Monarch Media, Inc., Business White Paper

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Monarch Media, Inc., Business White Paper
Mobile App Development:
Methods, Marketplaces, and
Monetization
Monarch Media, Inc.
406 Mission Street, Suite J
Santa Cruz, CA 95060
www.monarchmedia.com
831.457.4414
White Paper | Mobile App Development
© 2012 Monarch Media, Inc. All rights reserved.
White Paper | Mobile App Development
© 2012 Monarch Media, Inc. All rights reserved.
Introduction
T
hey find us restaurants, give us news, connect us with
friends, keep us entertained, and even help us avoid traf-
fic. Mobile apps have become an integral part of the daily
lives of millions of people, and in just a few short years they
have altered the media landscape irrevocably. With millions of
people using smartphones and tablets to go online daily, it’s
no wonder that Internet giants like Google and Facebook have
turned increasingly toward delivering their content via mo-
bile applications. And they’re not the only ones. Other content
producers, including traditional media outlets, such as the New
York Times, have created apps that expand their reach to mobile
device users.
During the past decade, mobile technology has experienced
unprecedented growth, both in the variety and capabilities of
mobile devices, and in the number of people using them. As of
fall 2011, there were more than 80 million smartphone us-
ers – about 1 in 3 adults – and 33.7 million tablet users in the
U.S.
1
The number of smartphone owners increased 10% in the
second quarter of 2011 alone, with some estimating as many as
2 billion users worldwide by 2015. The number of tablet users
in the U.S. is projected to increase to nearly 90 million by 2014
– in the 2011 holiday season alone, ownership of both tablets
and e-readers nearly doubled from 10% to 19% each, with
29% of all adults in the U.S. now owning at least one device.
Since the late 1990s, the devices themselves have also evolved,
from the earliest smartphones produced by Palm and Blackber-
ry, which combined the functions of a mobile phone with those
of a PDA, to today’s multi-functional and media-rich devices
that provide streaming audio and video content, email access,
GPS, and more. Once solely used by busy professionals, smart-
phones have undergone a rapid transformation in the past few
years to become the main communication and entertainment
device for millions of people: 25% of all smartphone owners
report using it as their primary Web device, even when a laptop
or desktop computer is available. Younger users (those in the
18-29 age bracket) are especially apt to use smartphones to
go online, with more than 80% reporting that they do so most
days
2
.
The number of
tablet users in the
U.S. is projected to
increase to nearly
90 million by 2014.
0
20
40
60
80
100
2011 2014
In millions of users
33.7m
90m
Tablet Users
0
2011 2014
White Paper | Mobile App Development
© 2012 Monarch Media, Inc. All rights reserved.
With such compelling evidence of the growing popularity and
ubiquity of mobile Internet usage, the decision to develop
content aimed at mobile users is an obvious one. But once that
decision is made, a host of questions remains:
• How do you develop your app?
• Where and how should you distribute it?
• How do you monetize it?
This white paper provides an in-depth guide to the mobile app
landscape: an overview of the various app marketplaces and
their strengths and weaknesses; different methods for delivery
of digital content and producing apps; and a look at some ways
to monetize digital content, including an analysis of which are
most appropriate for different types of content.
Overview of App Markets and Devices
Since the release of the original iPhone in 2007 and the sub-
sequent opening of the Apple App Store, content producers
have had an ever-growing number of options for delivering
their content to consumers. Each of the major platforms has
strengths and weaknesses, and the choice of which device and
market to focus on can have a significant impact for companies
wishing to deliver their content digitally.
Apple iOS and App Store
The Apple App Store for iOS, serving the iPad, iPhone, and iPod
line of devices, has the largest market share of any provider,
with an estimated $85+ of every $100 spent on apps going to the
Apple App Store. Apple’s mobile devices are also market giants,
with 43% of smartphone owners using an iPhone. Even more
striking is the percentage of smartphone-driven online traffic
deriving from iPhone users – nearly 60%, which indicates that
Apple devices not only have a significant user base, but that this
base is also especially active in accessing online content. Apple’s
iPad dominates the tablet market as well. About 80% of tablets
sold in 2011 were iPad2s, and 97.2% of tablet-driven Internet
traffic came from iPad users.
