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Thursday, 10 March 2011 11:04

One Reason Why Software Developers & Tech Firms Should Pay Close Attention To Research Boutiques Such As BoomBustBlog

I have discussed the business model of Google's Android in depth with my subscribers through research reports and email. The reason is for the depth is that many outside of our closed community truly do not understand the value of Google's Android, issuing statements such as "Where are the profits?" Android, like Youtube, Grandcentral (Google Voice), and Admob, was a longer term, strategic investment that takes time to pay off. With the correct strategic implementation, long term strategic investments pay off in spades - much more so than anything that needs to show a financial return in a couple of quarters. Let me walk you through an example with samples from BoomBustBlog Research to illustrate the finer points while at the same time making a very strong case why tech companies and software developers in particular should follow independent research outfits such as BoomBustBlog!

We'll start off by reviewing anecdotal developer experiences selling Android and iOS wares, starting with a Larva Labs blog post as of August 31st, 2009 - Android Market Sales, Are Those Tears or is it Raining in Here?:

Our two best selling games have been ranked and are currently ranked pretty highly on that hard to find list of paid apps. RetroDefense was #1 for a while and is currently around #12 with a perfect 5 star rating. Battle for Mars is currently #5 overall with a 4.5 star rating. Both of these games are selling for $4.99, which is on the upper end of the price range. Finally, both of these games have been featured by Google in the market app and on the Android website. So with all this in mind, here’s our daily Android sales for this August (these numbers include sales from our other two apps, but they barely register):

androidsales-aug09

That’s a $62.39 daily average. Very difficult to buy the summer home at this rate.

It appears this isn’t just our problem. To see examples from other companies just look in the market, a sales range is listed right in the summary of the app. A good example is the well known game Trism, which sold over $250,000 in it’s first two months on the iPhone. On Android it has sold, to date, less than 500 copies. That’s $1,046 total earnings, max. How psyched are those guys that they ported a huge hit to Android and can’t even cover a party sub for the release dinner? By comparison, if you were an iPhone developer with a game in the #5 spot, you’d likely be earning around $3,500 a day (based on recent numbers from tap tap tap). Here’s what that comparison looks like in a gratuitous graph:

androidvsiphone-aug09

So let’s imagine for a moment that we’re a typical Android developer in terms of earnings, even though I think it’s more likely we’re on the high end of the curve. Assuming we are the average though, there would need to be over 2,500 other Android developers to get to $5M total sales.

Android showed promise, but was in last place back then in terms of market share. Now, an update from the same company a year later after Android surpassed Windows Mobile but still trailed the rest of the pack by a wide margin. May I also add that this is also the time period when I suggested that Android will probably take over. Keeping this in mind, imagine the potential of developer that went all in with Android at this point - even venturing with Google itself.From Larva labs - October 25, 2010, Android: The Positives

I was quoted today in an NY Times article about Android. While what I said there is definitely true, what wasn’t included in the article were the more positive things I said about Android.

This is representative of the EXTREME pro-Apple bias found in the general, financial and tech media!

So to offer the rest of my points in a forum that I’m sure rivals the NY Times in readership, I’ll post them here on our blog:

    • We’re actually doing much better now on Android than we have in the past. New users combined with new markets for paid applications have pushed our sales to several multiples of our previous numbers. We’re planning on doing a separate post on this topic, but for now we can say that things are much improved and definitely worth future investment.
    • Android is now unquestionably a required platform for new apps. Six months ago we got questions about whether Android was worth supporting, now that’s not in question.
    • Android is moving rapidly into totally new device types, such as TVs. Yes, that will increase the number and type of devices housed under the Android platform but it also offers some cool new possibilities.
    • The instant  publishing process for the Android market is a huge advantage. It’s an important alternative to a process where you have no real idea of when, or even if,  your iOS application will be released.

The speed at which Android has grown in the last year is staggering. It wasn’t that long ago we released our first Android game RetroDefense to an audience of less than a million users, exclusively on T-Mobile. Android now adds more than that number every four days. No surprise then that we’re doing more development on Android now than we ever have. Stay tuned to find out what our next project will be!

As of last month, Larva Labs is all into Android, it's almost  like the Borg -they've been assimilated and resistance is futile...

If you’ve got an Android phone you really should check out Androidify – a project we did in partnership with the Google Creative Lab. It was released two days ago and has gone all the way to number 1 in the Android market! We had a lot of fun writing it with the Creative Lab and I think it shows in the final result. We’ll write a followup post to highlight some of the more interesting things about how it’s written, mainly how we made the entire interface out of vector elements. It’s a pretty cool way to deal with different screen sizes if it works for your app, so it’s worth checking out.

So what happened to turn this once Android sour company into a group that happily manufactures little Android puppets? Growth and reach is what happened. Look at the chart and compare the three time points mentioned above.

Apple is pulling phenomenal numbers in terms of revenues and profits. Much or those numbers came from fantastic growth and outmaneuvering the competition. Since Android has become ascendant, those numbers are increasingly being derived from another – much less desirable source - and that is the growth of the mobile market in general.

As you can see from the chart above, for two out of three quarters, Apple has grown market share slower than the actual market has grown – clearly indicating that the growth of iOS products is being buoyed by the mobile computing market’s explosive growth. Looking below, Android has consistently grown at many multiples of the market’s growth.


It is this explosive market growth that kept RIM in the game, and it is also giving a distorted view of Apple’s performance relative to other OS vendors. be aware that it is quite possible that this market growth can shrink considerably with another economic collapse or dramatic spike in input costs, which is currently occurring.

