Smartphone watchers are happy to describe the current third-party developer ecosystem as 'an app world', but new research suggests that it is 'a gaming world' instead, and you're going to need large pockets if you are going to attempt to take on the big names.
Midia Research looked at the top grossing iOS and Android apps during May 2014 from seven territories (America, Canada, France, Germany, Italy, Spain, and the United Kingdom) for "The Superstar App Economy: Dissecting the Global App Store Marketplace". This covers 700 applications, and while it is only the very tip of a rather long tail of applications, the trends found in the most profitable apps show that the established players can maintain their high profit levels and it's going to be very difficult for new entrants to break into the top app charts.
Where the profits are concentrated makes for interesting reading. 84.9% of the 700 top grossing apps were games, and 81% of the top grossing apps originate from just fifty companies.
Supercell's Clash of Clans is a top performer (image: Supercell PR)
Part of this dominance by games can be explained by the nature of freemium. Over the last few years freemium gaming, thanks to improved in-app purchasing methods and a greater acceptance of this style of 'free download, pay for extras', has been behind some of the largest revenue streams for a number of developers.
The smart developers have been creating positive feedback loops by using the revenues from the freemium sales to finance the marketing and acquisition costs of new players... who will start using IAP and increase the funds available for more marketing.
That means the top earners are easily able to pull away and generate astonishing levels of revenue (Finland's Supercell reported $829 million in revenue last year). The runaway levels of revenue for the top companies such as Supercell, King (Candy Crush Saga) and Zynga, give them the ability to stay in the top charts in the app stores, and make it harder for new entrants to build up enough momentum to create a profitable financial feedback loop.
That's not to say that smaller developers should ignore this strategy. The freemium gaming scene can have a huge turnover of players, and it is no longer enough to have a hit game. Take Flappy Bird, which was generating $50,00 a day at the peak of its viral success. That could have been re-invested to acquire users, rather than taking the game down, but it would not have come close to levels of the top titles.
Supercell's $829 million breaks to almost $2.27 million per day. The true number is now likely much higher, with reports of $5 million per day in revenue and $1 million of that invested back into a daily marketing budget.
There is a significant amount of money spent on mobile gaming, but it is concentrated in a handful of companies and their own games. Unless new developers can match that level of spending, they are going to find it hard to get anywhere close to the top 100 app charts. It's very likely that the next wave of 'hit games' are going to come from the same established set of developers and publishers we have at the moment.
