Mountain View, We Have A Problem ... Google's Android Phone Disappoints Developers.

Want to know why there are over 30,000 applications on the iPhone? Ask Ethan Nicholas. Mr. Nicholas programmed a little game called iShoot in his spare time. iShoot shot to number one on Jan 11th, with the $2.99 game reportedly earning Ethan over $800,000. Mr. Nicholas has quit his day job at Sun (good timing!) to devote himself to iPhone programming. Ethan's story isn't unique, Koi Pond has earned $623,000 (after Apple's 30% cut) from about 900,000 downloads. Pangea has made at least $561,330 on one application alone, PocketGod.

The chance of striking it rich or at least quitting their day job is what drives developers to code the next iShoot. Most iPhone apps won't be big successes but the possibility is real. One Billion application downloads on over 20 million devices proved that online distribution's time has arrived.

Sadly, this is not the case with Android. According to the tracking websites AndroidStats.com and Cyrket.com, the best selling Android games are only selling a few 1000 units. Even recognized brands like Guitar Hero(r) World Tour (Hands On) have had disappointing sales.

Yes, there are only around 1.5m handsets sold so far. Even with that number, some of the FREE apps have over 1/4 million downloads. Yes, free apps are downloaded more on the iPhone as well, but even with the smaller base, you would expect to see paid apps hitting 10's of 1000's of sales, with a few breaking past 100,000. It isn't happening.

Here's some comments by Android developers on the Google "Android Discuss" group:

"The sales aren't disappointing; they are jaw-droppingly terrible."

"I got nearly a hundred thousand downloads of my [FREE] demo, but the sales of the (very highly rated) priced version have been appalling. And I'm ABOVE Guitar Hero in the rankings, for Heaven's sake!" - SUNDOG

"I did look at the downloads of the top 10 apps - they are PATHETIC, the max number of downloads I saw was 1000-5000." - Stoyan Damov

What's the problem here? Well, one issue is the 24 hour purchase cancellation policy. Consumers have 24 hours to try out a paid app before they are billed. Many developers are upset that their apps are being returned in large numbers. Personally, I think this is a good compromise given Google's "hands off" attitude on accepting applications. Luckily for us, our best selling Android game, Kenny Rogers Blackjack, only sees a 40% return ratio. I consider it akin to having a demo version of the title.

So what's the problem? Simply this. To buy an application for your Android phone, you have to opt into Google Checkout. Most users have not done this. Apple uses iTunes to bill consumers for iPhone apps, and 93% of iPhone users have purchased an application. iTunes is widely accepted.

What went wrong here? Google has stated that the company "does not make money" from its application store. "Developers get 70 percent of the revenue from each purchase and the remaining amount goes to carriers and billing settlement fees," a Google spokesperson said in a statement to Wired.com. "We believe this revenue model creates a fair and positive experience for users, developers and carriers."

Originally the plan was to have consumer purchases billed to their phone charges. This would have enabled every Android Phone user to buy applications and have those charges tacked onto their phone bill at the end of the month. The entire ringtone market was built upon the ease of purchase with this system.

Why didn't this happen for Android applications? I can only speculate that T-Mobile wouldn't accept a 30% cut. Historically operators like T-Mobile earned 40% to 45% of every ringtone, wallpaper, and mobile application sold to one of their subscribers.

In economic theory there is a situation called the Ultimatum Game. In this game two players decide how to divide a sum of money that is given to them. The first player proposes how to divide the sum between themselves, and the second player can either accept or reject this proposal. If the second player rejects, neither player receives anything. If the second player accepts, the money is split according to the proposal. This could be the situation here, T-Mobile rejecting Google's proposal.

So T-Mobile earns little from the trickle of sales of Android applications. They could earn considerably more if they allowed Google to bill consumers' phone charges. Meanwhile the iPhone continues to rack up application sales, sales that attract more developers, developers that have created over 30,000 applications with One Billon downloads, applications that make the iPhone the "must have" device. It's a virtuous cycle that benefits everyone, Apple, AT&T, and Developers.

So what's the end game here? Without a chance for programmers to strike it rich on Android, the platform simply won't see the depth and breadth of applications that continue to drive iPhone and iPod touch sales. No matter how slim the odds of striking it rich on the iPhone are, everyone loves the sort of success stories that keep on happening to iPhone programmers. T-Mobile should realize that 30% of a vibrant mobile application market, a market that would drive more handset sales, is preferable to 45% of nothing.

RIM (Blackberry) and Nokia would be wise to pay attention to this situation as they launch their respective application storefronts. RIM has selected PayPal for their billing platform, which has a better chance of acceptance than Google Checkout. Nokia may be able to pull off billing consumer's phone bills, or maybe not. The operating phrase here is "follow the money," in this case how consumers pay for their applications.

Breaking News: RIM (Blackberry) has announced that they are working to add mobile operator billing to their application storefront. RIM co-CEO Mike Lazaridis says the device maker is working to introduce carrier billing options sometime in the future. In an interview with Laptop, which asks Lazaridis whether RIM is looking to make it possible to sign up for a PayPal account directly from the BlackBerry in addition to direct billing via mobile carrier, the exec responded, "The easiest answer and the correct answer right now would be all of the above. That being said, we're putting most of our attention to working with our carrier partners."

