Why do developers make 7x less money outside the US?

An analysis from Asymco this spring showed that Google is making 7x less money in markets beyond the US. This issue does not impact just one company - if we look at app revenue breakdown from App Annie, a similar situation presents itself:

In the chart, I've bolded emerging economies. A similar trend presents itself for both app stores: regardless of downloads, most revenue is generated for developers from countries similar to the US from an economic and cultural perspective. India, the biggest smartphone market in the world only shows up once on the chart and fails to bring significant income.

With low user income and the resulting lack of revenue for developers in emerging markets, most companies either ignore these regions or burn money when seeking to enter them. So is there a way US developers can approach these markets and not fail?

Fortumo has been profitably operating in emerging markets like Russia, Brazil, China, and India for more than 7 year. Becoming successful in these markets does not come without its challenges. The keys to success in these markets in the broadest sense fall into three categories: not using learnings from your existing markets; understanding fragmentation; understanding the need for localization.

User behavior & differences from the US audience

Monthly ARPPU for mobile games in the US is around $25. When going into new markets, the expectation is to get the same kind of income for your apps. However, your average user in Brazil will have about 4x lower income than your average US-based user. This means setting expectations for yourself in what is a realistic income in emerging markets is the first key to not disappointing yourself. This does not automatically mean lover revenue as we need to take into account the population and the fact that users in emerging markets are just making several payments with lower ticket value.

Lower income doesn’t necessarily mean that you will not be able to make money in these markets. During September 2014, some of the best performing countries on Fortumo’s platform were Taiwan (monthly ARPPU $13.33), Bahrain ($10.76) and Malaysia ($10.22). So there is money to be made in low-income markets and the main question becomes - how much can you charge at once?

Take for example India: the average Indian user charges 50 rupees ($0.8) to their phone account. When speaking to locals, the main concern for low recharge amounts is that many people are afraid the mobile operator will somehow take their money. Asking these people to make an in-app purchase of $1.99 or even $0.99 eliminates most of your potentially paying users. Getting local pricing right means a boost in revenue. On our platform, Malaysia has similar ARPPU to Spain, but the average transaction size is 2.5 times smaller.

Accepting that your app will not perform similarly to what you’re seeing in mature economies and understanding local users’ willingness and patterns in their spending behavior can make or break your app’s income in emerging economies.

Channel fragmentation & difference from the US app ecosystem

Similarly to differences in spending behavior, the choice of channels for marketing your app are also different for emerging markets. For mature economies, focusing on three major app stores (Apple’s App Store, Google Play and Windows Phone Store) means you have already maximized your potential end-user reach.

However, the situation is rather different for emerging markets. Android holds a commanding lead here and Google Play is not being loaded into a growing number of smartphones - over 80 million devices in Q2 2014. Instead, many different local app stores (whether they are carrier-operated, OEM-operated or third party) are used where not publishing your app means missing out on a significant amount of end-users.

China is the most extreme example of channel fragmentation on Android with hundreds of different app stores available. Most other emerging markets require adding on between 3-10 additional stores to maximize user acquisition.

In addition to distribution, social networks are another key acquisition / engagement method which differ for regions beyond North America & Western Europe. While using only Facebook for these regions to enable users to share their success in your game with friends, going to Russia without a vKontakte integration or China without Weibo added is bound to cause your app to underperform.

The need to go hyper-local with the user experience

Pricing and payment behavior is one of the key aspects to consider when going after new markets, but not the only one. Language and localized versions of your app are another key aspect. Most of the world’s population doesn’t speak English (e.g. 7.9% of Brazilians only do so). An Anglo-centric approach to apps beyond North America and Europe means most users will not be able to understand your app, let alone make payments in it.

Similarly to localization of language, local payment methods need to also be considered to be successful in app monetization. While credit cards work great for the US where most adults have one, just 1.8% of people in India own one. While the situation is not that dire in most other emerging markets, it still makes sense to look at alternative payment methods such as PagSeguro, AliPay and carrier billing to maximize your payment reach in unbanked economies.

With the Western app ecosystem saturated and not much room for growth, the Wild West days of app store economics are pretty much over. The biggest future growth - in both smartphone ownership and app revenues - will come from emerging markets which require much more effort to get things working. But our own experience has shown that this hard work will pay off.