How Much Do App Developers Make?

This chart has all the data...see the original here.

If you guessed "Not a lot, on average," you're right. While Apple in their latest earnings call mentioned that they've paid out over $2 billion to developers, when you analyze the numbers it's less impressive. An interesting analysis by 148apps.biz breaks down the numbers, and they are instructive. With approximately 370,000 apps on iOS from 78,000 publishers, that $2 billion gets spread pretty thin. The average app costs $2.52, which isn't a whole lot.

The numbers work out to about $8500 per publisher per year, which isn't a whole lot. Of course, that's averaging; the publisher with big hits make hundreds of thousands or millions, and many just make a few hundred dollars.

Games are more lucrative than non-game apps, and that's a good thing for game developers. But it underscores just how difficult it is to make money with an iOS game... or any smartphone game, for that matter. Developers need to be aware of the facts before charging into an expensive development process.

Apple's Huge Q2

I believe this is made out of platinum, given their sales numbers.

Once again, Apple beat its own estimates and analyst guesses for a stellar $24.67 billion in revenue for Q2. More than half of their revenue came from the iPhone and related products... they sold 18.6 million iPhones in the quarter, up 113% over last year's Q2. The one thing that held them back was an inability to produce enough iPads to meet demand, and the backlog on the iPad 2 is monstrous, according to Apple.

In other Apple news, they've sued Samsung for patent infringement because of the Galaxy Tab and the Galaxy S products. Interestingly, in the legal filing we find out that Apple has sold 187 million iOS devices as of March 2011... 19 million iPads, 60 million iPod Touches, and 108 million iPhones so far. For comparison purposes, the Nintendo DS line has sold 144 million units and the PSP line has sold 62 million units. The iPhone should pass up the DS line this year, and so should Android phones, in total units sold.

The iTunes store is now bringing in $1.4 billion per quarter... not a bad little business.

The rumor mill is now saying not to expect too much from the iPhone 5... new processor (the A5), better camera, maybe a few other tweaks... and it won't hit until September. I think that may well be true, but the real story is going to be how Apple attacks the lower price point end of the market. So far, Android phones have mostly been at the high end in iPhone price territory. But we're starting to see pretty nice smartphones based on Android coming down into the $100 price range, without a contract. This spells trouble for Apple unless it can respond.

Sure, they keep selling older models of the iPhone at lower prices, but there's a significant difference in horsepower between an iPhone 3G and an iPhone 4... not to mention an iPhone 5. Looking at what Apple did with the iPod line over time may be a clue as to how they will approach the issue of extending the iPhone line. They came up with ways to cost-reduce the product, make it smaller and reduce the feature set to the core features. So I will expect them to come up with some smaller, sleeker iPhone models to hit lower price points, and eventually cover a full range of phone prices.

Which, in turn, will mean more variations for developers to support... but a larger market overall.

3DS vs. iPhone 4

It's kind of sad really. The King is dead; long live the King. Nintendo has announced more details about the 3DS, the most important being the price: $249 in the U.S. It's cheaper than the price in Japan (which is equivalent to $300), but it's still an eye-opener for this market. Software prices have not yet been announced, but Nintendo has signaled that they will be higher than DS software prices; expect prices to range from $40 to $50, or possibly even higher.

This is coming at a time when Nintendo has just lost the title of best-selling handheld gaming device to Apple. Apple now has over 160 million iOS devices sold, compared to 145 million DS series handhelds sold worldwide. Worse, in 2011 Apple is probably going to sell around 100 million iPhones and iPod Touches, along with perhaps 40 million iPads. Nintendo in their wildest dreams may sell about 30 million DS devices of all flavors... a fraction of what Apple will sell.

Yes, but the 3DS has 3D without glasses. True, and it may look pretty neat. But it's also probably not good for long play sessions due to eyestrain and headaches. Nintendo's got the answer, though; the battery life of the 3DS is only good for about 3 or 4 hours of 3D game play anyway (compared to 12 to 15 hours on a DSi).

Let's compare tech specs: Screen resolutions... the iPhone 4 is 960 x 640 on a 3.5 inch screen, while the 3DS has a 400 x 240 3.53 inch screen (800 x 240 in non-3D mode). Processors? The iPhone 4 has a Cortex A8  running somewhere around 800 MHz along with a PowerVR graphics chip at some unknown clock speed; the 3DS is running at 200 MHz. Cameras? The 3DS can take 3D pictures... at VGA resolution (0.3 MP), which can only be displayed on the 3DS. The iPhone 4 can take 5 MP pictures, along with 720P video. The iPhone 4 has a raft of other sensors like GPS, compass, gyros, motion... the 3DS can sense motion.

You can get an 8GB iPod Touch for $229, or a 32 GB for $299. Same as an iPhone, but without the phone contract... the phone prices are subsidized, of course, but you can get one for $199.

