Follow the Money: 4 Financial Lessons for Mobile App Developers

When we highlighted our key lessons learned from VisionMobile's most recent quarterly State of the Developer Nation report, one particular topic demanded a closer look: money.

See also: 4 Key Mobile App Development Trends for 2015: What You Need to Know Now

The report surveyed some 8,000 mobile app developers, and one of the most eye-catching findings was that most of them aren’t making very much money from their apps. Less than half of all mobile developers earn more than $1,000 per month from their apps, according to the report. That reality doesn’t seem to align with the sustained hype around mobile and some of the lofty numbers that support it, such as massive device shipments and app store stats—not to mention the seemingly insatiable demand among employers for mobile developer talent.

So where is the money in mobile apps? Let’s follow the trail.

1. Where it’s at: enterprise apps

Our first post on the VisionMobile report noted the considerable disparity in terms of revenue between enterprise- and consumer-focused apps: 43% of enterprise-focused developers earn upwards of $10,000 per month from their applications, compared with just 19% of consumer-oriented developers.

 That difference has not gone unnoticed: VisionMobile notes the enterprise “gold rush” has begun, with a growing number of developers prioritizing enterprise-centric apps—20%, up from 16% just six months ago. And the opportunity remains enormous. More than a third of the developer population falls into VisionMobile's “hobbyist” or “explorer” categories. In contrast, enterprise IT accounts for just 8% of developers.

One increasingly visible characteristic of enterprise-focused folks: They’re committed to a cross-platform approach. “We can see in our data that enterprise app developers are more likely to support and [prioritize] all the major platforms, with the exception of Windows Phone,” the report notes. “To achieve this, enterprise app developers often turn to cross-platform solutions.”

2. Enterprise entry point: overlapping app categories

With growth in enterprise app revenues appearing set to outpace their consumer counterparts for the foreseeable future, here's a natural question for developers to ask: How do I get in on the action?

Independent developers may need to consider putting their skills to use as part of a larger organization, according to the report. While app stores have made it relatively simple for individual developers to build and distribute their apps independently, it’s increasingly difficult to make money doing so, especially in the consumer sector.

“Developers that want to stay independent will have to do what they’ve always done— find profitable niches and serve them really well,” the report says. “Most of the rest will either use their new skills to get jobs building the apps that larger businesses need, or move on to try their luck with [the] Internet of Things.”

The good news? Three of the top five app categories prioritized by enterprise and consumer app developers overlap: Business & Productivity Tools, Utilities, and Education & Reference. “Developers who are building these types of apps for consumers should consider how they might build similar products for businesses,” the report notes. Moreover, if you’re currently targeting individual professionals with work-related apps, you should also consider how to market directly to the companies that employ those professionals, because that's who has the big bucks.

3. Commerce is the cash cow

There are a number of common revenue models visible in the app economy today, from advertising to subscriptions to app store sales, and all of them have their place. Yet the biggest moneymaker may remain the most overlooked among developers today: e-commerce. VisionMobile predicts e-commerce revenues from mobile apps will hit $300 billion this year, far outstripping the nearest category, app store sales, which will bring in $40.5 billion. In fact, mobile e-commerce sales are expected to generate 2.5 times more money than all other revenue categories combined.

Better still, e-commerce models are likely to be more profitable (remember: revenue and profit aren’t the same thing). The report notes that, using 15–30% gross margins as a basis, even companies and apps that spend heavily on customer acquisition “will generate more profit than any other model generates revenue overall.” Again, other business models have their place, but they face unique challenges, especially for independent developers or small teams targeting consumers. These obstacles include app store commissions—30% is the going rate and an obvious barrier on the road to profitability.

4. Developer resources need optimization

The e-commerce model also reveals one of the biggest disparities between developer resources and app revenue: Just 9% of the developer population is currently using the e-commerce model, despite the fact that it represents the largest slice of the economic pie.

Compare that with, say, an advertising model, currently employed by 36% of developers. Can developers make money from in-app advertising? Absolutely. It’s currently a $34 billion market, but relative to $300 billion for e-commerce it appears that resource allocation is out of whack. The report also notes advertising revenues—and especially profitability—depend on a significant audience engagement and, often, a proprietary ad platform.

“Unless there’s a lot of e-commerce related development being done through other models, such as contract work, or ‘Other’ ([such as] selling licenses to some e-commerce technology) then there’s a big gap in the market here,” the report says.

Bottom line: Mobile development is as hot as ever, but don’t get misled by the big-picture stats. The bottom line for mobile apps increasingly depends on the right revenue models, proper allocation of development resources, and a growing, cross-platform focus on enterprise application needs.

Money and smartphone images courtesy of Shutterstock.com.