05/23/2009 05:12 am ET Updated May 25, 2011

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 and, 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 "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."