So what's happening this month now that Android is on top in terms of growth, rate of growth and aggregate market share both in the US and globally? Well, it should be a shocker to anyone subscribing to, or even following, BoomBustBlog what the results would be. You guessed it. Android now more profitable than iOS for well-known game developer

Android vs. iOS: A Developer's Tale

Spacetime Studios Pocket Legends

Spacetime Studios makes the popular Pocket Legends 3D MMO game for both iOS and Android. The game has gotten rave reviews on both platforms, being named one of the top five "groundbreaking" iOS games of 2010 by Mashable and one of the 10 best Android games available by MSNBC.com.

Here's where things get interesting: Spacetime says its daily user activity on Android is more than double its level on iOS in practically every measure. On Android, the game is downloaded about 9,000 times a day, according to Spacetime; on iOS, daily downloads are in the 3,000 to 4,000 range. Perhaps even more significant, Android users who have the app use it about three times more than their Apple counterparts.

Altogether, that translates into a big difference in revenue: Spacetime, which is supported largely by in-app purchases, says its Android users generate 30 to 50 percent more revenue than its iOS users do. This is despite the fact that Apple has a seamless in-app purchasing interface, whereas Android's built-in purchasing system isn't set to debut until sometime this spring.

"We've just been blown away," says Spacetime CEO Gary Gattis. "Android has become our primary interest."

(The chart at right shows revenue from the game's first 30 and 60 days in the Apple App Store compared with its first 30 and 60 days in the Android Market.)

Pocket Legends also utilizes advertising to generate revenue, and Spacetime has seen the same effect there: Android users click ads about three times as much as iOS users, according to Spacetime's measurements. What's more, they end up making purchases as a result of ad clickthroughs twice as often as iOS users.

"This led us to stop advertising on Apple and throw all of our marketing dollars onto Android," Gattis says. "It really just makes sense from a financial point of view."

Analyzing the Android App Effect

So what explains this discrepency? Gauging by common logic (or perhaps just widely accepted Jobsian logic), it seems almost counterintuitive. But Gattis has some theories.

"Android's a smaller pond for apps right now," he says. "The support on the Google side has been much more tangible -- they're really trying to nurture the gaming community."

Indeed, in terms of sheer application numbers, Apple is still the dominant player. Android, however, is catching up: Google's Eric Schmidt recently said the official Market is up to 150,000 total applications -- a number that has tripled over the past nine months. According to independent metrics firm AndroLib, 32,323 new apps appeared in the Android Market in February. That's up from 29,293 new apps in January, 27,227 new apps in December, and 24,040 new apps in November. The rate of growth has been on a nonstop rollercoaster ride upward for months, and -- correlating with the overall growth of the platform -- it shows no signs of slowing down.

Before we go on, for those that don't know how Google pulled this stunt off, it was a matter of ingenious business modeling and not technology. Google may have the best software tech now, but that is a byproduct of an ingenious business strategy and not the cause. Read Comscore’s Latest Stats Show Android Wiping The Floor With Its Competition, Besting Apple & Everyone Else By Ever Greater Margins for more on how it was done, and how it will be tres' difficult for Apple, Microsoft and RIM to counter.


Now, I've dedicated a decent amount of free space to illustrating and outlining Google's strategy:

  1. An Introduction to How Apple Apple Will Compete With the Google/Android Onslaught
  2. Android Now Outselling iOS? Explaining the Game of Chess That Google Plays in the Smart Phone Space (here I announced the Nokia/MSFT team up 8 months in advance)
  3. Math and the Pace of Smart Phone Innovation May Take a Byte Out of Apple’s (Short-lived?) Dominance
  4. Apple on the Margin
  5. Comscore’s Latest Stats Show Android Wiping The Floor With Its Competition, Besting Apple & Everyone Else By Ever Greater Margins

Long story short, if Google garners the majority of developer mind share, it is pretty much game over for those lofty Apple share price aspirations. Apple's developer lock in is what gave it the primary advantage over MSFT, NOK and RIM. It will have the same problem overcoming that advantage if Google obtains it.

Google spent the last 6 years investing for the conquest of the mobile computing and cloud space. Admob and Android, in particular, were literal homeruns that, when combined, make it very difficult for traditional vendors to compete. As the market either matures or slows down, this will be quite obvious to all. From the subscriber-only, 63 pg Google Forensic Valuation:

You see, it is not just about topline growth. If you don't look past gross growth and into actual market penetration, you will be missing some pretty important artifacts until, of course, it is too late to do anything about it.





I invite Professional/institutional subscribers to access a subset of the model that we used to create the sensitivity analysis for the 63 pg Google Forensic Valuation to plug in your own assumptions. Click here for the model: Google Valuation Model (pro and institutional). Click here to subscribe or upgrade. Looking through said model, we see that the data that it was populated with was very, very conservative...

I suggest updating the valuation model using the latest numbers from Canalys and NPD, then select the appropriate valuation scenario. It should be taken as a given that Google's Cloud Services will "kick off" with the success of Android, since Android is essentially a front end to the Google Cloud.

Once you have made the necessary adjustments, review the scenario summary which gives you a complete sensitivity analysis for a plethora of what if scenarios based upon your inputs.

Here is the complete analysis of smartphone and vendor handset growth up until Q3 2010. I will parse the numbers and release the most recent quarter soon, and make it available to subscribers. Be sure to scroll through the entire spreadsheet model below using the "<" and  ">" buttons in the lower area of the window. The model is very, very extensive!

[iframe https://spreadsheets.google.com/pub?key=0Ai5WJsM3KjltdGJKRkVRbGdod05pNnlxRW14SU9tTXc&hl=en&output=html&widget=true 620 450]

More Google, Apple and the Mobile Computing Wars...

Last modified on Thursday, 10 March 2011 11:05

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