Apple’s App Store made its debut in July 2008, creating the world
of third-party app publishing for mobile devices. From just 500
third-party applications at its launch, the number of apps has
grown to more than 500,000, with tens of billions of apps down-
loaded overall. Half of all app downloads are games – by far the
most popular segment – with entertainment apps a close second.
15
Apple App Store
Other
$
85
$
15
Apple App Store
$
85
$
Per $100 spent
App Sales
15
Apple App Store
Other
$
85
$
The Apple App
Store for iOS,
serving the iPad,
iPhone, and iPod
line of devices, has
the largest market
share of any
provider.
White Paper | Mobile App Development
© 2012 Monarch Media, Inc. All rights reserved.
To be published in the App Store, apps must be approved by
Apple and are tested for reliability and content. Once approved,
the developer sets the price of the app and takes a 70% share
of sales, with the remaining 30% going to Apple. In Febru-
ary 2011, Apple introduced subscription-based app services.
Though publishers have been slow to adopt this approach, as
new subscriptions purchased through the App Store are sub-
ject to the 70-30 split, it also gives the option of selling through
the developer’s own Web site, allowing the developer to keep
100% of the sale price.
Android Devices and Google’s Android App Market
After many years as the world’s leading search provider,
Google entered the smartphone market with its first Android
OS-based device in October 2008. Unlike Apple’s iPhone,
where the hardware and operating system are exclusively an
Apple product, Android handsets are manufactured for use
with the Android OS by HTC, Samsung, Motorola, and others.
The first Android tablet, the Motorola Xoom, was released in
February 2011.
Google’s Android OS has gained some traction in the smart-
phone market, but Android-based tablets have lagged far
behind the immensely popular iPad. This may be partly due
to cost, with Android-based tablets such as the Xoom priced
at $549, not much less than an iPad. With Amazon’s release of
the $199 Android OS-based Kindle Fire in fall 2011, however,
the first true challenger to the iPad’s ubiquity has appeared.
Early estimates indicate that 3.9 million Kindle Fires shipped in
2011, leaping to second place in the tablet market in less than
two months
3
.
Though Android-based smartphone users are slated to out-
number iPhone users soon, they are less active in app down-
loads, and Android’s market share of app revenues remains
small. This can be attributed in part to the higher proportion
of free apps on the Android Market – 67% of all Android apps
are free, compared to only 37% distributed through Apple’s
App Store
4
. The Android Market follows a similar structure
for developers as Apple’s App Store, with the developer taking
70% of the price of the app, and various intermediaries, such as
mobile phone carriers, the remaining 30%.
67% of all Android
apps are free,
compared to only
37% distributed
through Apple’s
App Store.
Free Apps
0
20
40
60
80
100
67
%
37
%
0
37
15
Apple App Store
Other
$
85
$
White Paper | Mobile App Development
© 2012 Monarch Media, Inc. All rights reserved.
For Amazon tablets like the Kindle Fire, apps can also be pur-
chased through the Amazon Appstore for Android. Early indica-
tions are that this venue is less developer-friendly than either
Google’s Android Market or the Apple App Store. In the Amazon
Appstore, developers are paid either 70% of the sale price of
each app or 20% of the list price, whichever is greater
5
– mean-
ing the price set by the developer may not always be the price
Amazon sells the app to customers for, unlike the Apple App
Store, which allows developers to set their own price.
Conclusions
With Apple’s current market dominance and active, established
user base, it is a clear winner for any developer who wishes
to focus exclusively on one market. Android OS-based devices,
however, are gaining a steadily larger market share and An-
droid devices are by far the most popular in lower-income
brackets in the U.S.
6
and in the international market.
7
Thanks
to a robust app developer community and a growing number
of cross-platform developer tools that enable content produc-
ers to more easily create apps for multiple mobile operating
systems, there is clearly wisdom in developing and delivering
content on more than one platform.
Producing an App: Cost and Options
When delivering content digitally, there are a wealth of options.
