Whaaat?

Last month, Apple announced it had paid $40 billion to developers since the App Store opened, saying the store was responsible for “creating and supporting” 1.9 million US jobs. More than half a million iOS developers have created apps; the company’s Worldwide Developer Conference is so popular that tickets have to be distributed via a lottery. “[Apple] made our company,” Sykora says. “If Apple didn’t exist, we wouldn’t have a company at all.” And the market for apps is growing: between iOS, Android, and smaller platforms, apps could generate $101 billion annually by 2020, according to market research firm App Annie.

But the App Store’s middle class is small and shrinking. And the easy money is gone.

Tell me more!

For all but a few developers, the App Store itself now resembles a lottery: for every breakout hit like Candy Crush, hundreds or even thousands of apps languish in obscurity. Certain segments of the app economy remain vibrant — ludicrously profitable, even. Apps for massive social networks, on-demand services like Uber, and subscription businesses like Netflix and Spotify remain in high demand. Then there’s gaming: Last year, 85 percent of all app revenues went to games, according to App Annie.

But for a large swath of these app developers — particularly those without venture capital and sophisticated marketing tactics — the original App Store model of selling apps for a buck or two looks antiquated. In 2011, 63 percent of apps were paid downloads, selling for an average of $3.64 apiece. By last year, a mere 27 percent of downloads were paid, and the average price had fallen to $1.27. Today, profiting from the App Store most often requires a mix of in-app purchases, subscriptions, and advertising.

Meanwhile, a fatigue is setting in among customers. There are now more than 1.5 million apps in the App Store (Android users have 1.6 million to choose from), but by 2014, the majority of Americans were downloading zero apps per month. And it turns out people simply don’t use most of the apps they do download. According to ComScore, the average person spends 80 percent of their time on mobile devices using only three apps.

My 2 cents:

The economic dynamics of the App Store and its competition is an ironic black box. The data is there, but economics pundits are yet to delve into the micro economic microcosm that are app sales. App developers are hitting a very tangible wall where catering to consumers existing desires are taking over the idea of wowing consumers by delivering functionalities they hadn’t imagined yet. App purchases are also facing a change in priorities when it come to revenue; a mix of in app purchases, developers are in dire times, relying on activation mixes and vying for a blockbuster position lest your app become a zombie app.

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