This is all leaving out the (rumored) iPhone 5 that will probably be arriving this summer. No one knows what features it will have, but the likeliest is a new processor: the A5, which supposedly is a dual-core monster which delivers 4x or 5x the current performance with graphics. If Apple follows its usual practice, the current iPhone 4 will be moved down in price while the iPhone 5 will occupy the current price slots.

When you look at software like Infinity Blade for the iPhone 4, it's pretty damn impressive. We'll see more of this as the iPhone audience expands, and developers realize the potential of the devices. The platform is getting yearly upgrades, and it's just going to zoom past Nintendo. The disparity in 2 or 3 years will be shocking.

I'm sorry to see Nintendo go. It's a wrenching change for the game industry, with a whole different series of development and marketing challenges ahead. Oh, Nintendo won't just vanish right away. The 3DS will have a lot of sales, lots of laudatory reviews and game industry execs touting its virtues so they can sell software. But ultimately I think consumers will continue to flock to smartphones and tablets at an order of magnitude higher rate than the 3DS (I didn't bother to add in the Android market to the above discussion). Any publisher is going to want to direct its resources to the biggest market. Yes, having an early title for the 3DS will be a moneymaker... but there's even better potential in smartphones. 2011 will be the year mobile game revenues (smartphones and tablets) pass up handheld game revenues (3DS, PSP2, DS, and PSP). And the gap will just grow wider.

iPhone Games Market 2011 Will Be Huge

Apple pulled out all the stops for the last quarter (their fiscal year Q1) and bettered not only their best quarter ever (that would be the previous quarter, at $20.34 billion), but even beat their own estimates of $23 billion to rack up an astonishing $26.74 billion in revenue. A healthy chunk of that, $6 billion, was profit.

What was responsible for this? Everything. Over 16 million iPhones sold, a year-over-year growth of 86%. Over 7 million iPads (now there are over 15 million iPads out there). iPod Touch sales were up 27%., so it's not just iPhones out there. Oh, and 4.13 million Macs and 19.45 million iPods were sold, too. Apple could have done even better had they been able to build more of everything. The iTunes store took in $1.1 billion, too.

Some other key facts to chew on: The iOS device market is now at 160 million. Apple has about $60 billion dollars in cash, in the bank. Over 80% of the Fortune 100 companies are testing or deploying the iPad now.

So what does this all mean for games and e-books?

In 2011, look for a huge explosion given the Verizon iPhone will send iPhone sales for Q1 to the 21 million unit neighborhood, or maybe beyond. Apple could be looking at selling over 100 million iPhones and iPod Touches this year. And perhaps 30 to 40 million iPads. And now that there's a Mac App store, and Mac sales keep growing, there's yet another easy place for developers to market their iPhone games (a quick port to iOS is the work of a week or two). E-books will find an even broader market with that number of iOS devices growing so rapidly.

There is a dark side, though: It will get even harder to get noticed. Sure, successful games from well-known companies will get an even bigger market. But new games from unknowns will have even more competition for awareness. Marketing iPhone games will be getting harder, not easier.

As for Nintendo, I think it's game over, man. Look, this year alone Apple will be selling nearly as many iPhones as all the Nintendo DSes ever sold. Sure, sure, the 3DS will sell a bunch. But it will never be the best-selling handheld game console, nor even close. Apple is running away with that title. And Nintendo can never catch them.

Half of iPhone's Revenue From In-App Purchases

This chart is very interesting if you're trying to see how apps are generating revenue for developers. You'll note that in-app purchases now account for half of all iPhone app revenues, up from about a third just six months ago. The iPad is not as dependent, perhaps because the average price points are higher. Also please notice that free apps are generating one-third of all the revenue from iPhone apps.

The rapid growth shows that advertising as a revenue generation model for the iPhone has not taken hold. I think Apple's iAd program can be fairly judged to be a flop so far. I think Apple's insistence on heavy involvement with the development of iAds has kept a lot of advertisers at bay. Without advertisers, there's not much reason for developers to sign up their apps to put ads in there. The relatively intrusive nature of iAds, especially on a small screen, may also be having an effect.

In any case, it's pretty clear that the monetization strategy for the iPhone app developer has to be either in-app purchases, or the price of your app. Advertising just isn't doing it. Primarily, the games are the place where in-app purchasing is having the biggest effect. I expect this trend to continue, and in-app purchasing will be providing an even bigger share of iPhone app revenue in a year. You can take that to the bank...

7 Smartphone Gaming Predictions For 2011

Smartphones 2011... Produced by Photoshop.

The tech industry basically shuts down between December 25th and January 2, and so the usual spate of news becomes a trickle. What's a blogger to do except make predictions? That's how I intend to fill things out this week, with a series of prognostications for 2011. If nothing else, this will set me up for a retrospective one year hence where I can laugh at the foolishness of my younger self. Until then, here's my take on what's going to happen in the Mobile Gaming Market in 2011.

