I’ve come to the conclusion that four groups are making money in mobile apps:

1. Companies Who Make Games
2. Companies Who Make “Pick Axes”
3. Companies Who Use Apps To Sell Other Stuff
4. Companies Who Develop Apps For Others

Games

Gaming is clearly the place to write apps and make lots of money. Trey Smith performed some interesting analysis. 22 of the top 25 grossing iOS apps were games (at the time of his analysis). All but four of those (18 of 25) were free-to-play with in-app purchase. Trey determined that the most successful games had the combination of lots of in app purchases and calls to action:

It’s pretty simple really… the more options you give your customers to purchase things the more money you will make.

This is because there are only a small percentage of users out there who spend money in games (like me).  Even though the percentage is small, typically those customers are interested in spending a LOT if they like the game.

Based on some released data, He determined that the #9 app was grossing $12 million per month in sales and an app that maintains a top 5 ranking for the year would gross at least $110 million. That’s an awful lot of Infinity Softworks’.

Pick Axes

Scott Kveton, CEO of Urban Airship, called his company a pick-ax company, as in selling pick axes to miners during the gold rush. Urban Airship, like appFigures, Flurry and others, sell services to developers. And clearly they are killing it. Urban and Flurry have raised at least a combined $45 million [1] and the CEO of appFigures told me he has been profitable since the company started.

Sell Stuff

I heard that eBay will sell billions of dollars worth of merchandise through their mobile apps this year. That’s billions with a B. But it isn’t just eBay that’s doing it. Evernote, too, is using a free mobile app to sell subscriptions to their service. And I’m not certain companies like Uber could even exist if it wasn’t for their mobile apps. None of these directly make money from the mobile app. Instead, they sell products or services by using app stores to get customers and apps to engage them. Using mobile as an entry point to a broader market or opportunity seems to be working for a number of companies.

Develop Apps

Small Society made a nice living creating apps for the Obama ’08 campaign, Starbucks, and ZipCAR, among others, before being acquired by WalMart Labs. The company that wrote the eBay app also wrote the app for Weight Watchers before eBay realized they needed to own the talent who wrote the thing. There are tons of these examples. Big companies have deep pockets and there’s an endless need for Android and iOS developers. Besides, custom development gigs have been a staple of software development long before the iPhone came on the scene.

Given that, it isn’t just traditional “contract houses” that seem to have made good money. There is a cottage industry of white label app companies as well. One of the ones I am more familiar with is Oceanhouse Media, who created a series of Dr. Seuss, Berenstain Bears and Mercer Mayer Little Critter books all using a standard software platform. Develop one product, customize it over and over again for different purposes, ship!

Let Me Sum Up

My conclusion: if you aren’t apart of one of these four groups then good luck building a company, let alone making enough to support yourself.

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[1] Making a false connection between a company doing well and a company raising lots of money. In this case, I believe Urban Airship is profitable and suspect Flurry either closely controls their cash flow or is also profitable.