still in particular contexts (e.g., enterprise apps or highly specialized apps such as those tracking medical or financial information).

Android Users Are Even Less Willing to Pay For Apps

Up until now, we have focused on iOS apps because they have been around longer, but what about Android? Conventional wisdom (backed by a variety of non-Flurry surveys) is that Android users tend to be less affluent and less willing to pay for things than iOS users. Does the app pricing data support that theory? Resoundingly.

As of April 2013, the average price paid for Android apps (including those where the price was free) was significantly less than for iPhone and iPad apps as shown below. This suggests that Android owners want app content to be free even more than iOS device users, implying that Android users are more tolerant of in-app advertising to subsidize the cost of developing apps.

chart 2 resized 600

These results also support another belief derived from surveys and some transaction data: iPad users tend to be bigger spenders than owners of other devices, including iPhone. On average, the price of iPad apps in use in April of this year was more than 2.5 times that of iPhone apps and more than 8 times that of Android apps. This is likely to be at least partly attributable to the fact that on average iPad owners have higher incomes than owners of other devices.

Developers’ Pricing Decisions Were Data-Driven

On the surface, the rise of free apps could be seen as herding behavior: maybe app developers saw how much free competition there was and decided to make their apps free too. It’s certainly possible that may have happened in some instances, but by digging deeper into app pricing patterns over time, we were able to see that many developers took a much more thoughtful approach to pricing.

We looked at historical iOS app data (again because iOS apps have a longer history) to identify apps that have been the subjects of pricing experiments. That typically took the form of A/B testing, where an app was one price for a period of time then the price was raised or lowered for a period of time, then raised or lowered again. This lets developers assess users’ willingness to pay (i.e., price elasticity of demand) based on the number of downloads at different price points.

The chart below shows the percentage of tested and untested apps that were free (again, weighted by user numbers). The vast majority of untested apps in green were free all along, so it’s most interesting to look at the trend among apps that were subject to pricing experiments, in blue. As shown, there was an upward trend in the proportion of price-tested apps that went from paid to free. This implies that many of the developers who ran pricing experiments concluded that charging even $.99 significantly reduced demand for their apps.

PricingExperiments FA2

The People Have Spoken; It’s Time To Change The Conversation.

While consumers may not like in-app advertising, their behavior makes it clear that they are willing to accept it in exchange for free content, just as we have in radio, TV and online for decades. In light of that, it seems that the conversation about whether apps should have ads is largely over. Developers of some specialized apps may be able to monetize through paid downloads, and game apps sometimes generate significant revenue through in-app purchases, but since consumers are unwilling to pay for most apps, and most app developers need to make money somehow, it seems clear that ads in apps are a sure thing for the foreseeable future. Given that, we believe it’s time to shift the conversation away from whether there should be ads in apps at all, and instead determine how to make ads in apps as interesting and relevant as possible for consumers, and as efficient and effective as possible for advertisers and developers.

[Source: Flurry]

70% of New Apps Made for iOS, Where Devs Make 4X As Much As Android

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.

iOS vs. Android Applications Started

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 reach for minimal cost.

Apple iPad versus Android tablets

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.

Android Device Fragmentation

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, 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.

Android Operation System Fragmentation

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.

Money Matters

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.

iOS versus Android App Revenue

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 the development community to their conferences, Apple WWDC and Google I/O.  And as developers watch Apple and Google, the world should watch developers.

[Source: Flurry]