• Smartphone games continue double-digit growth. Not a hard prediction to make, but let's go a little further: Smartphone games will pass handheld games sales numbers. There was about $1.6 billion in US sales for mobile games in 2010, and about $2.1 billion for handheld console games in 2010; with the trend lines smartphones can pass them up, if the 3DS and the PSP2 don't spawn massive software sales (which I don't think will happen). The battle is over, and smartphones have won. Handhelds just haven't figured out they're dead yet.
• Smartphone games become a bigger market than PC games at retail. PC games were about $2.1 billion in US sales in 2010, and that was down about 19% from 2009. I expect space at retail for PC games will shrink, not expand, so smartphone games have a good shot at passing them up. Not only that, smartphones will become a bigger market than PCs this year, worldwide. We're looking at over 500 million smartphones sold in 2011, if predictions are correct. Now that's a market worth being part of.
• Verizon adds iPhone. The rumors have reached a fever pitch, but I really start to believe when I hear from suppliers. Apple is now looking at selling around 20 million iPhones or more in 1Q, which looks like a truly astounding number for the entire year. Throw in some iPod Touches to that mix and Apple will likely more than double its iDevice installed base in one year. Whoosh.
• A new iPhone model arrives. Have I heard rumors? Nope, just educated guessing. Apple has generally introduced a new model every year or so. Sure, they'd love to slow down and bank more profits, but the fevered pace of the smartphone business means if you're only running, someone is sprinting past you. I think Apple has to keep pushing new phone tech out there in order to keep sales up. Probably this year will see less technical innovation than the iPhone 4. I expect a faster processor, maybe more memory for the money, and reduce the price on the older technology. Oh, and a redesign to fix the antenna problem (though that seems to have been mostly forgotten). The new iPhone model probably won't arrive until summer, just in time to push the old model price down and boost sales going into the last part of the year.
• Android outstrips Apple in units sold; Apple continues to make more money for developers. This will happen despite Apple vastly increasing its sales due to the addition of Verizon (see above). There are just more and more Android phones out there, and the competition will continue. Another release or two on the operating system will help. And I sure hope Google gets around to making in-app purchasing work, because that will be the best thing they can do for developers. But there's more than that going on: New chipsets will make smartphones even more affordable, with retail prices under $100 without a carrier subsidy. That's for a smartphone looking a lot like a Droid, and you'll be able to find them by next summer for around $75.... without a carrier subsidy. Oh, yeah, there will be a lot of those sold... and the buyers will be looking for apps.
• Blackberry and Nokia will continue to lose smartphone market share, only faster this year. These poor companies will continue to flounder around, denying that there's a problem. Their new widgets will fix the problem... and then they come out and no one cares. The Blackberry Playbook? Will anyone even remember the name by next summer? Nokia will continue to try to get their online store moving, but will seem to forget that it won't matter unless they can sell a lot of hardware. Meanwhile developers will keep busy with their iOS and Android projects, and only if they have time on their hands worry about other markets. Which they won't.  Meanwhile, we see Windows Phone 7 and Palm making inroads in the market; they will likely eat up share from Nokia and Blackberry.
• Data plans get cheaper. Virgin's offering a $25/month plan off contract. T-mobile has $10 a month plan. AT&T has a $15 a month plan. As the networks get built out, and carriers compete, prices will continue to drop. Tablets will only accelerate this. Cheaper data plans will be good for apps, and good for developers.

2011 looks to be a huge year if you're an app developers. But the extreme growth will probably mean little attention being paid to details like helping developers market their apps. It will be even harder to find apps in 2011, not easier, and marketing will be even more important.

Mobile Game Revenues Doubling, In-Game Purchases Skyrocketing

Anyone who's been paying attention to the gaming industry has been aware that in-game purchases have become a big business. This report from Juniper (reported by TechCrunch) predicts the mobile game market revenues to pass $11 billion by 2015... which is more than double 2009 revenues. Not amazingly aggressive by some standards; I think growth may accelerate even more than they are claiming (especially if you think of tablets as "mobile game" platforms).

The interesting part is going to be played by in-game purchases. Juniper says that in-game purchases will be the primary source of revenue, overtaking pay-per-download, by 2013. That's two years away, baby. That freight train is moving fast.

Juniper also notes that discoverability is the big problem. Well, yeah, it's all about the marketing once you have a good game put together. There must be hundreds or thousands of good games languishing in obscurity in the App Store because you've never heard of them. As TechCrunch notes, "This is obviously an excellent opportunity for fledgling app discovery platforms such as Appsfire, Chomp, Mplayit, AppAware, Appolocious and, increasingly, StumbleUpon."

