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

5 comments

  • Comment Link carpinteyrosgx Sunday, 01 December 2013 10:37 posted by carpinteyrosgx

    =

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  • Comment Link H.Kwint Friday, 11 March 2011 20:36 posted by H.Kwint

    Hi Reggie,

    Some days ago, we 'discussed' Nokia. We had a bit of a differing opinion, but I do agree MeeGo/ Maemo and Symbian were all pretty much dead in the water. Nonetheless, what I probably meant to say is, Nokia is trying to save money by means of ditching their R&D costs and 'buying' stuff from Microsoft in return for receiving back the costs - or so it seems. I thought this was a pretty stupid model, but given the farce that were their other operating systems you're probably right it was the best thing to do.

    Nonetheless, I'm very happy to announce I found this great interview with Mr. Apotheker, CEO of HP, who says exactly (and far better than I can) what I intended:

    "Apotheker Seeks to Save HP's `Lost Soul' With Software Growth"
    http://www.bloomberg.com/news/2011-03-09/apotheker-seeks-to-save-hp-s-lost-soul-with-software-growth.html

    You see, HP is going in _exactly_ the opposite direction as Nokia. Their Windows-phones never sold BTW. So they're (partially) ditching Microsoft and starting their own 'commodity-'software.

    True, from a technical viewpoint WebOS two years ago was probably much better than Symbian (multitasking support, integrated social media and such), but nonetheless, in my opinion Mr. Apotheker is very convincing when he explains a tech company like HP shouldn't treat software as 'costs', but as investment.

    Now, why is this important? Well, to be honest, my glass ball can't tell yet. But I do like guessing and doing some predictions which never come true. So here we go:

    -HP is making one platform for all their devices, the way like Apple did. And the way Google is trying to. But HP's OS extends all the way from smartphones and printers to tablets and desktops. That's pretty unique, Apple can't do it (they have MacOS/iOS), Google can't do it (they have Android for mobile and ChromeOS coming for desktops).

    -ChromeOS is coming to desktops pretty soon, though there's no date announced and nothing sure. If it does, it means margin compression for Microsoft, I guess. In my opinion however, Google is pretty slow when it comes to delivering operating systems in time. Honeycomb took _very_ long; and now the iPad2 is on the market earlier than Google's Tablet OS.

    -The fact that HP is pushing WebOS, probably means they're less dependent on Microsoft. In the same way Verizon is less dependent on Apple than AT&T was, so Apple was less able to pull every pence out of Verizon, it will become harder for Microsoft to keep
    their 'fat' margins with HP. If HP pays less for Windows, then so might Acer, Asus & co. I'm not sure what Dell is doing. I have the feeling they have been wanting to sell desktops without Windows for years, but MS somehow 'blackmailed' ("paid") them preventing them from selling desktops without Microsoft OS. Seems Dell sold 1 million Linux desktops, and still they're not advertizing. You do the math!

    -Probably, both ChromeOS / WebOS desk/laptops will run on ARM-chips, the higher power / higher performance counterparts of the chips currently running the iPad, iPhone, Android phones and Android tablets. Which will probably mean margin compression for Intel too.

    Now, normally WebOS would be another 'also ran', because I'm not sure they will gain enough momentum to survive against Android / iOS. But I think we should remember HP's the no.1. PC maker. Others might follow their example.

    The result might be a balkanization of the mobile and maybe even on the desktop space, where every 'player' tries to create their own chain and not willing to cooperate with the competition. At least Apple and HP will, maybe add RIM, though I think they already are an also-ran. When considering MS/Nokia as a chain, there's four players, and then there's Google.

    Apple/HP/RIM/MS-Nokia's success of their software is dependent on their hardware, and their hardware dependent on their software. But not for Google, they're more independent. I think selling on more hardware brands will be a benefit for them.

    From what I read, HP is pretty serious about serving business with their tablets and WebOS (Apotheker came from SAP AG), just like MS (Elop came from MS Business), so it will be an interesting race.

    What any of the above will lead to I'm far from sure, but I think we'll definitely see lower margins. Not only Apple will suffer, but I think Microsoft and Intel will too. Intel might suffer from cheap Chinese sillicon as well, because ex Chinese expats who developed in Sillicon Valley run their own chip business in China now; please refer for example to NuFront, which as far as I can tell is an 'unannounced' Microsoft partner. They're bringing 2Watt 2gHz dual core ARM-desktops running Windows(8?) for prices below $200 soon.

    So for the consumer, everything will become cheaper. The market place will become more competing than ever, meaning innovation at an incredible peace. If I had any money, I'm pretty sure I'd buy ARMH (ending up in MS, Apple, Google, HP products, but also coffee/washing machines!) and for example QCOM/MRVL, not INTC; even while 'trading advises' at NASDAQ differ (Intel is at 'strong buy'). Luckily I don't have money, so for me there's nothing to lose making these glass ball predictions.

    Sorry I don't tell much about Android, but I think you're far better at it then I am anyway.

    Thanks for the article, and look forward to coming articles!

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  • Comment Link Onsen Thursday, 10 March 2011 20:22 posted by Onsen

    Android is a ton better than iOS in terms of business software development!

    We started doing the iPhone apps as the front for our cloud ERP system. However, we are seriously looking at Android as the development platform since we can use Java instead of going to xCode, a rather unusual one for business use. If it is not because of the large user based of iOS, we would not need to spread our resources to the unknown. As a developer (we have HSBC, Shell, Chevron, KPMG, Deloitte... runing our business software for more than 10 years.) we are more comfortable with Java based system. We only use iOS as the "front" to get and post data to our Java developed enterprise system.

    Reggie is really good in analyzing the two mobile systems, almost like a pro in the computer world.

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  • Comment Link Reggie Middleton Thursday, 10 March 2011 13:30 posted by Reggie Middleton

    Thanks. I'm trying to cut back on the "I told you so's", but you know, I did sort of tell ya' so :-)

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  • Comment Link Indy Thursday, 10 March 2011 12:52 posted by Indy

    As Karl D would say, time to break out the "I Told You So!" sign. Bravo Reggie.

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