You can:
• Develop and code the app in-house using native tools and
programming languages for your chosen app market-
places.
• Use an outside developer that specializes in app develop-
ment.
• Take advantage of “build your own app” WYSIWYG soft-
ware that don’t require coding skills to use.
The up-front costs of these options vary greatly, with estimates
on external developers ranging from a few thousand dollars
into the mid-six figures, depending on the developer’s rate and
the size and complexity of the app. Depending on your in-house
capabilities and tools, you can also take on the design and pro-
gramming yourself, either developing using the native OS or via
a framework that leverages other sources, such as Web code-
bases or Adobe DPS files.
Thanks to a robust
app developer
community and a
growing number
of cross-platform
developer tools,
there is clearly
wisdom in
developing and
delivering content
on more than one
platform.
White Paper | Mobile App Development
© 2012 Monarch Media, Inc. All rights reserved.
Finding an External Developer
Should you choose to hire an external developer to create your
app, there is an abundance of advice and information available
about selecting the right vendor. The key points boil down to:
• Opt for experience. Though inexperienced app develop-
ers are often cheaper, the more experienced the developer,
the higher quality the product is likely to be.
• Do your homework. Check out a developer’s Web site,
portfolio, and any apps they have currently deployed in
the various markets. If you don’t like what you see, you’re
not likely to be satisfied with your app.
• Get plenty of bids. Give yourself several options to
choose from, and don’t simply opt for the lowest bidder.
Though the up-front costs may be lower, the product qual-
ity is likely to be as well.
Other things to keep in mind when hiring an external vendor are
its stability and time in business. If you need to update the app in
a year will the vendor still be around to help? Also, when you fac-
tor in tools, training, opportunity costs, and staff hours you’d need
to develop the app in-house, does the vendor’s pricing compare?
Frameworks that Leverage Web Technologies
Another option for mobile app development is to leverage
frameworks that allow apps programmed using standard Web
technologies, such as HTML5, CSS and JavaScript, to function
on a mobile device as though they were coded using the na-
tive platform of the device. These frameworks are an excellent
option in some cases, as they let developers with Web coding
experience, rather than native mobile OS programming exper-
tise, create sophisticated apps using a range of inexpensive to
free and open-source software tools.
One such option is PhoneGap, a solution that can be used to
take an existing HTML, CSS and JavaScript code base and trans-
form it into an app that can be deployed for any of the major
mobile platforms. Some limitations exist – because it is free and
open-source, PhoneGap support exists primarily in the form of
Web forums and developer groups on Twitter and Facebook,
and some common Web technologies, like PHP, are not sup-
ported. Despite these issues, PhoneGap is likely one of the best
and most cost-effective options for developing mobile apps for
those with existing Web development experience.
Web technologies,
such as HTML5,
CSS and
JavaScript,
function on a
mobile device as
though they were
coded using the
native platform of
the device.
White Paper | Mobile App Development
© 2012 Monarch Media, Inc. All rights reserved.
Other popular tools, such as Titanium Mobile from Appcelera-
tor and Sencha Touch, operate on a free-to-download system,
with paid support in the case of Sencha Touch and subscrip-
tion-based features and support from Appcelerator.
Another alternative is to use software or services such as
Woodwing and Rovingbird that convert Adobe-native files –
for example, PDFs or InDesign formats – into iOS or Android
mobile apps. This method has the most in common with, and
is perhaps best suited to, graphically intensive but minimally
interactive apps, such as digital editions of magazines and elec-
tronic newsletters.
Build Your Own or Easy App Makers
Perhaps the simplest solution, and less costly than many oth-
ers, is to employ one of the many Build Your Own App solutions
that have been released recently. These options are typically
browser-based and require no coding knowledge whatsoever.
Some, such as SeattleClouds, offer subscriptions ranging from
less than $100 to $600 for the full enterprise solution. Other
providers charge a one-time fee of a few hundred dollars.
