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White Paper | Mobile App Development

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

2012 Monarch Media, Inc. All rights reserved.


White Paper | Mobile App Development

Introduction
T
The number of hey find us restaurants, give us news, connect us with
tablet users in the friends, keep us entertained, and even help us avoid traf-
fic. Mobile apps have become an integral part of the daily
U.S. is projected to lives of millions of people, and in just a few short years they
increase to nearly have altered the media landscape irrevocably. With millions of
people using smartphones and tablets to go online daily, its
90 million by 2014. no wonder that Internet giants like Google and Facebook have
turned increasingly toward delivering their content via mo-
bile applications. And theyre 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.
Tablet Users Since the late 1990s, the devices themselves have also evolved,
In millions of users
100 from the earliest smartphones produced by Palm and Blackber-
ry, which combined the functions of a mobile phone with those
80
90m of a PDA, to todays multi-functional and media-rich devices
that provide streaming audio and video content, email access,
60
GPS, and more. Once solely used by busy professionals, smart-
phones have undergone a rapid transformation in the past few
40
years to become the main communication and entertainment
20
33.7m device for millions of people: 25% of all smartphone owners
report using it as their primary Web device, even when a laptop
0 or desktop computer is available. Younger users (those in the
2011 2014 18-29 age bracket) are especially apt to use smartphones to
go online, with more than 80% reporting that they do so most
days2.

2011 2014
0

2012 Monarch Media, Inc. All rights reserved.


White Paper | Mobile App Development

With such compelling evidence of the growing popularity and


ubiquity of mobile Internet usage, the decision to develop
The Apple App content aimed at mobile users is an obvious one. But once that
Store for iOS, decision is made, a host of questions remains:
serving the iPad, How do you develop your app?
Where and how should you distribute it?
iPhone, and iPod How do you monetize it?
line of devices, has This white paper provides an in-depth guide to the mobile app
landscape: an overview of the various app marketplaces and
the largest market their strengths and weaknesses; different methods for delivery
share of any of digital content and producing apps; and a look at some ways
to monetize digital content, including an analysis of which are
provider. 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
App Sales line of devices, has the largest market share of any provider,
with an estimated $85+ of every $100 spent on apps going to the
Per $100 spent
Apple App Store. Apples mobile devices are also market giants,
with 43% of smartphone owners using an iPhone. Even more
Other striking is the percentage of smartphone-driven online traffic
$15
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. Apples
Apple App Store iPad dominates the tablet market as well. About 80% of tablets
$ 85 sold in 2011 were iPad2s, and 97.2% of tablet-driven Internet
Other traffic came from iPad users.
$15

$ 85
Apples App Store made its debut in July 2008, creating the world
of third-party app publishing for mobile devices. From just 500
Apple App Store
Apple App Store
third-party applications at its launch, the number of apps has
grown to more than 500,000, with tens of billions of apps down-
$ 85
loaded overall. Half of all app downloads are games by far the
$15 most popular segment with entertainment apps a close second.

2012 Monarch Media, Inc. All rights reserved.


White Paper | Mobile App Development

To be published in the App Store, apps must be approved by


Apple and are tested for reliability and content. Once approved,
67% of all Android the developer sets the price of the app and takes a 70% share
apps are free, of sales, with the remaining 30% going to Apple. In Febru-
ary 2011, Apple introduced subscription-based app services.
compared to only Though publishers have been slow to adopt this approach, as
37% distributed new subscriptions purchased through the App Store are sub-
ject to the 70-30 split, it also gives the option of selling through
through Apples the developers own Web site, allowing the developer to keep
App Store. 100% of the sale price.

Android Devices and Googles Android App Market


After many years as the worlds leading search provider,
Google entered the smartphone market with its first Android
OS-based device in October 2008. Unlike Apples 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.

Googles 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 Amazons release of
the $199 Android OS-based Kindle Fire in fall 2011, however,
Free Apps the first true challenger to the iPads ubiquity has appeared.
100 Early estimates indicate that 3.9 million Kindle Fires shipped in
2011, leaping to second place in the tablet market in less than
80 two months3.

60
Though Android-based smartphone users are slated to out-
number iPhone users soon, they are less active in app down-
40
67% loads, and Androids market share of app revenues remains
20
37%
Other
small. This can be attributed in part to the higher proportion
of free apps on the Android Market 67% of all Android apps
0
$15 are free, compared to only 37% distributed through Apples
App Store4. The Android Market follows a similar structure
for developers as Apples App Store, with the developer taking
70% of the price of the app, and various intermediaries, such as
Apple App Store
mobile phone carriers, the remaining 30%.
$ 85
0

37
2012 Monarch Media, Inc. All rights reserved.
White Paper | Mobile App Development

For Amazon tablets like the Kindle Fire, apps can also be pur-
chased through the Amazon Appstore for Android. Early indica-
Thanks to a robust tions are that this venue is less developer-friendly than either
app developer Googles Android Market or the Apple App Store. In the Amazon
community and a Appstore, developers are paid either 70% of the sale price of
each app or 20% of the list price, whichever is greater5 mean-
growing number ing the price set by the developer may not always be the price
of cross-platform Amazon sells the app to customers for, unlike the Apple App
Store, which allows developers to set their own price.
developer tools,
there is clearly
Conclusions
wisdom in With Apples current market dominance and active, established
developing and user base, it is a clear winner for any developer who wishes
to focus exclusively on one market. Android OS-based devices,
delivering content however, are gaining a steadily larger market share and An-
on more than one droid devices are by far the most popular in lower-income
platform. 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 dont 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 developers 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.

