As a new year begins, software developers are looking for growth opportunities. Many are turning to the rapidly expanding mobile marketplace. There has been considerable discussion recently about an issue ACT’s Morgan Reed raised in his September testimony before Congress: measuring the best mobile platform for developers and investors depends largely on how software developers get paid.
At year’s end, Venture capitalist blogger Fred Wilson’s (AVC) revived an argument about ranking mobile platorms for developers. He has long advocated that Android is where developers should focus because of its growing market share and economies of scale. Wilson believes that “mobile economics will trend toward web economics. Not paid, maybe freemium, often free,” and that developers should go to where the eyeballs are.
John Gruber of Daring Fireball has a different take on the economies of scale argument, recognizing that ad-based revenue from freemium or freeware products seldom works for smaller companies.
One problem with the web as a model for mobile economics is that the web economy doesn’t seem to work for many product categories. The web economy works great for Google, not so much for anything that is intended to be sold.
When Gruber says “there seems to be something wrong with the Android Market,” he’s talking about the vast majority of developers, most of whom start small and create a niche product they hope will gradually expand its consumer base. The Android Market’s ad-based model just doesn’t cut it for most small and emerging software companies because it’s too difficult to achieve the necessary economies of scale to turn pennies-per-impression ads into profits. Smaller companies need the immediate revenues from direct sales to become profitable and grow.
This problem was surprisingly highlighted at an event Google hosted at its DC offices entitled The App Economy. Melissa Lee from Innovators Network was in attendance and remarked that all of the small business developers on the panel not employed by Google remarked “how hard it is for a small app developer to make money via ads–the downloads need to be in the thousands, if not millions–these folks find it hard to justify the investment.”
Not only small developers have issues with the Android OS. Peter Vesterbacka, Rovio founder and creator of the hugely popular mobile game Angry Birds, expressed related concerns in a recent interview. He explained the problem with developing for the Android OS is:
[T]he fragmentation of the ecosystem. So many different shops, so many different models. The carriers messing with the experience again. Open but not really open, a very Google centric ecosystem. And paid content just doesn’t work on Android. (emphasis added)This is the reason why the Congressional hearing on competition in the mobile marketplace last fall was so timely. With Google’s smartphone marketshare expanding toward dominance, a marketplace based solely on ads could be the death knell for small business developers – and devastating to innovation in the mobile space.
As Gruber says, if you want to get noticed, there’s Android Market, but if you want to get paid and support a family, you need to have something like the App Store or WP7 Marketplace. If you want a thriving apps marketplace, you can’t have an ad-based dominant platform. You can’t have a smartphone market dominated by Google.