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The IOU of iOS

Chris Ashworth
January 26, 2015

If you follow these sorts of things, you would have read recently that iOS is a goldmine:

In a fascinating report from Horace Dediu, we learn that:

"...in 2014 iOS app developers earned more than Hollywood did from box office in the US."

Pretty impressive. Dediu also notes that:

"The app economy sustains more jobs (627,000 iOS jobs in the US vs. 374,000 in Hollywood)"

iOS, as a whole, is clobbering Hollywood financially and getting stronger every year.

Wow! ...Right?

Well, maybe. The first thing I find odd about this analysis is: what is meaningful about comparing these two industries? Is Hollywood the standard unit of measurement in business? By its nature it occupies an outsize presence in our collective mindshare, but commanding a spot in our collective mindshare is a limited proxy for financial value.

The second thing I find odd, or perhaps just funny, about this analysis is that it goes so far as to describe the App Economy as healthier because it likely compares favorably to actor income:

"I would guess that the median income of app developers is higher than the median income of actors."

Speaking as someone who comes from the world of theater, I didn't need to look at Dediu's cringe-inducing footnote to know that "a large majority of actors earn less than $1,000 a year from acting jobs".

If some app developers "earn more than Hollywood stars", and the median developer income is better than abject poverty... that doesn't tell us that the App industry is healthy so much as at least slightly less insane than working as an actor. Which, and I say this as an actor, is true of, well, basically any other job. So, not much to learn there.

The third thing I find odd about this analysis is that, having grazed ever-so-slightly against the question of an absurd distribution of revenue, it leaves the topic otherwise untouched.

Digging a Little Deeper

If you follow these sorts of things, you would also have read recently about troubling numbers from some of the most beloved names in independent Mac and iOS development. For example: The venerable and famous-among-people-who-follow-these-things developer Panic Inc just posted a 2014 Report in which they note several challenges of their past year. Among these challenges, Panic notes the revenue breakdown of their products:

Wow! 51% of our unit sales came from iOS apps! That’s great!
But now look at this revenue chart for the same month...
Despite selling more than half of our total units, iOS represents just 17% of our total revenue.

Now, if you know Panic, and you read that blog post, you might well have imagined the sound of a record player screetching to an abrupt halt at this point in their description. Panic? The multi-award-winning, Apple-featured, impeccably developed, multi-million dollar Panic?

For many of us, Panic is the gold standard for indie Mac and iOS developent. Reading their blog post, to an indie iOS developer in a pessimistic mood, might well be what we imagine it looks like when the canary drops dead in the iOS coal mine. "Not enough oxygen down here, get out."

But wait, there's more!

You, attentive reader, might also have noticed this other year-end report by the similarly famous and well-respected Marco Arment. In it, Marco generously shares his raw sales numbers for a new iOS app he describes as having "a perfect launch". He also links out to three other posts that share raw numbers for other iOS products.

The revenue numbers in these posts range from a modest $42,000 to a fantastic $4,786,496.

What's a developer to make of all this? Is iOS healthy, or not? A goldmine, or short on oxygen?

Quick, someone who knows math, do something!

Now enter Charles Perry, who performed an analysis of Marco's numbers and a follow-up analysis with more data.

Perry concludes that, based on the numbers developers are sharing publicly, the revenue in the iOS app store is skewed heavily to the apps at the top of the charts. If Perry is right, the iOS ecosystem is actually pretty similar to Hollywood after all: a few actors take home a lot of money, and most everyone else takes home, well, not much.

Okay, so... what does this all mean?

Great question. I get the feeling that a lot of us who develop software aren't entirely sure. The fact that the experienced and reliably great developers among us are asking this question at all is, I think, in itself somewhat alarming.

If it's true, is it someone's "fault"? Can it be changed? What are the consequences if it doesn't?

Our Own Data

You've somehow made it this far, so let me share (for the first time ever, as it turns out) some of our own raw sales numbers.

We sell two iOS products:

QLab Remote is a remote control for our flagship OS X show control product QLab. It does nothing on its own, and is only useful in conjunction with QLab running on OS X. QLab Remote sells for 19 bucks.

Go Button is a self-contained product which puts an entire audio playback system in your pocket. Go Button was initially created by developer Brent Lord, and at first sold for $19. When Brent joined us at Figure 53 and brought a new version of Go Button with him, the price was raised to $39.

Here's the full sales data for both products:

combined iOS income

At $138 per day, these two products are averaging a total revenue (after Apple's 30%, but before taxes and other costs) of about $50,000 per year.

Now, 50K per year, after you account for taxes, health insurance, and all the other stuff, is somewhere in the ballpark of a single half-time employee working on these two products for a salary that can't be described as ultra-competitive.

