App Store Revenue is Highly Concentrated

By Gary Kim December 05, 2012

A small number of developers, almost entirely game companies, continue to generate the majority of revenue at the leading app stores (Apple’s App Store and Google Play), according to an analysis by Canalys.

Canalys estimates that just 25 developers accounted for 50 percent of app revenue in the United States in the Google Play and Apple iTunes stores during the first 20 days of November 2012. Between them, they made $60 million from paid-for downloads and in-app purchases over this period.

That is a classic Pareto distribution, sometimes called a "Long Tail" or the "80/20" rule. The concept is that, in any market, or any natural world distribution, a small number of instances account for a highly disproportionate share of the total cases. 


Image via Shutterstock

In fact, one study found, in the App Store, six or so apps account for about 55 percent of total application revenue (from all sources, including app sales, in-app revenue and advertising).

Keep in mind that the iTunes App Store and Google Play now offer more than 600,000 apps each.

Looking at app sales and in-app revenue only, and excluding ad revenue, in 2012, Flurry estimates that the top 25 apps will earn about half of total revenue.

The rest of the top 100 apps will earn about 17 percent of revenue in 2012.

In business, that might be also called the law or rule of three. It's the same idea: a small number of actors, instances, companies or objects have a disproportionate share of total instances.

Also, of the top 25 grossing developers, all bar one (popular music service Pandora with its Pandora Radio app) are game developers.

Canalys VP and Principal Analyst, Chris Jones notes that Zynga, for example, had 15 titles in the list of top 300 grossing iPhone apps on average in Apple’s App Store every day, and nine titles in the equivalent list in the Google Play store.

In fact, games accounted for 145 on average of the top 300 paid apps in the Apple App Store and 116 of Google Play’s top 300 paid apps, Canalys found. Games likewise represented 94 of the top 300 listed free apps for Apple and 110 for Google Play.

That underscores the challenge that faces developers of other types of apps, especially those with poor brand awareness, both to get their apps noticed and to monetize them. In a larger sense, app sales volume also validates the commonness of the Pareto distribution in nature and life. Virtually always, markets are characterized by extreme concentration.

 




Edited by Brooke Neuman

Contributing Editor

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