Jay "Saurik" Freeman Explains Mobile Application Market?

 Jay “Saurik” Freeman took the stage last night at 360iDev last night to explain the mobile application marketplace. The entire mobile application marketplace, which most people wrongly perceive to be a simple user-and-develop relationship in reality is a much more complicated place with lots of inputs and outputs for time, money, and work. You can see the chart above where the ‘user’ is the faceless woman in the middle and the ‘developer’ is the bearded man to her left. Everything else is a company or a connection that Saurik spoke about.

Saurik runs the jailbreak app store Cydia, (which has over 10,000 packages available, hundreds of which for a fee, on which they have pulled in over $1.3 million so far), and he’s closely interested in almost all facets of the relationship chart and how money can flow from users of all kidns to developers across the world. He gave a wide-reaching overview of how the mobile app marketplace works today and walked the audience through his chart to explain the whole process piece by piece.

Saurik started out by talking about where most of the money comes from, the banks. Most users keep their money in a checking account or use credit cards, and that’s where most app purchaces actually come from. Banks take a cut, credit companies take a cut, and the companies around them like Paypal also take a cut When you’re talking about $1 apps, even a 1% or 3% slice can threaten your bottom line. Companies like Apple and Akamai were next on Saurik’s list, these are the companies that actually run the mechanics of an App Store, Apple delivers the software and moderation required to distribute and release the apps, whereas Akamai contributes the bandwidth for pushing updates. He mentioned how this contribution was more sizeable than expected, as application update can run all the way up to even a gigabyte in size, and downloads can get pricey fast. When you are selling a 99 cent app, and it takes you 12cents a GB to send out, there’s still a profit to be made. But if you start to push out free updates that don’t have an associated cost, the price rises accordingly. Apple keeps this kind of cost from most developers on the App Store, but when Saurik was setting up Cydia, he was able to quickly discover that the costs can get significant very quickly.

The flags on the right side signify governments, who also take a cut (and are currently trying to take more of it) of app sales. Taxes are a big part of that as well, while most sales app sales work as a “interstate commerce” and thus aren’t necessarily subject to local sales taxes, governments are looking into an “Amazon tax” or an “iTunes tax.” Again the government may think that just a few percent might be doable, but when you’re talking about a 99 cent app of an already 70 to 30 percent split, the charge is more significant. International sales are also an interesting issue, countries often have treaties or tariffs hat govern how many can pass between them, so not only are there forms to fill out, but when you’re trying to pay a developer in Germany for an app bought by someone in South America, the issues can get tangled quickly.

Next, Saurik went across the top of the chart, users traditionally pay a carrier both for service and for a phone and while Apple has changed that a little bit by selling iPhone and iPad hardware in their own stores, you can generally go to a carrier like AT&T for both the phone and the software to run on it. Apple, HTC, and RIM are still the biggest smartphone makers, and those guys go to Microsoft (for Windows Phones), Google, or a group like the Open Handset Alliance to make their OS software. Beyond that, the software comes from various App Stores, there’s Apple’s of course, but T-mobile’s T-zones, and Handango offer mobile software as well. Wo is also on this portion of the chart because China doesn’t allow foreign companies to sell software there, they have apparently set up their own marketplace, and run all of their own app sales.

Across the bottom of the chart is advertising and sales, the triumphant sales guy under the user is extremely happy because he’s just created an ad and a website that sells his product, and he interacts both with the users directly (he takes their money when they see his ad and buy his product) and with the media that sells advertisements and covers both apps and his products. On the otherside, companies like AdMob and soon iAds sell advertising both to and from developers and media. During this section Saurik mentioned how he’s found himself putting the Apple logo in more and more places on this chart as Apple sneaks their company into more and more sections of the app market.

Next, Saurik moved on to talk about app piracy (the picture of Johnny Depp.) He told the developers that there is no solution to piracy and any attempt to find one was likely a waste of time. He described software pirates as “smarter than you,” and said they have better tools at their disposal (including some that he’s written to tear apart apps and enable or disable some of their code), as well as being more bored in general. Saurik said that many of the pirates he’s dealt with are just kids, no more than teenagers, very smart but not much solid life experience to speak of. He said that like children they were both vengeful and easily won over sometimes, mentioning how he’s managed to turn over a few himself by just sending them an email. More than anything, he mentioned they just want a challenge, claiming that your app is “unhackable” or even just trying to make it so, only creates a target. He mentioned the best solution to piracy was to convert the pirates – disable their app or attack them (they are likely to simply blame the app rather than learn a lesson), but instead inform them that they’re breaking the rules, and give tem an easy way to do things right. One app Saurik described simply put a one-time notice in the app informing the user that their app was pirated, and he saw sales spike when the notice went out.

Finally, Saurik pointed out where most of the money in this whole arrangement really comes from, the user’s parents. Many App Store users are younger than expected, and while he had more anecdotal data than ctual demographic information, the picture Saurik painted of the App Store beyond the top 10 or op 20 apps is very young, tech savvy, and easily distracted set of users.

The best solution to piracy, he said, was to convert the pirates -- don't disable their app or attack them (because likely, they will simply blame the app rather than learn a lesson), but instead inform them that they're breaking the rules, and give them an easy way to do things right. One app Saurik described simply put a one-time notice in the app that the user was using a pirated version, and saw sales spike when the notice went out.

It was a fascination presentation where Saurik provided a heck of an overview of the app market in general and lots of great insight on how it al works, even beyond the bounds of Apple’s official purview.