Tuesday, June 23, 2015

Google Play and monetization

Google Play has been the source of a lot of apps currently found in the smartphones of Android users.



Android is by far the the most widely used smartphone OS on earth which as of now has more than 70% market share no matter which research firm you ask. Undoubtedly then many people also expect Android to be the biggest revenue contributor to app developers if not the most profitable, sadly that's not the case. Android despite its sheer volume lags behind iOS when its comes to revenue generation for developers let alone being most profitable.

Some statistics regarding Google Play Store and Apple App Store via Benedict Evans -

""Google said it paid out $5bn to developers from Google IO in 2013 to Google IO in 2014 (a little over 13 months) "" - Google paid developers $5 billion in the last 1 year (approximately)

""Apple said it has paid out $20bn to developers in total by the end of the June 2014 quarter, and at WWDC June 2013 it gave a figure of $10bn paid to developers (at the June 2013 earnings call a month later it then said it had paid out $11bn). So in the last 12 months, it paid out roughly
$10bn."" - Apple paid developers around $10 billion in the last 1 year.

Technically Apple has paid twice the amount Google has paid to app developers in the last one year. The bigger accomplishment here is that Apple has been able to pay two times more than Google to app developers despite iOS's market share constantly dwindling over the years and now making a moderate come back thanks to the iPhone 6 and iPhone 6 Plus.

Any person will tell you that apps play a crucial role in the success of a smartphone platform, just ask Microsoft and BlackBerry about that. However these apps don't develop all by their own or by magic. Behind every app we use today is the hard work of a developer who has spent hours developing the app and then continuously enhancing it for the future by adding more features and by removing bugs.

For some people app development is a part time job or a hobby which they do in their free hours but for most people app development is how they make a living either by being an independent app developer or by working for a company.

People who depend on app development for a living thereby are very serious about their moentization aspects from Play Store. The amount of money app developers are able to make from Play Store directly affects the amount of time developers dedicate to the apps and accordingly its quality, it also affects how well app development is as a career prospect for current as well as upcoming developers. It also affects the platform as whole, if developers aren't able to make enough money they will abandon the platform as a whole.

How do App developers monetize from Android -

1. Ads -

This is the most famous way in which a lot of app developers monetize their apps. All it requires is for the developer to sign up his/her app with a ad network such as Google Admob. Once the app is in the Ad Network, the Ad Network places ads on the app and the developer earns money via metrics such as CPM etc.

2. Freemium apps -

In this model the app is allowed to be downloaded for free via the Play Store, later on to unlock the full functionality of the app user pay a particular fee. This is very popular amongst gaming apps.

3. Pay per download -

This is the most traditional way of monetizing apps and one that is finding it increasingly difficult to survive. In this the user pays a particular amount and the app gets downloaded with its entire functionality.

The above mentioned three monetization methods are the most popular app moentization methods currently. There are certain other methods but are too minor for the scope of this article.

Android has made significant progress over the years in how much money app developers are able to make from it but it can be further improved vastly by following certain remedies I have in mind.

1. Curb Piracy
2. Rationalize prices
3. Make payments easier

1. Curbing Piracy -

Piracy has badly hit app developers who depend upon the pay per download model.

Piracy has been a big problem ever since the internet was created and content started being uploaded to it. Android is no different either, given the open nature of the platform piracy has been proliferating on Android at a rapid rate over the years. There is just one solution to this which is to remove the ""Install from Unknown(Other) sources"" option in the Setting menu of Android. By default Android smartphones come with that option unchecked but its just a tick away. When an Android user tries to install an app from a source other than a Play Store, a warning message appears following which the user checks the "Install from Unknown sources" option from Settings and that's it.

 The option when checked once would  then allow users to install apps from sources other than Play Store indefinitely for the remaining lifetime of the device.

This has been a great enabler to piracy in Android. What happens generally is that users check the install from unknown sources option and then installs a third party app store such as Aptoide, Yandex etc. After this the third party app store becomes the default destination for the user to download all of his or her apps. These third party app stores make a lot of paid apps available for free at no extra cost to the end user. This has been a great enabler for piracy on Android and also a prime reason as to why people don't pay for the pay per download apps.

If monetization from Android has to improve then "Install from unknown sources" needs to be removed. Moving all apps need to a freemium model isn't gonna work either because in such a scenario the third party apps stores will then start providing modded APKs with all the in app purchases(IAP) unlocked free of cost.

I know many of you reading this might be thinking that removing "Install from unknown sources" would make Android less open but to be frank Android has been less open for quite some time now.

