Who makes more money? Bloggers or Developers?
Just thought I would spend a little time exploring the simple question: What is more profitable: A top ranking Tech Power Blog (e.g TechCrunch or GigaOm) or a Top Selling iPhone/iPad Developer (e.g. Tapulous)? And which one is easier to achieve for a start-up?
Let’s begin by saying that neither task is easy and the odds are against you if you choose to go prospecting on either the long tail of Blogging or iPhone Games Development. But, that issue aside, let’s start out by exploring the relative size of the competition in each market.
We discovered last year in the The Business of Blogging there are an estimated 130 Million Blogs on the web of which about 8,500 are recognised by Technorati as Tech Blogs. We also discovered last year in Watch out! iPhones have long tails too that there are over 100,000 Apps in the App Store.
So to begin with there is 10 times the competition in the App Store.
Even the Android market now includes 38,000 apps. So the Smart Phone apps market is highly competitive landscape. Yes, the new iPad offers the opportunity of investing in a newly emerging Apps market but be aware that Morgan Stanley’s Katy Huberty has prepared a chart forecasting the iPad will not perform as strongly as the iPhone, Nintendo DS or the Sony PSP in its first 12 months.
Mobile Phone Games and Apps are a hits-driven business. Unlike the Business of Blogging having a Top-40 hit last month is no guarantee that you’ll have a Top 40 Hit next month. As we have discovered before, the most successful game factories work on 90 day update cycles on their greatest hits collection and seek to have “multiple shots on goal” when developing their next hit. We also know that Games significantly out perform Apps. So it is a lot easier to have a miss than have a hit in the App Store.
In stark contrast Blogs are in the sticky business – though probably not as sticky as they should be. The business model is based on the idea that you keep writing 20-30 posts a day to keep the audience coming back for more. Once you have attracted a reader you want them to return on a regular basis to read more posts. Therefore frequency of the postings is the one of the primary keys to success in the Business of Blogging.
So it is always going to be easier to forecast the sales revenues for a Blog than it is for a Game.
Now let’s take a look at the economics of Blogging vs. Development.
To begin with we’ll make a couple of assumptions. The first being that a successful Blog requires a team of 5 writers to post the 20-30 posts required each day to keep the site sticky. Likewise a games factory requires a team of 5 (e.g. developers, testers, artists) to create a quarterly Top 40 hit. Therefore the fixed costs in each business are roughly equal and we’ll set them at $500,000 per annum.
We will also assume the relative size of the two audiences is equal. The Blog has an average monthly audience of 1 Million and the iPhone Game Hit Factory achieves 250,000 sales per quarter – After all if the average sales revenue is just $16,700 per game in the App Store and the 54 Million iPhone/iTouch’s users have only download on average 1 paid app each moving a million units each year in the App Store will take some doing. Having said that the figures recently quoted by BusinessInsider for Doodle Jump suggest you can sell 1 Million copies per month. However the news that a Top 4 ranking App rakes in about 100,000 sales a month is probably more indicative of the model we should be exploring.
The next assumptions are around the cost of revenue. The Blog’s primary source of revenue is advertising. This requires the service of an aggregator therefore the cost of revenue is 50%. The Developers cost of revenue is Apple’s 30% slice of the sales conducted through the App Store and the associated marketing and promotional costs that are conservatively estimated here at 12.5%. So the cost of revenue is 50% vs. 42.5%.
The final set of assumptions focus on the revenue model. The Developer’s revenues are set at $0.99 per unit. The average annual revenue per unique (ARPU) across the top 7 Tech Blog sites is just $1.55.
Ok. Having established the ground rules lets crunch the numbers to see who wins.
| Audience | Annual Sales Revenue ($) | Cost of Revenue ($) | Fixed Costs ($) | Operating Income ($) | |
| Blogger |
1,000,000 |
1,550,000 |
750,000 |
500,000 |
250,000 |
| iDeveloper |
1,000,000 |
990,000 |
420,750 |
500,000 |
69,250 |
As you can see, not only is it easier to become the next big thing in Tech Blogs than it is to become an iPhone Games Hit Factory, it’s also more profitable.
Having said that, neither business model is what I would consider a great business model. And as we discovered last year Social Gaming is a far bigger platform than either Blogging or the iPhone. Yes the Advertising CPM rates are much lower (i.e. 10%) but the audience is much larger (i.e. The are twice as many people playing Zynga’s Social Games than iPhone owners) and people spend a lot more time playing the games than reading blogs. As you can see in the table below even a “middling” Social Network Game will out perform a best selling iPhone game. Plus Social Games scale better than Blogs. A Top 10 Social Game Hit Factory like Zynga will attract an audience in excess of 100 Million.
| Audience | Annual Sales Revenue ($) | Cost of Revenue ($) | Fixed Costs ($) | Operating Income ($) | |
| Blogger |
1,000,000 |
1,550,000 |
750,000 |
500,000 |
250,000 |
| iDeveloper |
1,000,000 |
990,000 |
420,750 |
500,000 |
69,250 |
| fDeveloper (Mid) |
10,000,000 |
1,550,000 |
750,000 |
500,000 |
250,000 |
| fDeveloper (Top) |
100,000,000 |
15,500,000 |
7,500,00 |
500,000 |
7,500,000 |
Clearly if you’re in the business of making it happen, rather than in the business of writing about what is happening, it is important to choose your platform carefully. What you are looking for is scalability and stickiness and at the moment the Facebook Platform clearly delivers the edge over Apple’s “iPlatform” on these two metrics.
In the end though the key to profitability in all three platforms is to create a micro-platform. The Power Blog becomes a promotional platform to sell seats at conferences. The iPhone and Social Games a Platform to sell “Bling” and Virtual Goods. The real money is made in the up-sell and the cross sell. In most cases the advertising and unit sales just pays enough to keep the doors open and servers running hot.
[Updated 26-11-2010]
“Bottomline: Purely economically speaking – it sucks to build iPhone App relative to Facebook Games. iPhone games have no good distribution options, little virality, extremely high churn, revenue share requirements, pain in the ass approval process, a relatively small total addressable audience (compared to FB).” - Facebook Faceoff: Facebook vs. iPhone App Economics