Just to back up Juniper's numbers, here's a report on GigaOm about the flourishing of the freemium model. If you look at the top-grossing 100 apps, 34 of them are free to download and make their money through in-app purchases. Analysts think in-app purchases account for 30% of the total App Store revenue. Which is pretty impressive when you consider that freemium apps are less than 2% of all apps in the app store.

Yeah, you read that right. Less than 2% of the apps generate 30% of the revenue. If you're planning on building a game app, and you're not seriously considering a freemium model, you need to reconsider.

Which all highlights how much more work Google has to do with Android. As this article mentions, while Android sales have passed up the iPhone in sheer units, and new Android apps appear at about the same rate as new iPhone apps, in-app purchases on the iPhone are 7 times the amount on Android. Google's got some serious work to do on their tools and the Android Market to close that gap.

Meanwhile, getting your app found is still the basic problem facing developers. More on that in another post.

Size Isn't Everything, But It Is Impressive

I understand this comparison is not meaningful on many levels, but counting up the number of games on different platforms is an interesting metric. The total number of iOS games in a few short years has exceeded the total number of console games, and made a fair bid to exceed the number of Flash games.

Of course, it's far easier to create a game for iOS than for a console, and requires orders of magnitude less money and time. And without a doubt Sturgeon's Law applies, as it usually does. Still, it's an amazing example of creativity in a short amount of time, and certainly some real winners have appeared. Better still, some new game companies have emerged that otherwise would not have found financing, and some older developers have found a new source of income in repurposing old titles for the new platform.

It's also worth noting that the Android numbers would be similarly impressive, even if not quite as large as iOS numbers.

Of course, the size of the market only underscores the marketing challenge you face in trying to stand out amidst so many titles. It's hard to find gold when everybody is panning the same stream.

The AppDroid Apocalypse

Apple TV and Google TV: Threat or Menace?

The Appdroid Apocalypse is coming, and it poses a threat to the survival of the console business as we know it. Surviving, or better still, thriving, will require understanding the coming changes and changing business models in response. It won't be easy, and for some companies it may prove impossible. For others it's a huge opportunity. Either way, the Appdroid Apocalypse is arriving soon, and we'd all better be ready.

What is the Appdroid Apocalypse? The same App Store/Android Market that's busily eating up market share from the Nintendo DS and the Sony PSP is coming to a family room near you. The Apple TV and the Google TV will eventually offer the same gaming apps that you find on iPhone/iPad/iPod Touch and Android, but they'll be played in your family room. Yeah, the same place your console is plugged in. These apps, numbering in the tens of thousands, cost an average of less than $1.50. Thousands of them are free, or free-to-play. The most expensive ones are still under $10. The Apocalypse part is where this new console business turns the existing console business into a scorched wasteland... or at least, a market where sales are declining from year to year rather than growing.

Whoa, wait a minute, you say. That's not what Apple TV does... Apple hasn't said anything about offering Apps on Apple TV. Sure, and they didn't do that for the first year of the iPhone, either. Everything is there to make it happen; the new Apple TV runs on iOS, after all. You think maybe Apple hasn't noticed they've made a billion dollars selling Apps? Or the potential of selling a few billion more in family rooms? Apple can flip a switch and turn on an App Store for Apple TV at any time. They probably just want to get everything ready for the launch, so they can hit the ground running. It could happen soon, or they could wait a year. But it's going to happen.

Google is in a similar place. They see how much action they've gotten from the Android market, and how Apple has done with the App Store. Does Google want to lose the family room to Apple? No way.

One thing Apple and Google have in common is that neither one particularly cares what happens to the traditional console business. Gee, Microsoft might lose a lot of money? A happy side effect of Apple and Google's plans.

Where's the evidence for this Apocalypse? Let's look at the numbers. Android phones are now being activated at the rate of 200,000 per day, according to Eric Schmidt. Combined, Android (8.5 million through 2009) and Apple smartphones (according to this report) will be in excess of 150 million by 2012, and with iPod Touches and iPads, along with Android tablets, it may be well over 250 million units (Gartner Group projects over 100 million tablets sold in 2012). Compare this to an installed base of 132 million DS units as of June 2010; that's likely to grow by another 15-20 million units by 2012, but that still leaves it about half the size of the iOS/Android installed base.

Nintendo's DS business is faltering; both hardware and software sales are down (43% and 23% over the last six months). The 3DS is coming next year, but it will likely be $250 to $300, and it still won't have a business model akin to Android or Apple's relatively open markets. There are over 300,000 Apps in the App Store, and the Android app market has hit 100,000. By comparison the DS has in the low thousands of titles, and many are no longer available because you just can't find a cartridge. All of the apps are always available, since there is no physical inventory.