People reading this might remember how Google had removed Ad Blockers from Play Store. Although the removal of Ad Blockers greatly benefited developers, the biggest beneficiary would be Google since Ads are how the company makes 90% of its revenues.

Its also worth noting how Google had removed/banned Youtube downloaders from Play Store.

Not to forget how Google has been gradually dropping support for AOSP apps over the years and rebranding several of these AOSP apps as proprietary Google apps uploaded to Play Store.

Now if we take the open nature of Android in its true sense then both removal/banning of Ad Blockers and Youtube downloaders are against Android's open philosophy yet Google implemented them to protect its bottom line. Same way removing the "install from unknown sources" option will help several developers financially.

Unless and until the "Install from unknown sources option" is disabled piracy will continue to thrive at Android.

If "Install from unknown sources" option is removed then it would be a lot more difficult for users to install apps from other sources. Users would have to root in such a scenario and not that many users feel comfortable rooting. In the current scenario piracy of apps is just a click away (Install from unknown sources) .

I know removal of "Install from Unknown sources" is against the open philosophy of Android but we must also remember that a smartphone platform is only as good as the apps it has.

2. Rationalize prices -

In the freemium model the app is allowed to be downloaded for free from Play Store and later to unlock certain features, the user needs to pay the app developer a certain amount of money.

For example in case of the Speed test.net app the user can get rid of ads by paying a certain amount but the app requires no fee to be downloaded. If the user pays a fee for removing ads then well and good or else the developer is otherwise able to monetize via ads. By one way or other monetization occurs and by not requiring the user to pay a fee for download, the developer is significantly able to expand its user base and fend off threats from competitors that provide an app with similar functionality for free. Its a win -win for the developer.

In case of popular games such as Subway Surfers and Temple Run, the same logic is applied where apps are free to download but to unlock additional levels the user needs to pay a fee. If the user is not willing to pay a fee for unlocking additional levels, he or she can still access that level by gaining enough points in the app. Generally these points are achieved by playing the game more and more game play means more engagement which ultimately means more ad money.

However not all apps can work that way and Swiftkey and other keyboard apps are a great example of that. Would any of us tolerate a keyboard app which shows ads as we type on it, no right ?.

Apart from that in my general opinion if every user or the majority of users are willing to pay a particular amount of fee for downloading the app or for IAP then it would definitely turn out to be more profitable than ads alone.

Here is a quote from a Quora answer

"" Their (3 apps) total download is more than half million and they serve more than 1M daily ad impressions with 30sec frequency. They make around $45 for me ""

The above quote is from a developer living in an emerging country. Despite getting as much as 1M ad impressions on a daily basis the developer is able to earn only $45 on a daily basis. Although the way in which Google pays app developers for banner ads is pretty complex, its generally understood that apps whose majority of users come from emerging countries get paid lower per CPM than apps whose users are from developed countries.

The dilemma over here is that most mature market such as Western Europe, Japan and South Korea are very saturated in terms of smartphone penetration and unfortunately these countries which contribute the most revenue to developers are now saturating and further growth for Android is only coming from users living in emerging economies.

Ads alone won't be enough for developers to make good money as the cost of CPM is very low for users in emerging countries. IAP are required to ensure a good business model.

So what's the problem ?

The biggest problem with the current structure of IAP are how they are priced. Most IAP are priced by directly converting their American price tag to the local currency and rounding it off.

However what most app developers and Google itself forgets is that $1 for an American and $1 for an Indonesian aren't the same thing.

Economies differ widely amongst emerging countries and America, what's considered affordable in America isn't the same in emerging countries. According to World Bank, GDP per capita is around $50k in America whereas the same in India is around $5k. How can then a developer and Google expect an Indian to cough up the same as an American for IAP.

If IAP and pay per downloads are to gain mass adoption in countries such as India, Indonesia, Bangladesh, African countries etc then there is a severe need for rationalization of prices. Currently a $1 IAP or a $1 app sells for around 50RS in India and as far as I have seen most people feel that 50RS is way to much for the app and rightly so given how much they are able to earn. If we use a direct comparison then if an app costs $1(RS50) in America whose GDP per capita is $50k, the the same app in India should cost 0.1$(RS5) in India given its GDP is around $5k but RS5 is too low. I understand that developers whole live in foreign countries need to earn more and $0.1 really isn't viable. But at the same time $1(RS50) is very expensive for Indians as well.

