Ed Butowsky, managing partner of Chapwood Investments Management, joins Fox News to discuss how do developers of apps on smart-phones and tablets are making money and how they hope to be profitable in 2011.
For years application developers for smart-phones have been trying to figure out the magic behind making money on apps. It was not too long ago that investors were looking at the internet and wondering how anyone could profit off the internet. Now the youngest self made billionaire is the founder of Facebook. So if internet companies could profit, why couldn’t apps?
The app business is in it’s very nascent stage and will only continue to grow. Ed points out that only 28% of US cell phone owners own smart-phones and even less than that have any kind of tablet. These are the devices that are driving the app downloads. Overall, its marketing dollars at work here. The cost of an app is not how most companies recoup the development and distribution costs, its the advertising within these apps that generates the multimillion dollars in revenues.
Some interesting facts to note about mobile phones (as of census info in 2010):
72% of worlds population uses some form of a cell phones (5+ billion out of 7 billion users)
- #1 China 800+ million users (63% of population)
- #2 India 700+ million users (59% of population)
- #3 US 285+ million users (91% of population)
- Most used apps in US (in specific order): games, news, maps, social
networking, and music.
- Top 3 specific apps in US: Facebook, Google maps, and the weather channel app.
Even with a relatively low percentage of market share in the US, smart-phones are being used no longer for just making phone calls. As people surf through these store fronts looking at different apps and capabilities they find new things to play with in terms of functionality, games, information, etc. There are over 300,000 apps in the iTunes store alone. Ed predicts that this business will become 5x bigger in the next 7 years.
The competition between smart-phones has already been established between manufacturers. Apple has certainly established itself as the front runner with its family of iPhone products, and its already establishing itself in the tablet market as the hot product in last half of 2010 and into 2011. As Ed points out, the tablet market like the app market is in its very early infancy, and so many companies are very quickly following suite to establish their competitive products.
What is the basic principle behind a profitable app? Ed explains that establishing a competitive brand and an a-la-cart shopping experience is the way profitable apps are going to lure customers. Most people do not have a problem spending $1-$2 for an app. That money made on the sale is typically not how they generate the real profits, its the other additional items within the app being sold that will generate the true profits a company is looking for.
Ed Butowsky is the managing partner of Chapwood Investment Management and is an internationally recognized expert in the investment wealth management industry. Ed is also a frequent guest on other networks such as CNN, NBC, ABC, Fox News, Fox Business, and Bloomberg to name a few.