For speed and simplicity Build Your Own App solutions can’t be
beat, with some providers bragging that their solution is as fast
and easy as creating a blog post. However, there are significant
limitations to these companies’ offerings. Build-your-own apps
are geared largely toward content producers that will have a
high volume of updating content and lean heavily toward RSS-
centric features, and are not necessarily geared toward revenue
generation (some only provide support for free apps, and oth-
ers do not provide support for in-app purchases). In addition,
the ready-made nature of these solutions doesn’t lend itself
well to innovative apps that offer users a rich feature set.
Conclusions
With the variety of options available for producing an app, it
is particularly important to identify your needs and what type
of content you will be delivering before selecting a method.
For highly complex and feature-rich apps, choosing an exter-
nal developer or developing internally (where the expertise is
available) is ideal. For delivering existing Web-based content,
choosing a tool like PhoneGap that converts Web code into the
native mobile format is the most cost-effective option. Though
Build-Your-Own App solutions can be relatively inexpensive,
For speed and
simplicity Build
Your Own App
solutions can’t be
beat, with some
providers bragging
that their solution
is as fast and easy
as creating a blog
post.
White Paper | Mobile App Development
© 2012 Monarch Media, Inc. All rights reserved.
they are suitable primarily for those who wish to get a large
volume of content out quickly and cheaply without offering any
unique or complex features.
ROI and Monetizing Your App
Even before your app has been created and is ready for dis-
tribution via an app marketplace, you will want to consider
whether — and how — to monetize your content. The most
popular way to do this is by charging for your app and collect-
ing the direct sales revenue – the 70% that Apple, Amazon,
and Android’s app markets award to the developer. For certain
types of apps and content – books and other media that will
not be updated, or those that provide a valuable service users
are willing to pay for, – a one-time purchase price is a suitable
means of generating revenue. Alternatives exist, however, and
are growing in popularity within the developer community.
Many developers are now choosing to make their apps avail-
able as a free download for the user and focus on monetizing
through other means.
There are clear reasons for doing taking this approach. Down-
load trends in all major app stores show that, not surprisingly,
users heavily prefer free-to-download apps. For example, on
Apple’s App Store downloads of free apps outnumber those of
paid ones by more than 10 to 1.
8

Luckily, there are ways to capitalize on this trend. You can gen-
erate revenue in ways that do not rely primarily on direct sales,
including:
• Selling in-app advertising
• Offering in-app sales
• Applying “freemium” features and content
Advertising
Today, more than 45% of app developers say they rely on in-
app advertising to create revenue.
9
Each of the major online
marketplaces provides support for developers who wish to
advertise within their apps – Apple’s iAd and Google’s AdMob,
in particular are well integrated with the overall app experi-
ence and provide a plethora of options for in-app advertising. If
you are developing apps for Apple’s App Store or the Android
Market, these are probably your best options for integrating
and monetizing advertising.
Even before
your app has
been created
and is ready for
distribution via an
app marketplace,
you will want to
consider whether
— and how — to
monetize your
content.
White Paper | Mobile App Development
© 2012 Monarch Media, Inc. All rights reserved.
In-App Sales
In a recent survey, the number of developers focused on reap-
ing revenue primarily from direct app sales has decreased by
nearly 10%. Nearly all of these have instead shifted to in-app
sales generate revenue. The most recognizable example of this
model is the free-to-play game, which allows users to download
and play games for free, but peripheral items and upgrades
must be purchased within the game for a fee.
The percentage of revenues generated by this method is par-
ticularly striking in the iOS market. In 2011, 4% of iOS apps
used an in-app purchasing model to generate revenue, but
these apps generated 72% of total iOS sales.
11
Much of this
revenue derived from in-app upgrade purchases within free-to-
play games (estimates suggest that roughly half of all App Store
revenues are generated this way), but there are alternatives for
non-game apps utilizing this method, as well. One example is
the New York Times, whose mobile apps are free to download
and provide free front-page access and a limited number of
article views per month. Users can upgrade to unlimited access
for a monthly fee.
“Freemium” Apps
A final alternative to relying on direct sales revenue is the so-
called “freemium” approach, where both a free and a paid ver-
sion of the app are made available. This model is excellent for
new entrants to the app market, as it will allow you to quickly
attract a large user base by providing a free app and then con-
verting some into paying customers by offering a paid version
with premium features and content.