At least 25% of those apps for iOS are games, and the average price is around $1.50. Thousands of them are free, and many are free-to-play. Apple and Google are integrating advertising into their platforms, which promises to keep game prices low as publishers can make money from ads. Freemium business models, such as used in social games like Farmville, are wildly successful (to the point where Zynga is looking at $1 billion in annual revenue by 2012); this is not a model planned for consoles. Nintendo has some 241 downloadable titles available for the DSi, but they are mostly $5 or $8 (and the DSi is a small part of the overall DS base). Nintendo is careful to preserve its retail business by keeping retail titles out of its download store. They saw what happened when Sony introduced the PSPGo, which offered no way for retailers to take a cut from software sales since it was all downloads.

The handheld videogame business is rapidly being outsold by Apple and Google, and the trend will accelerate. Sony has done pretty well with the PSP (over 50 million sold) but it has paled in comparison to the DS and the iPod; their attempt to get into the future of the business with the PSPGo (which used digital distribution) failed miserably as a high price and massive retailer pushback doomed the device. They may try again with the PSP2, but they'll have to innovate with their business model to find a way to get retailers to support digital distribution (Sony also needs to get their internal music and movie units onboard, which also promises to be a fight). Nintendo has come out squarely against the idea of digitally distributing core titles. The even more fundamental problem is that Sony and Nintendo offer devices that are only game machines, while Apple and Google offer devices with a wide range of functions. The greater efficiencies of scale mean that Apple and Google can put more and more power into their handheld devices at lower and lower cost, and they release new hardware on a yearly schedule instead of the 3 year or more schedule of Sony and Nintendo.

Now Apple and Google are poised to bring this business model innovation into the family room (here's an overview of their current offerings). You'll see an App store for the Apple TV and the Google TV, offering many different titles. Developers can easily release software without elaborate bureaucracy. There will be thousands of titles available at average prices an order of magnitude below standard console games.

These Google TV and Apple TV boxes will not be close to the power of current consoles; at least, not at first. But they'll be plenty powerful enough to run, say, Farmville. Or any of the thousands of games on iPhone or Android. Advertising will be built in, and free-to-play business models will be welcomed.

And this is how the classic console industry starts to decline. Does anyone think the last two years of declining sales have just been a fluke?

Do these things mean AAA console titles are obsolete? No, there will still be demand for them. But development costs have to be kept in check to make these titles consistently profitable. Mid-range titles are getting squeezed by lower sales and higher budgets, and there's only so many AAA titles the market can absorb.

Surviving the Appdroid Apocalypse means investing in new types of games and new business models. We're already seeing EA buying mobile and social game companies; Activision is talking about a subscription model for Call of Duty. It's a difficult task, though, to take a company mostly based around a 2-3 year development cycle for its games and completely change the way it approaches business. There will be wrenching readjustments along the way. Creating a steady flow of profits on free or 99 cent software is a huge challenge, and it will mean different development models.

It's not all bad news, though. The changes favor smaller developers who can more easily adjust to a new market of smaller budgets and shorter development times. The indie developer has many more possibilities opening up than seemed possible a few years ago.

It's also true that marketing becomes a huge issue when you're trying to stand out among tens of thousands of titles all competing for attention, and that will be a big problem for smaller developers. Developers of all sizes will have to be able to make a profit on a game that may be given away. Big publishers will have many advantages going into this market due to their size, audience awareness, and the amount of dollars they can throw at things. Small developers will have more of a chance to break through into a big market than they've had before, but it won't be easy.

We're all going to have to figure out out how to first survive, and then thrive, after the Appdroid Apocalypse. Because it's coming soon to a family room near you.

The Handheld Is Dying; Long Live The Handheld

Two trends are apparent that seem contradictory: Handheld game consoles are faltering in sales, and smartphone sales are skyrocketing. They are really two sides of the same basic fact: Most people will likely carry only one handheld device with them. Unfortunately for Nintendo and Sony, that's going to be a phone for any adult and most teens.

Part of why smartphones have taken off is that they know incorporate multiple functions. Smartphones were a small market segment when they consisted of Palm OS, Windows Mobile (or Windows CE), Symbian, and Blackberry. Blackberry was a huge hit because of email; it was the corporate must-have. It still is, but it's starting to fade. When Apple introduced the iPhone, it was popular not because of Apps; the App Store didn't even exist (and Steve Jobs apparently wasn't interested in creating an open software market). What sold the iPhone then was the integration of the iPod functionality, which at that point was the overwhelmingly popular handheld device. Plus you had a camera, and you could see pictures and videos, and maps... it was phone/camera/MP3 player/GPS in one device. Once the App Store came around, and you added games to the mix along with a rapidly growing market of Apps for virtually any purpose, the iPhone took off.

Apple's latest quarterly results will be announced October 18th, and analysts are looking for amazing results. It looks like we're seeing around 4 million iPhones sold every month. The iPad is over 1 million per month and will hit 2 million per month in 2011. The iPod Touch is probably doing similar numbers.