2012 Monarch Media, Inc. All rights reserved.


White Paper | Mobile App Development

Finding an External Developer


Web technologies, Should you choose to hire an external developer to create your
app, there is an abundance of advice and information available
such as HTML5, about selecting the right vendor. The key points boil down to:
CSS and
Opt for experience. Though inexperienced app develop-
JavaScript, ers are often cheaper, the more experienced the developer,
function on a the higher quality the product is likely to be.
mobile device as Do your homework. Check out a developers Web site,
portfolio, and any apps they have currently deployed in
though they were the various markets. If you dont like what you see, youre
coded using the not likely to be satisfied with your app.
Get plenty of bids. Give yourself several options to
native platform of choose from, and dont simply opt for the lowest bidder.
the device. 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 youd need
to develop the app in-house, does the vendors 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.

2012 Monarch Media, Inc. All rights reserved.


White Paper | Mobile App Development

Other popular tools, such as Titanium Mobile from Appcelera-


tor and Sencha Touch, operate on a free-to-download system,
For speed and with paid support in the case of Sencha Touch and subscrip-
simplicity Build tion-based features and support from Appcelerator.

Your Own App Another alternative is to use software or services such as


solutions cant be Woodwing and Rovingbird that convert Adobe-native files
for example, PDFs or InDesign formats into iOS or Android
beat, with some mobile apps. This method has the most in common with, and
providers bragging is perhaps best suited to, graphically intensive but minimally
interactive apps, such as digital editions of magazines and elec-
that their solution tronic newsletters.
is as fast and easy
as creating a blog Build Your Own or Easy App Makers
post. 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 cant 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 doesnt 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,

2012 Monarch Media, Inc. All rights reserved.


White Paper | Mobile App Development

they are suitable primarily for those who wish to get a large
volume of content out quickly and cheaply without offering any
Even before unique or complex features.
your app has
been created ROI and Monetizing Your App
and is ready for Even before your app has been created and is ready for dis-
tribution via an app marketplace, you will want to consider
distribution via an whether and how to monetize your content. The most
app marketplace, popular way to do this is by charging for your app and collect-
you will want to ing the direct sales revenue the 70% that Apple, Amazon,
and Androids app markets award to the developer. For certain
consider whether types of apps and content books and other media that will
and how to not be updated, or those that provide a valuable service users
are willing to pay for, a one-time purchase price is a suitable
monetize your means of generating revenue. Alternatives exist, however, and
content. 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
Apples 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 Apples iAd and Googles 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 Apples App Store or the Android
Market, these are probably your best options for integrating
and monetizing advertising.

2012 Monarch Media, Inc. All rights reserved.


White Paper | Mobile App Development

In-App Sales
In 2011, 4% of iOS In a recent survey, the number of developers focused on reap-
apps used an in- ing revenue primarily from direct app sales has decreased by
nearly 10%. Nearly all of these have instead shifted to in-app
app purchasing sales generate revenue. The most recognizable example of this
model to generate model is the free-to-play game, which allows users to download
and play games for free, but peripheral items and upgrades
revenue, but these must be purchased within the game for a fee.
apps generated
The percentage of revenues generated by this method is par-
72% of total iOS ticularly striking in the iOS market. In 2011, 4% of iOS apps
sales. 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
2011 iOS App Purchases new entrants to the app market, as it will allow you to quickly
4% of iOS apps
attract a large user base by providing a free app and then con-
used in-app verting some into paying customers by offering a paid version
purchasing model
with premium features and content.
72%
A potential pitfall of this approach is the difficulty in maintain-
96% of iOS apps
used direct-app
ing an appropriate balance between the free and paid versions
purchaing model 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.
28% 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-
income from income from nates ads.
in-app purchases direct-app purchases

Conclusions
The model of revenue generation that is most appropriate for
purchases purchases your app depends heavily on its content and features. The in-
in-app direct-app
app sales model has proven highly lucrative, but its success has

2012 Monarch Media, Inc. All rights reserved.


White Paper | Mobile App Development

primarily been limited to games, and it has limited potential for


other types of apps.
As the mobile
landscape evolves, Direct sales revenue, depending solely on single-unit sales and
the one constant 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
is the wealth of potential market for your app, however, because free down-
options available loads still greatly outnumber paid ones by a significant margin.
to those who wish The final alternatives, in-app advertising and freemium con-
to deliver content tent for paying users, provide the greatest flexibility, allowing
digitally. 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.

2012 Monarch Media, Inc. All rights reserved.


White Paper | Mobile App Development

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 Amazons 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.

2012 Monarch Media, Inc. All rights reserved.