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Hell is for app vendors

Apple App Store Revenue

The new Fiksu numbers highlight just how infernal life for app vendors has become.  The price of acquiring a loyal app user has doubled from early 2012 to current level of more than $2 per user. This is a disaster for many app vendors because the lifetime value of an app user is typically less than $2, and in many cases less than a dollar. Getting consumers to download your app is becoming more difficult with each passing month and the room for smaller app vendors keeps shrinking.

Just look at the state of the current iPad revenue chart in America. 6 out of top 20 highest grossing apps are casino apps, which keep growing their portion of the revenue pie. 7 out of top 20 grossers are games made by giants King and Supercell, which benefit from those companies’ massive marketing budgets. This does not leave a lot of room for small fish to swim.

To make matters worse, Apple can arbitrarily and abruptly change the rules of the App Store in any way it pleases. Recently, Apple chose to cut the number of apps displayed in its store to 150 from 300. This left many smaller vendors blindsided and Fiksu actually notes that the total volume of top 200 apps has actually declined by 4% over the past 12 months as a result. Fewer apps displayed means it is easier for smaller vendors to slide completely off the map for regular consumers.

Shrinking overall app download volume combined with rapidly increasing marketing costs would be toxic for any industry. But in the app industry, vendors are also grappling with the fact that revenue generation drops off sharply outside of the very top applications. In the U.S. market, the No. 1 app makes more than 10 times what the No. 10 app makes. And the No. 10 app makes nearly twice the revenue of the No. 20 app.

It’s a brutally competitive, tightly packed jungle where hundreds of commercially produced new apps vie for space each week. And the top 2 apps have locked down their lucrative positions two years ago, showing no signs of sliding at the moment. It’s hard out there.

After launching mobile game company SpringToys tragically early in 2000, Tero Kuittinen spent eight years doing equity research at firms including Alliance Capital and Opstock. He is currently an analyst and VP of North American sales at mobile diagnostics and expense management Alekstra, and has contributed to, Forbes and Business 2.0 Magazine in addition to BGR.