The Android market is based on the success of the iPhone, featuring multiple functionality in one device, with an open software market. It, too, is booming, with 6 million Android phones coming online every month.

The Nintendo DS? Selling around 320,000 units per month in August. The PSP is not even breaking 80,000 units a month. Nintendo is hoping to sell 4 million 3DS units in the first month.... and that will certainly drop off once the initial hardcore fans buy one. Nintendo will be fortunate if they are selling 1 million a month after a few months, especially if the price point is $299.

The realities are that there is no way Nintendo or Sony can hope to match the volume of iDevices or Android devices, which means Sony and Nintendo will be unable to match the hardware performance and pricing of Apple or Android. Volume means you can drive hardware pricing lower, and Nintendo is starting way behind in that race.

Oh, and Windows Phone 7 launches today.... millions more devices with an open software market and plenty of hardware horsepower.

Nintendo and Sony are going to see steadily shrinking sales of their handhelds. Their only hope is to open up their devices to be multifunctional. The hardware is perfectly capable of playing music, video and many other functions. Sony could certainly build a PSP2 that could be very nice, hardware-wise. But hardware mojo will not save Nintendo or Sony. If they had an open software market and could encourage developers to come to their platform, they might have a chance. (An Android-based PSP2 could be a real winner... with real gaming controls wedded to the fast-growing software market.) As Skype and other services grow, the need for a telecom company to make a handheld device into a phone is diminishing. Heck, phone calls are growing rarer, as people (especially younger ones) text all the time. So the phone advantage could be less important in a year or two, as long as the gaming hardware provides all the other functionality (Web browsing, music, video, camera, GPS, etc.) that people have come to expect.

The future is about personal handheld computers, not dedicated hardware for games or telephony or texting or music. Some of us can remember when dedicated word-processing machines were all the rage, and obviously so much better than some poor Apple II trying to word-process... we know how that ended up. The long-term trends are obvious; Sony and Nintendo have to get onboard or be left behind. Software developers and publishers need to be aware of this, too. I notice that EA is one of the key publishers of games for Windows Phone 7, so somebody there is thinking ahead. Marketers, don't get stuck in the past. Look forward to capture the next market.

App Store Success Story

If you're looking for a way to succeed in the App Store, you should take a look at what happened with Hungry Shark. This blog post on GamesBrief lays it out very nicely; the game had done very well in the UK as a paid app (250,000 copies!) and they wanted to take a big bite out of the American market. So they introduced it as a free game during Discovery Channel's Shark Week, and it hit the #1 spot for six days in August. Now they're moving 250,000 copies per day as a free app. So what, you say? Well, about 7% of those go on and pay 99 cents for the full version.

If you're doing the math, after you take out Apple's 30% cut, they're raking in a cool $12,000 or so. Every day. Pretty good for a free game, isn't it?

Note, though, you have to have a damn good game to start with, with good production values. They were clever enough to tie in to an external event that provided a PR hook, and they pushed the connection. They were clever enough in the design that they could create a free version that was fun, and there was enough impetus to get a reasonable number of conversions to the paid version.

Could this be duplicated? Yes, but more likely is that you'll have to work on each piece of the puzzle for a while to make it happen. Your conversion rate may be very low, so you'll have to tweak the design or improve the added value to boost the conversion rate. Using the analytics provided by someone like Flurry you can improve things based on what users are doing. Getting the word out to all the right web sites, getting the review copies in the right hands... orchestrating the buzz is very important.

Still, it all starts with a good game at its core. Marketing can help a good game succeed, but in this era of widespread information and reviews a mediocre or poor game won't make it, no matter how much rich creamy marketing you put on top.

The old market of packaged goods in retail stores, where an EA exec once famously said "We could sell dog shit in a box", is going away. Good riddance. Now you have to have a good game, and good marketing, to succeed. The customers are better off being surrounded by good quality games.

App Store Stats

It's hard to find good numbers on apps sometimes, so this article is a welcome find. You won't be surprised to learn that there are now over a quarter of a million different apps... and that games are the second largest category (books being the largest). This chart breaks down the apps by categories, and shows the price distribution. You won't be surprised to learn that the Free and 99 cent categories are the biggest (but there are over 86,000 apps at 99 cents, slightly more than the 80,000 free apps.

It's really impressive to note that this has all occurred in two years. What will it look like two years from now? I'd venture to guess that we'll see far more apps, making marketing even more important. Pricing may shift higher, unless advertising generates more revenue than it has so far (such a pricing shift may also be driven by the iPad apps, which are priced higher in general). I predict we'll also see an App market on Apple TV, which will spark explosive growth of that platform much as it did for the iPhone.

I wish I could say we'll see significantly improved App Store organization and search tools to make it easier to find apps, but I'm not holding my breath. I'd love to be pleasantly surprised, though. Apple? Anyone listening there? I wonder if you could sell search terms in your App Store...

