In past years, I’ve heard from people who bought into stories about the app store being a gold mine, but that has reduced recently. By now, many people have understood that news reports/stories about some big individual app store successes often presented a distorted picture of the iphone app store.
However, people continue to have an exaggerated perception of app store revenues. This incorrect perception is exacerbated by shoddy analysis in the tech media.
Today’s TechCrunch post “Eat The Rich: The App Economy’s Middle Class Is Booming…And So Is The Poor” is a good example of how flawed analysis in the tech media can mislead readers with erroneous conclusions.
Bad premise and incorrect definition of “long tail”: The TechCrunch post states its premise by asserting that “the long tail is responsible for 68% of the revenue generated, with the top 25 at 15% and the top 26-100 at 17%”. So they are saying that the top 100 apps earn 32% of app store revenue.
However, this premise turns the “long tail” definition on its head. A long tail distribution would suggest that the bottom 80% of apps earn most of the iOS app-store revenue. So a reasonable long-tail analysis would need to review revenue earnings of around 130,000 apps (20% of the 650,000+ apps in the app store). However, the TechCrunch post only looks at 100 apps (i.e. the top 0.015% of apps) and then mistakenly defines the remaining 649,900apps (99.985% of apps) as the long-tail.
It may be true that that the top 100 apps (i.e. 0.015% of apps) earn only 32% of app-store-revenue and that the remaining 649,900+ apps (i.e. 99.985% of apps) earn 68% of app-store revenue. However, this doesn’t say anything about the long-tail for iPhone and iPad apps. On the contrary, it suggests a very lopsided distribution of revenue with revenues highly concentrated in a tiny sliver at the top.
Bottom 80% of apps: A developer post from StreamingColour suggests that the top 20% of apps make around 97% of all app-store revenues. The StreamingColour data was limited to the exceptionally lucrative games category. As the post states, the numbers weren’t based on a rigid statistical analysis and the study had several limitations. Note that Apple is the only entity that has precise data relating to the top 20% and bottom 80%, so any outside (i.e. non-Apple) assessment cannot provide precise revenue numbers.
Based on my discussions with other developers, the monthly iOS/Mac developer meetings I run, my own app store experience etc. I’d guess that on any given day, the revenue earned by most apps is zero (or close to zero). So while numbers (in the StreamingColour post) are certainly inexact, I’d say that the post is reasonable in estimating that the bottom 80% of apps probably make somewhere around 3% of total app-store revenues.
An erroneous conclusion: The TechCrunch post concludes by saying that “Bottom line, in the new app economy, there’s no struggle of the 99% here. The richer are getting richer, but so are the middle class and the poor. And those last two are gaining fast.” Note that the TechCrunch post is based on an analysis/report from Flurry Analytics which also talks about the so-called long tail and asserts that “The age of middle-class app developer has arrived. In this economy not only are the rich getting richer, but so too are the poor, and gaining on the rich”.
However, the TechCrunch (and Flurry Analytics) conclusion is a fallacy because their analysis only looks at data regarding the top 0.015% of apps and makes long-tail assertions without discussing revenues earned by the 20% or bottom 80%. Their analysis doesn’t consider other “rich” apps (e.g. thousands of apps that are in the top 1% ) or apps in the bottom 99%. It asserts a boom for the the middle-class and poor, but doesn’t review any data regarding revenues earned by the “middle-class” (e.g. 65th percentile app) or “poor” apps (e.g. 35th percentile app).
All available evidence suggests a lopsided revenue distribution with revenues heavily concentrated in a tiny sliver at the top (i.e. head) and very little revenue in the bottom 80% (i.e. tail) of apps . This distribution is the opposite of a long tail.