There needs to be a middle ground somewhere where both the price is affordable to the user as well as economical for the developer. So for example developers can charge around $0.2(RS10) for the app/IAP and if its really worth it then I am pretty sure a lot of people would pay for it.

If Google Play Store continues with its current trend of direct conversion for app/IAP rates then it would be very difficult to convince users to pay for it. There is a real need to rationalize prices according to the GDP per capita of that country.

Overall revenue won't be that vastly affected  in the long term if rates are reduced. Sure developers might only get 1/5th the money per app download/IAP in developing countries compared to US etc but developing countries can compensate for the same with an ever growing population. As of now smartphone penetration is very low in India and other emerging countries except China but they are bound to increase as prices keep falling. The low price per app download/IAP can be subsidized by high volumes

For example lets say America has 300M smartphone users by 2023 and India has around 1.5B smartphone users. So if an app/IAP is sold at $5 in America by 2023 and the same is sold at $1 in India, assuming that everyone pays the net income from each country will still be the same. Sure the app is sold at 1/5th the price in India but at the same time India has 5 time more users thereby leveling the net effect.

Also its not like this is an impossible task to rationalize prices. Apple has already accomplished this with Apple Music. The service costs just $2 in India as compared to $10 in US which is 5 times reduction. Yet we get to access the same music.

Similarly people over here don't pay extra to watch English movies, our theater tickets are significantly cheaper than say something in America. We pay just $2 for a movie over here compared to the $10-$15 paid in America. Yet we get to access the same movies.

The film and music industry are already much cheaper for us than for Americans for the same content and rightly so given how much we earn. Also its not like by providing us access to the same music/movie at significantly cheaper prices these industries have gone down.

3. Make payments easier -

Although rationalizing payments is necessary as I have stated its also necessary to make payment easier. Currently most of the times a person tries to make a payment at Google Play Store, credit and debit cards are the only option presented. But most people living in emerging countries are unbanked population and even among those who have bank accounts very few people have credit or debit cards.

The best way to make payments easier would be to partner up with carriers. Emerging markets despite everything have pretty decent "SIM card" penetration. Almost every smartphone owner has a SIM card from one company or another or maybe even multiple companies(Dual SIM). These telecom operators over the years have developed some really excellent retail distribution systems which makes recharging mobile numbers damn easy and accessible. Most emerging countries have prepaid subscribers who pay money upfront and then make use of telecom services. Partnering up with the top 4 telecom operators would give Google excellent access to a payment system(prepaid credit) that's present with almost every Android user.

One only has to look at operators such as Safaricom in Africa and mobile payment services such as M-Pesa to understand how telecom operators are actually the kingpins when it comes to facilitating digital transactions in emerging economies. Year after year at Google I/O I expect Google to announce partnerships with telecom operators for carrier billing only to be disappointed.

Conclusion -

In my opinion piracy happens when two conditions are met.
1.Content installable from unofficial sources
2.content is inter operable.

I know many people after reading this article might feel that users in emerging economies simply don't want to pay for content and that to some extent is true but not entirely true. In case of content like movies, music etc they are accessible on a wide variety of devices because and can be used between different brands because of the presence of a universal formats like MP3 for music or MP4 for videos. I can watch a movie on my smartphone or my TV or my tablet by downloading a format like MP4, same goes with music.So even if something like say my smartphone takes a hard stance against downloading pirated videos, I can download the same on my PC or tablet(wide variety of devices) or a smartphone from a different manufacturer(universal format). Thereby preventing/stopping piracy in these content(movies/music) is extremely difficult.

But in case of apps they are as of now most functional only on smartphones and tablets(both of which run a common operating system which is Android or iOS **majorly**). Yes there are apps for smartwatches and even PCs but are they inter operable ? I mean an app for a PC won't work on a smartphone and vice versa. But a video for a PC will work on a smartphone and vice versa. Also an app developed for Android won't work for ios and vice versa again. So second condition is already met i.e content being inter operable

iOS already doesn't allow installation from third party sources, Android just has to implement the same and trust me piracy at least will go down dramatically thereby meeting the first condition which is content from unknown sources.

Along with curbing piracy is the need to increase value for developers. If Google is able to curb piracy by removing the "Install from unknown sources" option but if apps/IAP are still available at sky high prices and payment methods aren't made easier then there will be no added value for developers and the functionality for users will also go down.

Yes piracy is an issue in the east but the structure of the smartphone era is such that curbing it is just one minor tweak which is to remove "Install from unknown sources" option apart from this rationalizing prices and making payments easier will only add more value for developers.


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