More About the App Store Opportunity – Where the Real Money Is

03/28/2013

We have all seen the impressive Smartphone app store statistics… hundreds of thousands of app… billions of app downloads. Last year, Apple’s App Store exceeded 600,000 apps, 20 billion downloads and $9 billion in revenue – absolutely huge numbers. But when considering what ecosystem to invest in, you need to look a bit deeper.

Business2Consumer Smartphone App Stores

Doing a little math, and recognizing averages can be both interesting and misleading, the average Apple App Store app had just over 33,000 downloads, cost $.45 and created $15,000 (of which Apple kept $4,500 and the developer received $10,500). If you do similar math for the Android Marketplace (or “Play”), you’ll see revenue numbers that are less than half of these. To create a mini pro forma P&L, let’s assume its takes 200 hours of “someone’s” time to develop and publish an app in one of these Smartphone stores - looks like one is “making” $25-$50/hour for one’s efforts.

Sure this is a very gross calculation ignoring all kinds of factors such as its easy to support a second platform once you’ve built your app for the first one, cost of ongoing support, revenue the second year when development costs are less, lifespan of your app as customers and competitors engage. But this quick calculation does get you a feel for the size and nature of the business opportunity.

We all know “some” companies are making good money with Smartphone apps – but there are an awful lot making very little. And I don’t see this changing any time soon. The Business2Consumer app store market is very price sensitive and very competitive. Key is sales are both “mostly low price” and “mostly one time”.

I personally know a few engineers that quit their day job to build their Smartphone app store business – only to recognize several months later how hard it is to build a real ongoing revenue stream in the B2C app store world. So what did they do? Change their business to building apps for other companies – where they could predictably make $125-$250 per hour.

Business2Business App Stores

In contrast to the B2C Smartphone app stores, let’s look at salesforce.com’s Business2Business web services based app store – AppExchange. Again let’s look at some basic store statistics. 1700 apps and $700 million in “cumulative” sales. Your first thought might be “only 1700 apps” – but remember this is a B2B app store – not B2C.

What is the annual revenue for the sale of partner web services in salesforce.com’s AppExchange? I don’t know but let’s for this simple “back of the envelope” calculation assume an easily divisible revenue number for the 1700 apps of $340 million in 2012. Sure it might be 50% less than this… but close enough to get a feel for the business opportunity for partner web services based on the salesforce.com platform and I’ll admit I like to keep the math easy.

So the average revenue for a web service sold in the AppExchange is $200,000 (over 10x an average B2C app). And maybe more importantly, this $200,000 per app is annual revenue for a web service – not like the mostly one-time sales like the B2C Smartphone app stores. This $200,000 will come in every year as long as one keeps the customers happy – without having to find one new customer. And every new customer potentially increases the annual revenue stream “in perpetuity”.

Of course there are some apps in salesforce.com’s AppExchange generating several million dollars in revenue per year – that comes in every year without having to sell a single new customer - building a sizable, sustainable, and substantial wealth generating businesses.

So What Does This Mean?

You can build a sizable, sustainable, and profitable business delivering a web services based app by working closely with a web services platform provider with a Business2Business app store.

So…

Start thinking about what web services your target customers would value – and engage the web service platform provider that your target customers are already working with.

At Autodesk, we are just getting started building out our web services platforms for designers, engineers and entrepreneurial software developers – Autodesk 360, BIM 360 (Glue), Green Building Studio, AutoCAD WS, Fusion 360, Sim 360 and PLM 360, with more to come. Have a great idea for a new web service for designers and engineers? This elephant would love to dance with you.