Comments

[William Volk]

Interesting item on how iPhone App Downloads are driving the sales of iPhones:

"Trip Chowdhry, analyst with Global Equities Research, credited Apple's App Store for helping boost the growing popularity of iPhones and iPod Touches.

"The App store is a segment within Apple's iTunes online store at which people can download bite-sized applications for their iPhones or iPod Touches. Many of the 35,000 applications on the site are free, and most sell for somewhere between 99 cents and $10. Apple said it expected consumers to have downloaded 1 billion apps as of sometime today.

"'It's clear that iTunes and the App Store are catalysts for driving sales of iPods and iPhones,' Chowdhry said."

Full story at: http://www.latimes.com/business/la-fi-apple23-2009apr23,0,4151608.story

[KillTheMessenger]

I have a slightly different hypothesis... which is not about a mere 15% difference in revenue sharing:

iPhone owners are non-technical people who want to have fun with their devices. Android phones, OTOH, probably appeal much more to technical nerds (I certainly do not think they are great consumer devices). We play, but not the silly kind of games that make up the vast majority of iPhone app. I have a Blackberry... and I use it exclusively as a phone. Why? Because I also carry a laptop around with me 100% of the time. Why should I bother browsing the web or playing a video on a phone if I have a 15" 1920x1200 screen in my bag? Also, most of the applications on my laptop are open source or at least freeware. I am used to only pay for my software when there is absolutely no other choice, as in the case of engineering CAD applications. That means I wouldn't pay for Android Apps, either. Not even if it's only $2.99.

Suck it up developers: nerds don't pay to play.

[William Volk - Huffpost Blogger]

You're not taking into account the smaller number of apps on Android vs the iPhone. Less than 1/10 the number of SKU's in the store.. Also, one needs to compare the iPhone at this stage in it's launch to the Android phone. There were paid titles selling over 100k units on the iPhone by the 2nd month of the App Store. Finally the root cause, that most users simply have not opted for Google Checkout is evident in how few Android users buy any apps.

[JJC1138]

I don't find any of those points compelling:

The comparison I was making is between the most popular game on either platform. If we were talking about total downloads across the whole market then the total number of apps available might be relevant, but we're not.

The iPhone App Store launched over a year after the iPhone was released, so it already had a significant audience on day 1 (much bigger than Android's current install base).

The root cause that you mention is simply speculation. You haven't provided any numbers to back up your assertion that few Android users are buying apps, and even if that was proven it wouldn't make it "evident" that a reluctance to use Checkout was the cause.

[William Volk - Huffpost Blogger]

I believe the game Labyrinth was an early hit on the Apple App Store and is also available on the Google App Marketplace.

The 'lite' (free) version has been downloaded over 250,000 on Android. When the paid version comes out, it will provide a good metric.

I have done some informal polling of G1 users, the large majority of them have not opted into Google Checkout.

Also, I don't think the 'blame' is with Google. I believe that T-Mobile blocked the operator billing. I base this on Google's original announced plans.

I could be wrong.

[JJC1138]

"[...] but even with the smaller base, you would expect to see paid apps hitting 10's of 1000's of sales, with a few breaking past 100,000. It isn't happening."

Your whole article hinges on this paragraph, but I'm afraid your math is simply wrong:

Let's take iShoot as an example: $800,000 earned from a $2.99 game implies around 382,000 sales (ignoring the effect of any temporary promotional price reductions). Apple has sold around 30 million iPhones. As you say, T-Mobile has sold around 1.5 million G1s. iShoot is probably the biggest iPhone game success story, so by scaling the iPhone user base to the G1 user base we would expect the biggest selling game on the G1 to have sold around 19,000 copies. Jewellust is the best selling Android game and it is currently in the 10,000-50,000 sales category, i.e. exactly where you would expect it to be.

I am also an Android game developer and I'm perfectly content with my sales so far. My free demo has ~75,000 downloads and approximately 2.8% of those downloads convert into sales. That is a respectable conversion rate for the games industry.

It is still very early days for Android. The Open Handset Alliance is "committed to commercially deploy handsets and services using the Android Platform" and includes such members as NTT DoCoMo, Sprint, Telefonica, Vodafone, LG, Motorola, Samsung, and Sony Ericsson. Android's future looks very bright indeed to me.

[William Volk - Huffpost Blogger]

Thank you for the correction.

Google needs to realize that the future of Android depends in the success of paid applications. Our Blackjack game may be the best selling PAID Blackjack game, and it's featured by Google, but it won't pay the bills unless Google/T-Mobile fixes this issue.

[the real sundog]

One correction: The tracking site is cyrket.com, not cryket.com.

[the real sundog]

Mr. Volk,

"Sundog" here.

First, thank you so much for elevating the status of our community-wide help desk request. The other problem with Android that no one talks about is that getting Google to respond to ANYTHING has proven downright impossible, so regrettable as all this attention is, I think it's the medicine that's needed. They certainly don't pay any attention to the developer community.

There are massive structural problems. One of the worst is that , unlike Apple, Google made no provision whatsoever for developer support except to bug the core team online, which isn't their job and has made them quite unhappy. A crack team like this shouldn't have to do help desk work.

Personally I love the idea of Android and am NOT abandoning the platform, but only a fool would refuse to hedge his bets. I had 97,000 downloads of my free demo, and so far, as of TODAY, a few over 500 sales of the (4.5 out of 5 star) priced version.

You do the math. Oh, you did. Thanks again.