A potential pitfall of this approach is the difficulty in maintain-
ing an appropriate balance between the free and paid versions
of an app – if there are no features or content that would entice
a user to pay after trying a free version, profits will be limited.
An alternative that circumvents this issue is to offer a free ver-
sion of the full app with ads, as well as a paid version that elimi-
nates ads.
Conclusions
The model of revenue generation that is most appropriate for
your app depends heavily on its content and features. The in-
app sales model has proven highly lucrative, but its success has
In 2011, 4% of iOS
apps used an in-
app purchasing
model to generate
revenue, but these
apps generated
72% of total iOS
sales.
income from
in-app purchases
income from
direct-app purchases
4% of iOS apps
used in-app
purchasing model
72
%
28
%
96% of iOS apps
used direct-app
purchaing model
2011 iOS App Purchases
in-app
purchases
direct-app
purchases
White Paper | Mobile App Development
© 2012 Monarch Media, Inc. All rights reserved.
primarily been limited to games, and it has limited potential for
other types of apps.
Direct sales revenue, depending solely on single-unit sales and
the price of an app, is a reliable means of generating revenue
and one that half of the developer market still uses. It limits the
potential market for your app, however, because free down-
loads still greatly outnumber paid ones by a significant margin.
The final alternatives, in-app advertising and “freemium” con-
tent for paying users, provide the greatest flexibility, allowing
an app to attract a larger user base by providing a free version,
and guaranteed revenues in the form of ads and paid down-
loads by users who were pleased with the free version of the
app.
Final Thoughts
As the mobile landscape evolves, the one constant is the wealth
of options available to those who wish to deliver content digi-
tally. The rapidly growing user bases and competitive app
markets for both Apple and Android devices make it a wise
decision to develop cross-platform wherever possible. The
ideal mode of development is ultimately dependent on the type
of content to be delivered – identifying whether you need com-
plex interactive features, or if an existing Web codebase can be
leveraged will go a long way to minimizing the cost of develop-
ing your app and maximizing your ROI. Finally, choose care-
fully when monetizing your app – free or “freemium” apps are
downloaded at much higher rates than paid apps and can be
effectively monetized with ads, but unique, high-value services
can be well suited to the pay-to-download model and still de-
velop a large user base. Identifying the most appropriate route
to monetization will be instrumental in the success of your app
on the marketplace.
As the mobile
landscape evolves,
the one constant
is the wealth of
options available
to those who wish
to deliver content
digitally.
White Paper | Mobile App Development
© 2012 Monarch Media, Inc. All rights reserved.
Works Cited
1
Aaron Smith, Smartphone Adoption and Usage, Pew Internet,
July 2011. http://pewinternet.org/Reports/2011/Smartphones/
Summary/Key-Findings.aspx
2
Ibid.
3
Mia Lamar, “Strong Demand for Kindle Fire Sets Record Holiday
for Amazon’s Kindle Line,” The Wall Street Journal, http://online.
wsj.com/article/BT-CO-20111229-704727.html, December 29,
2011.
4
Mike Wehner, “Apple Approves Its 500,000th App, but Do You
Care?”, Yahoo News, http://news.yahoo.com/blogs/technology-
blog/apple-approves-500-000th-app-care-160140999.html, May
24, 2011.
5
Amazon Appstore Developer Portal FAQ, Program Overview,
https://developer.amazon.com/help/faq.html#Program%20Over-
view
6
Smith, Smartphone Adoption.
7
Chloe Albanesius, “Android Captures 52 Percent of Global
Smartphone Market Share, PC Mag, http://www.pcmag.com/ar-
ticle2/0,2817,2396404,00.asp, November 15, 2011.
8
Pricing for Success: Industry Trends and Best Practices, 2011,
Distimo, http://www.slideshare.net/distimo/pricing-for-success-
app-industry-trends-and-best-practices, 2011.
9
Appcelerator/IDC, Q3 2011 Mobile Developer Report, http://
www.appcelerator.com/company/survey-results/mobile-developer-
report-nov-2011/, November 2011.
10
Ibid.