The problem, of course, is that these two products were not built (and are not maintained and supported) by a single half-time employee. And while we probably can't ever compete, and frankly don't want to compete, purely on the basis of ultra-competitive salaries, neither do I want to ask any of my teammates to make deep financial sacrifices for the pleasure of working here.

Our OS X products, in contrast, make up the difference in our costs to run this 12-person company. There are many reasons for this. The maturity of our flagship product QLab, the much higher price of that product, the fact that we sell it outside of Apple's app store and don't have to give them 30%, etc.

Does this mean I'm pessimistic about iOS? Well, no. I'm not. I wouldn't have asked Brent to join us with Go Button if I was. I care about iOS for many reasons, both today and looking to the future.

But it puts us in the same boat as the Panics of the world: what is our relationship to the financial reality of iOS, and what does it need to be to make sure we can keep working on that platform?

The IOU of iOS

The sense I sometimes get with iOS is of work done in exchange for a vague IOU. A belief in the obvious technical and design merits of the platform, an acknowledgement of the unprecedented rates of adoption for these devices, and perhaps an excitement watching the stars strike gold. A culture thick with the pervasive mantra "mobile first", which might make all the sense in the world to one kind of business endeavor, but may make no sense at all for other kinds of toolmakers.

Apple is not, I would say, directly (or consciously) responsible for promising something that iOS can't deliver. But neither are they entirely neutral. They design the mechanics of the App Store. They design and construct how apps are discovered. They chose not to support offering upgrade pricing for previous sales. They built an app review system in which developers can not respond to customers. They created a deployment pipeline which prevents developers from fixing bugs quickly. They choose how software is licensed on all devices. They even choose what discounts you will give to educational customers, which are defined by them. And of course they take a 30% cut of what you sell.1

The nature of making choices for everyone is that you'll be making bad choices for someone. Apple isn't being dumb or malicious. To the degree that they've shaped the financial landscape of iOS entrepreneurship, it's all been done with good intentions from smart people who've successfully created a beautiful, complex, and powerful technology ecosystem.

But as we pull into year 6 of the iOS app store, maybe we're seeing some longer-term, difficult-to-predict consequences of the design choices they made when dictating how developers build and sell software. Or maybe the developers and our customers raced together into a mutual pit of low prices, from which we now must extricate ourselves. Or maybe it will never feel right to pay a lot of money for software that runs on your phone, and developers have to bide our time until some future crossover device that runs iOS and offers its unique interactive possibilities but runs on hardware that feels more substantial than the thing you throw in your purse when you go to the grocery store.

So, again, what does it mean?

Well, I guess we'll see. We'll see if the ecosystem on iOS begins to shift. Maybe some apps stop getting built, because developers finally learn the lesson that they won't pay off. Or maybe we all begin to raise our prices to make it sustainable to keep building software for these devices.

For us, I still love iOS. I want to make things on iOS. But I think we'll need to push against what seems to be a culture of expecting extremely low prices.

Back in the day, when an early, audio-only version of QLab sold for $49, I'd often hear that the price was too low. Folks explained that they wouldn't run a professional show on something so inexpensive. Now, in the early days of Go Button, which is functionally very similar to that early version of QLab, we hear that asking for $39 is bold to the point of presumptuous. We're warned that we'd better keep adding free feature updates if someone is to pay a price that high.

How does that happen? How is $39 presumptuously expensive on one computer, while $49 is laughably cheap on another?

I don't know. I don't know what psychology is at play here. I don't know how much is guided by Apple's design choices, how much is inherent to the physical devices themselves, and how much is the developer community lying in the pricing bed it made for itself.

But I do suspect that we will see these prices changing. We'll have to. From Panic, and from us, and from others. We will, I suspect, continue to make powerful tools that bring great value to the people who use them. Those powerful tools will happen to run on the modern form of the computer, which happens to fit in a pocket. And those powerful tools will increasingly cost higher, professional prices. Because if they don't, they won't exist at all.

In theater, at least some actors continue to make art because art is often its own reward. iOS, however, can't rely on a similar incentive to keep the tools coming. If developing for iOS is nearly as unhealthy as acting in movies and plays, something will change. I'm just not sure what.

1 — The 30% cut Apple takes really is huge. It also, I think, encourages us to build apps that are free. And if the apps are free, they're in service to something else that isn't free. Some software-as-a-service, or a product sold through another channel which can be made more attractive with a mobile extension. This gentle pressure to push the actual value outside of iOS strikes me as problematic, long-term. Surely it is counteracted by pressures in the opposite direction, so maybe it doesn't mean much at the end of the day. But I wonder.