The Incredible App Store Hype

The hype surrounding the iPhone App Store continues to persist. It's been called a gold rush, and stories of one man teams making hundreds of thousands of dollars almost overnight abound. But what does that mean for you, if you want to get into the game? Let's look at the reality.

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First, so you know where I stand among the 60,000 or 600,000 (I've heard both numbers) registered iPhone developers: I have nearly 20 apps in the app store as of this writing. Three of those apps are on the charts:

• Zen Jar #34 Social Networking (paid)


• Spirit Board #36 Board Games (free)


• Spirit Board Pro #95 Board Games (paid)

With two apps on the paid charts, one would assume I'm rolling in dough. After all, this is a gold rush, right?

The reality is much more startling. In order to place #34 on the social networking charts, you need 30-35 downloads a day. At the standard app store pricing of .99, and after Apple takes its cut, that means your app needs to bring in a little over $20 a day to chart at that position. And social networking is a popular category.

Perhaps you'd expect the game charts to do better. Board games isn't a wildly popular category, but it still might surprise you that it takes about 6-8 downloads a day to chart. That means if you are making around $4 a day you'll be in the top 100.

So what does this all mean? Well keep in mind there are over 36,000 apps in the app store. If the apps on the category charts are doing those sorts of numbers, what do you think the rest of them are doing?

Nothing. Absolutely nothing. The aren't selling at all.

Now here's the problem I have with all this. Any normal business that doesn't involve software or the Internet is measured by its average performance. For example, if you want to open a coffee house in your town, part of your research would be looking at how other coffee houses have fared locally, and maybe looking at other, similar areas and seeing how coffee houses have fared there. You would determine an average performance measure and use that determine if it is worth the cost and time required to open your own coffee house.

As software entrepreneurs, we fail to do this time and time again. We measure the market by its huge successes. This would be the equivalent of opening a coffee house after looking at Starbucks' quarterly report, and assuming that Joe's Coffee and Cake is going to quickly rise to the level of a multinational corporation. Rational small business people, unless they have the resources to begin with, don't try to compete with huge, entrenched corporations. Nor do they assume that their success will be on the same level. Joe will look at Sue to get an idea about what his business might do.

After years of playing the web game, I still can't believe people think like this. How many start ups think about revenue after they've brought in the traffic? The huge successes of the Internet always seem to be the ones bleeding huge sums of money. Imagine if the real world worked like this -- what would you rather invest in, Joe's Coffee House, which profits a couple thousand a month, or MegaCoffee 5000, which is multinational but loses a couple million a day?

But getting back to the app store: I post these numbers so people can understand what is really involved here. The app store isn't a sane marketplace at all, any more than the lottery is. When you submit an app, you are buying a ticket. Maybe you will be one of the few who makes a couple hundred grand in a hurry, but most likely you will be just another shlub tossing your blood, sweat and tears into the void where it will be ignored.

And at least on the web, when we got charged up over how rich our shiny new web app was going to make us, we were using massive, hundreds of millions of dollars sales as our ridiculous reference. On the iPhone, the biggest successes are in the 500,000-600,000 range. Anyone want to try to calculate the expected value of that lottery ticket?

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Like this? If you have an iPhone, buy one of my apps. God knows I need all the help I can get.