In January, I presented for the MIT Sloan Entrepreneurs Breakfast Club and Mobile Monday on The Economics of Mobile Apps.

I’m excited to share with you some of my thoughts on mobile, and thanks to Justin Adelson for posting the video from the event.  To summarize, the mobile gold rush is in full swing, but it’s getting harder and harder to stake a claim.   I believe it’s important to understand the scale of the opportunity, and some of the economics behind building a successful app company.  The presentation is at the bottom of this post, but here are some of the key takeaways:

1)      We’re still early in the apps adoption cycle: While people around us may seem mobile apps crazy, we are only at the tip of global adoption.  According to IDC, the opportunity will grow from $2.3 billion in 2010 to $12 billion+ in 2014.  For one thing, smartphone adoption and apps mania have been significantly concentrated in the US.

2)      Economics of mobile development have massively improved: Improve revenue share terms, discoverability, ease of billing, and ability to build compelling user experiences at a reasonable cost have all significantly helped the developer ecosystem.  Most importantly, we don’t have to spend a ton of money building channels, which is something you would certainly have had to do years ago.  Many of the ideas that are now profitable wouldn’t have flown if you had to hire even one biz dev guy.

3)      Where’s the third legs of the stool?: Apple and Android are the best monetized platform.  However, RIM, Nokia and Windows Mobile still represent many of the phones out there.  Developers who have a sustainable business with just two major revenue streams should be excited about improving economics as these other platforms figure out how to give developers and customers a viable app ecosystem.

4)      Niche is a strategy: Yes, there’s an app for that.  There’s probably 50 apps for that at this point. For instance, in the SAT market, there are hundreds of apps available.  In fact, last we looked, test prep giant Kaplan wasn’t even on the first page of an apps search.  If you are going to go after a big market, in many cases you need to build the best app, then spend a lot of money and go head to head with major brands.  This is not the case in niche applications, but of course you’re going after smaller markets overall.  In niche markets, it’s easier to match up with keywords and search terms, letting the apps stores organically do more of the marketing for you.

5)      Remember to factor in support costs: If you sell an app for under $5, if you have to take a phone call, you lose money on that app sale.  Beyond bad software design, one of the issues is Android fragmentation.  Different screen resolutions, sizes, OS versions and OEM components are contributing to higher support costs on Android than iPhone.  The same applies for RIM.   Palm is very easy to support, we’ve found.

Overall, we're excited about the opportunity that mobile applications will continue to present over the next few years.  Rather than view other app developers as competition, we at Upward Mobility see it as an ecosystem, where we all benefit from the outstanding work of others in attracting interest to these channels.

Economics of Mobile Apps v5

See the Upward Mobility company profile in the Digital Shingle Project: Upward Mobility