August 16, 2013, 9:57 AM —
It's one of the biggest disconnects in the mobile world: Even though the installed base of Android smartphones is now much larger than that of iOS devices – Apple users still spend a lot more money on apps than Android users do.
At first glance, the disparity is surprising: Apple's App Store and Google Play each boast more than 800,000 apps, and the latest numbers show that Android app downloads have finally surpassed those for iOS, by some 10%. But while estimates vary, it's clear that the App Store still pulls in much, much more cash.
For app developers, it's a no-brainer: Follow the money. So although Google says Android's average revenue per user grew 2.5 times in the past year, Apple still rules the hearts and product plans of app developers. Most app developers still create their products for iOS first, and move on to Android later. The practice is so entrenched that it's big news when things go in the other direction. When Facebook Home bucked the trend by launching on Android earlier this year, Facebook CEO Mark Zuckerberg thought it unusual enough to mention during the announcement.
Developer loyalty is one of Apple's biggest advantages, one that Google has long been determined to take away. Back in 2011, Google CEO Eric Schmidt predicted that developers would switch to "Google first" by mid-2012. If the company still has hopes of ever making that happen, here's what it needs to do:
- Keep improving the Google Play store
- Encourage and enable business models beyond "free-to-play" games
- Find ways to encourage Android users to make initial purchases
- Counter Apple's credit-card advantage, primarily with carrier billing
- Leverage Android's strength in emerging markets around the globe
- Help Android developers build better apps
These tactics aren't news to Google, it's already working on them all to one degree or another. But as the failure to meet Schmidt's deadline shows, executing on them won't be easy. To understand why, it's helpful to look deeper into the app development marketplace.
Money talks ... and app makers listen
Apple is now paying more than $1 billion per quarter to app developers. Google doesn't share its numbers, but a recent App Annie report put App Store revenue at 2.3 times that of Google Play, while Canalys said that in Q1 2013, the App Store garnered 74% of all app revenue, leaving Google Play with "close to 20%." Distimo estimates that the top 200 iOS apps earned $5.1 million per day in the U.S. in April 2013, while the top 200 Google Play apps had $1.1 million in daily revenue, though Google is gaining ground. That's critical for developers, because Canalys also reports that just 25 developers earn 50% of the revenues on the two stores.
Image credit: Google I/O, 2013
How did we get here? When the iPhone App Store debuted in 2008, Android wasn't even a gleam in Sergey Brin's eye. Being first allowed iOS users to become accustomed to downloading and paying for apps – in a much more controlled, less competitive environment.
Oh, and here's the elephant in the room. "Historically Apple has had an advantage in iTunes, which essentially required a credit card to be associated with any device accounts," says Greg Sterling, senior analyst at Opus Research, in an email. "That made buying paid apps much faster and easier than the crazy quilt of payment approaches on Android devices."
Meanwhile, "The expectation on Android is that everything is free," explains Rich Morrow, a GigaOm Pro analyst and co-principal engineer at QuicCloud. iPhone owners also use their phones and apps more than Android users do. Independent surveys rate iOS apps higher than Android apps, too. Finally, while Apple's installed base may be smaller, it's much richer. iOS does best in developed countries, while Android dominates in emerging markets.
What Google can do about it
Let's start with the easy things. Google must continue improving the Google Play store to make it easier to discover apps, and not just the top earners. Sterling notes that the company has made numerous improvements to Google Pay, which has helped narrow the gap. But apps that aren't on the top-grossing list -- dominated by "free-to-play" games that earn revenue through in-app purchases – still get lost in the shuffle. (To be fair, that's a problem on the App Store, too.)
Ibrahim Elbouchikhi, Google Play commerce product manager, Google I/O, 2013
Google Play revenue relies heavily on the free-to-play model, which poses challenges for Android developers: They have to get users to download it and use it before they can even try to ask for money. In a session at the Google I/O developers conference in May (Making Money On Google Play), Google Play commerce product manager Ibrahim Elbouchikhi said in-app purchases were up 700% over the last year, but he didn't say over what base. And while Google claims the new In-App billing Version 3 dramatically reduces customer contact rates, many people remain turned off by the psychological manipulations inherent in the in-app purchase model.
One alternative is subscriptions, which Elbouchikhi said have grown 200% each quarter since their launch in 2012 – even though he acknowledged that signing up for a subscription is a "pretty high hurdle."
Google's biggest conundrum, though, is how to get Android users to make that all-important first purchase, a more complicated task since Google doesn't already have their credit card info. That's one reason Google began distributing Google Play gift cards last year, and started promotional "campaigns" – Google Play credits bundled with Android devices. The idea, Elbouchikhi said, is to inject money that will be spent on Android apps and also "lower the hurdle for a user to go from [being] a free app consumer to actually a purchaser. And our experiments have shown that once a user makes one, two, three purchases, they're much more likely to make their fourth and fifth, even when their credit is over."
That will help, but Google still needs to continue smoothing the Android buying experience – which the company knows hasn't been as good as Apple's.
Carrier billing = The Holy Grail
In the end, there's only one way to match Apple's ease of app purchasing: carrier billing, putting app purchases on the buyer's monthly mobile service bill. Google claims that 50% of active Android users are now on carriers that support carrier billing. "We've invested a lot in the technology behind it," Elbouchikhi said, but it's not clear how many app purchases are actually being made this way.
Carrier billing is especially critical in the emerging markets where Android is strongest. Many Android owners in India, for example, don't use credit cards. Google plans to expand carrier-billing from its current dozen markets, but hasn't shared a time frame for bringing it to all 134 Android buyer markets.
Still, its global reach is one of Android's chief advantages, and Elbouchikhi said Google is working to make developers more aware of which markets offer the biggest opportunities, and help them to localize their apps to take advantage of them.
Cutting costs matters too
Android also needs to make it easier for developers to optimize their apps for tablets, which Elbouchikhi said monetize at 1.7 times the rate of a smartphone. Google is working to help developers do that, but Android's larger fragmentation problem -- there are literally thousands of Android configurations – creates significant costs for developers.
Google also has to address Android's operating system fragmentation. According to Elbouchikhi, the newest Android platforms monetize at 2.2 times older versions. Unfortunately, less than 40% of Android users are running Jellybean – version 4.1 or later. Until Google finds a way to get Android users on the latest versions, app developers have to spend engineering cycles supporting multiple Android versions that deliver lower revenues. (By contrast, almost all Apple users are on the latest version of iOS, and Apple developers have to support a much smaller array of devices.)
On the other hand, according to analyst Morrow, "Google is trying really hard to ramp up the cloud side of its business" with lower prices and tighter integration with Google Play apps. An easy, affordable, one-stop-shop for the various hosting and other services app developers need, he said, could help lure developers away from iOS.
It's all about the apps ... and communication
Focusing on developers is instructive, but it may be the apps that make the difference. As the Google chart below shows, higher-rated apps make more money.
Image credit: App Annie Intelligence
One way to encourage "better" Android apps is to give developers more information about what works and what doesn't. The company keeps adding features to the Google Play Developer Console -- a suite of tools for publishing and distributing Android apps launched in 2012. The new Google Wallet Merchant Center, for example, offers enhanced reporting, analytics and account management on demand.
Those automated information sources are great, but they don't go far enough. Google needs to be more upfront with Android developers. At the I/O session, Elbouchikhi awkwardly dodged attendee questions on exactly how much a top-grossing Android app might earn, and the company doesn't seem eager to share hard numbers.
If Google really wants app developers to build for Android first, the first step is to be a lot more open about the rewards – and the specific ramifications of the myriad choices developers have to make as they create and market their apps.