Android – iPhone revenue models: Can 70 plus 30 equal free? – Is the future of mobile apps free or fee based?

The iPhone has a simple revenue share model – 70 percent to the developer.

Considering Google’s developer friendly credentials, one would have hoped for something along the same lines .. But disappointingly – that’s not the case .. Because the revenue share depends on the agreements between the carrier and the developer.

Moco news points out that It will purely be an arrangement between the carrier and the mobile app developer. It is unknown what the revenue-share agreement will be between the carrier and a developer.”

To me, this is not a good development in the short term and needs to be clarified in the long term.

It appears that Google is working on the equation that 70 plus 30 equals free i.e. instead of the 70 30 model adopted by the iPhone. Also, Android itself appears to lean to free(ad funded model) for all mobile applications.

Here is why

1) In terms of data usage and subscribers, I do not believe that individual Operators can have a large enough user base to make a commercial difference to a developer.

2) Individual agreements between developers and Operators are not feasible for Long Tail applications when most of the applications do not make a lot of money in the first place.

3) Also, we start to get fragmentation immediately(for example if developer gets 70 perc for supporting x devices and 50 percent for not doing so etc etc)

All this means that (at least) initially, free applications will proliferate.

This makes little difference for Google since every element of Android is a Mobile web 20 element – (because every element of the stack is capable of creating metadata – all of which can be harnessed towards targeted advertising – just like Gmail)

Hence, Google has a viable economic model but I do not believe that small developers can survive on an ad model alone(and further it is likely that operators may want a share of the ad pie as well)

On the other hand, Android may provide a genuine opportunity for operators to start with a clean slate. Apart from the Korean and Japanese operators, none of the operators have built viable portals. Android offers the choice to start with a clean slate and attract developers and to create a viable ecosystem.

Android raises a broader question is : Are all mobile applications likely to be free(ad funded)?

If we consider the example of the iphone, so far paid iphone applications have not fared well.

So on one hand, while we worry about the contrast between 70 30 and free, we have to consider the broader question of – which mobile applications will users pay for? And the answer is not very clear cut ( see this post where I say that we may have to adopt Kevin Kelly’s principles to the Mobile ecosystem ).

Longer term, I see an irreversible trend with more value being abstracted up the stack, multiple payment systems(Paypal and Google checkout), multiple networks(Wimax, WiFi and so on) – but the short term is unclear.

William Volk makes an interesting point when he says

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The problem isn’t just the revenue share. It’s that Google, by handing off the sale of paid apps to individual carriers, have added an element of ‘friction’ to the entire publishing process:

With existing content sales carrier terms are typically net 60 to 90 days.

What’s more if you sell in multiple territories, then you will have to deal with multiple carriers.

Also, while there is an unfettered process for free apps, paid apps will certainly be subject to a review and approval process if for no other reason for issues of insuring appropriate content. What will that approval process entail?

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So, Can 70 plus 30 equal free? To me, it seems that Google is going towards Free and not a revenue share model.

Comments

  1. People can say about Apple closed system what the want, but for me as a developer it works and it works very good.
    I get about 3-4 requests for iPhone contract work per week and besides my profile on Xing I do no active marketing at all!

  2. Paid for applications on the iPhone may not have fared well thus far, but that’s because they’ve been aimed at the consumer market, where the majority of users expect this content to be free. In contrast, business users are still more than happy to pay for mobile applications delivered as a service, providing they make a genuine difference to productivity.
    At the same time however, corporate users may be unwilling to entertain the idea of incorporating ad-funded software onto their devices. Herein lies the dilemma. If Google is ultimately looking to provide all applications with ads for free, it could end up selling itself short in the business space, which – many would argue – is where the biggest revenue streams can be found.