Apple Inc. (NASDAQ:APPL) and Google Inc. (NASDAQ:GOOG) both have more than a million mobile applications in their stores. The average price of an app is currently between $1 and $1.50, but by this time next year, 94 percent of these apps will be free to install. It sounds great for consumers, but this also means less than 1 percent of these apps will be “financially successful,” according to a report from Gartner published Monday morning.
“There are so many applications that are free and that will never directly generate revenue,” said Ken Dulaney, vice president and analyst at Gartner, an information technology research company, in a press release.
Its research shows that 90 percent of paid applications make less than $1,250 a day, since people simply aren’t downloading them.
“The vast number of mobile apps may imply that mobile is a new revenue stream that will bring riches to many,” he said, but Gartner found that most apps simply aren’t generating profits.
“Application designers who do not recognize this may find profits elusive,” he added.
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A major problem is the sheer numbers and variety of app downloads available. It’s hard for people to browse through millions of possibilities, so they turn to friends and social networks like Twitter (NYSE: TWTR) and Facebook (NASDAQ: FB) for guidance.
This new method means that traditional sales tricks just don’t work. Even the best app in the world won’t make money if people aren’t talking about it.
But by 2017, Portio Research estimates than nearly 4.4 billion people will be using mobile apps, and developers don’t want to miss out.
Many developers have already adapted, and are making lots of money from apps that are free to download. In fact, many find that putting a price on an app guarantees it will be less profitable.
“I find that when I have them priced at $0.99 I make a little less money than I do from in-app purchases when it’s free,” writes Carter Thomas, an app developer and marketer, on the blog for his website Blue Cloud Solutions.
“The other difference is that I get about 10 times the download number when it’s free,” he adds.
In-App purchases allow users to unlock or upgrade parts of a game or tool after they download it.
In Candy Crush Saga, one of the most popular mobile games, players can pay for extras that help them.
The reason is that they can pay for different items to help them advance. For example, players can pay just $0.99 for more lives, or a $1.99 Lollipop Hammer that gives players extra moves. For $16.99 users can buy the “Charm of Life” that gives them even more extra lives.
It may sound silly, but Candy Crush generates an estimated $946, 788 every day.
According to researcher Distimo, which tracks more than 2 billion downloads for major app developers, these types of purchases are more important than ever.
“In-app purchases now generate the majority of the revenue in the app stores,” reads their 2013 report, which shows than nearly 76 percent of all Apple App revenue comes from people purchasing upgrades on apps that were originally free.