Astroturfing Can Be Illegal

Astroturfing is the practice of fake grass-roots efforts, as in marketing firms or political consultants pretending to be just average folks. You can see the practice with iPhone apps, and the reviews.... many seem to be posted by friends and family, since their laudatory views are at odds with most of the other posts. This was driven home by the FTC in a recent agreement with a marketing firm over the practice, as detailed in this memo. Reverb Communications, a PR firm for video games, was caught red-handed posting reviews for clients in the iTunes store.

So the FTC is watching, and giving notice that it's not kosher for a person or company with a material connection to a product or company to post publicly without mentioning that connection.

I predict a sudden decline in the number of "OMG this game is AMAZING!" reviews in the iTunes store.

As marketers, you must be aware of these little legal niceties before you charge into social media marketing. It's OK to ask your friends, family and investors to post reviews, but they have to mention their connection. Which will tend to devalue their efforts. It's better for you to encourage the fans you don't know to post reviews, than to try and make up your own.

Here's what PR professional Dave Fleet posted on his blog: "Going into PR doesn’t mean giving up your own ethics." Marketing shouldn't, either.

Strategies For Marketing iPhone Games

How do you overcome the obstacles to successful iPhone game marketing? The brief answer is persistence; don't expect overnight success, and keep trying. Try what? Here are some suggestions.

• Have a plan. If you want to increase the chances for success, start by thinking about what you're going to do before you do it. Create a marketing plan; it will certainly change as it encounters reality, but this is better than no plan. This should also give you a budget and a way of measuring your marketing's success or failure. You can find information on marketing plans bouncing around on the Internet, or you can stay tuned; I'm working on a definitive marketing plan guide for iPhone products.

• Analyze the competition. Spend some quality time looking for competitors to your product and analyzing them and their marketing efforts. How did you find them? How are they marketing their products? How successful is their marketing? What can you do better? Don't neglect their game design, either. How is your design better than theirs? How is it different? What marketing hooks are inherent in your design and artwork and title that your competition doesn't have? Sometimes you can leverage directly off of your competition's strengths: "We're #2, so we try harder." A thorough knowledge of your competition's game design and marketing makes a great guide for your game design and marketing decisions.

• Keep up with changes. Yes, Apple is constantly introducing new hardware and software, and your competition is introducing new products and features all the time. Budget time to keep up with all that. Embrace it; some games (like Pocket God) have made it one of their key strengths. Apple introduces the iPad? You introduce an iPad-specific version of your game. Yes, the market is small right now compared to the iPod Touch or the iPhone, but it's growing rapidly. And since the competition is smaller, you may be able to snag a higher market share... and you'll be well-positioned as that market expands and new models are introduced. It's a marathon, not a sprint. Keep running.

• Test and modify. I think Von Moltke said no marketing plan survives contact with the enemy, or something like that. Your marketing plan should be a work in progress, modified as you get information from the battlefield. If you bought a search term and you're getting terrible results, drop it. Try another one. If you get good results, spend more. Your Facebook page isn't dragging in the pageviews to your web site? Post more often, or try buying some banner ads... get a mention on a popular blog by donating a week's revenue to some charity that's important to you.  Keep track of your marketing efforts and how they are working, and revise until you find some that work. You may need to give your efforts sufficient time to produce results, but you should know that from your marketing plan.

•  Embrace digital guerrilla marketing. What's that, you say? It's my term for the new wave of marketing techniques that are perfectly suited to entrepreneurs with time to spend but limited budgets. Use social networking, email, reviews, blog posts, cross-marketing, giveaways, event marketing for PR, and local PR to generate interest for your game. These are all topics I've covered before, and will cover again. These are also covered in various places on the Internet, and you may want to go spelunking in digital caverns to find some interesting advice.

5 Reasons iPhone Game Marketing Is Getting Harder

This should come as no surprise, but marketing iPhone games is getting more difficult, not easier. Here's five reasons why.

1. Apple's no help. They've tinkered with the iTunes store a bit, but if your game doesn't happen to be either a top seller already or one of the employee picks, you're lost in the shuffle. It doesn't help when you go to the game categories and they are based on what the publisher says with no enforcement. So, for instance, the Roleplaying category is stuffed with social media games that have nothing to do with actual RPGs the way gamers understand them. We wait in vain for adequate search tools; something that gave you multiple parameters to check off would be nice, so you could find all games that included Nazis that were under $1.99 and had at least a 4-star rating. Their new Game Center holds promise for hooking up players... but that's only after you've already found the game. The only consolation, I guess, is that apps of all types have the same problem.
2. The hardware and software is changing. The consoles stay the same for years... maybe decades. But the iPhone gets a new version every year, at least. The hyper-competitive smartphone market means new features keep getting added to the hardware. It's not just a faster processor or more RAM; it's new sensors, a new screen resolution, new cameras (now in front, too). You have to keep studying the hardware platform to make sure new features don't break your game... or allow the competition to get a jump on you. The iOS software keeps getting revised, too, and has new features as well as the possibility that your software may get broken in the upgrade. You can't just sit back and watch the money roll in; you have to keep programming and testing. And did I mention the iPad, and the iPod Touch?
3. The installed base is fragmented. Because there's constant new hardware and software, the iPhone market isn't one big market; it's a bunch of smaller ones, with older hardware and system software to worry about. So you have to think about which versions you'll support, and make it clear in your marketing what is and is not supported. And inevitably narrow your market, unless your game is so bone-simple it runs on everything.
4. The competition is increasing. The number of games in the App Store is somewhere north of 40,000, and it's going higher. More smaller developers and more larger developers are getting more titles into the App Store. It's harder to have a unique game, or even unique elements. And you're getting lost in the endless stream of new stuff.
5. The competition is getting better. More and more competition is increasing the polish on the titles. And more and more established companies are realizing how important this market is, so they're bringing all of their formidable talent pools to bear on the development task. Plus, they have dollars to spend on marketing, and they can piggy-back marketing efforts onto their other marketing. It's not enough you're drowning in competitive games, they can start trying to drown out your marketing efforts too.

So what can you do about all of these things? Answers tomorrow.

Pricing Digital Products

The strategy of pricing a product has fundamentally changed in the digital era. Pricing has become a powerful marketing tool with many options, and your choices can dramatically affect your bottom line. Pricing old products is no longer the same as pricing new products. The issue deserves attention as one of the most basic and important decisions you'll make about your business.

Pricing in the analog era was a fairly straightforward operation, and the goal was clear: You had to price your product so that you would cover all of your development costs, your production costs, your distribution costs, and your sales and marketing costs, and some portion of your overhead, and then have enough left over for some profit. Rules of thumb were often used to make things easier; we used to look for at least 7 times the printing cost of a book for the retail price, and felt good if we could achieve 10 times. (For RPG book distribution, we'd have to give at least a 55% discount off the retail price to sell the books to distributors, and usually it was closer to 60% with various added discounts.)

How is it different with digital products? Production and distribution costs have been minimized. You don't have to create a massive print run of books or discs; you just upload a file. And you no longer have to give up any margin to distributors or retailers, if you retail it yourself on your web site; or you may give up a certain percentage to Apple or some other platform. Still, it will most likely be less than 55%. You're left with the cost of developing the product and getting it ready to upload (which, for small businesses, may be mostly your own time) and the transaction costs (PayPal, for example, would be 30 cents plus about 3% of the price).

How does that affect pricing? Your customers certainly get understand that digital products should be cheaper than equivalent analog products, even if they don't know specific numbers. You can also use this to your advantage by driving sales higher with a lower price point. The key thing is this: You don't have to pay off a print run. What's important is overall profit, not your profit percentage. For some reason, this principle seems hard to grasp for publishers who have been around a long time.

Really, it should be immaterial if you're making a $1 profit on every unit sold or $10 profit or $100 profit; what matters is how many you sell of each. If you only sell one copy of a $100 product, you're not making more than $100. If you sell 100 copies of a $10 product, that's $1,000. If you can sell 10,000 copies of a $1 product, that's $10,000. Personally, if given a choice, I'd rather take the $10,000 than the $1,000 or the $100. Perhaps some people might sniff that I'm selling a cheap $1 product, but I probably won't worry about that as I'm depositing my $10,000.

Best of all, with a digital product pricing can be easily changed. Analog pricing is much more difficult to change; you have to price-protect those retailers and distributors who already have your product, you have to send out the information to the channel, and tell the customers too. With digital products you could change the price daily. Steam has made a mint by holding weekend sales of products... then they go right back to the regular price on Monday. So you can test out the effects of a lower price point, and if sales don't increase enough to cover the reduced income, then you can just raise it back up again.

I haven't yet mentioned one of the most important things about digital pricing: Pricing older products is completely open. If you have an older product that has already brought in enough money to pay for all of its costs, then you have completely free reign to price it however you wish. Give it away free to bring in new users. Bundle it with other digital products to improve their sales. Or just try dropping the price by 80% and see what kind of PR impact you can make, and how sales can skyrocket. If sales don't skyrocket, no problem. Just move the price back up.

The power of pricing can be seen with iPhone games. Many use a free product day as a marketing tool to get mentioned on various web sites that promote free titles. Every day, for instance, Kotaku.com promotes free iPhone games. Just because they are free. The next day or so the games are back to $1.99 or $0.99 or $2.99... but in the meantime they've gained many new users, gotten their name out their, and perhaps sold some other games for the publisher.

I'll have more to say on digital pricing in a future post.