iPhone App Store Developers Aren't Getting Rich

Steve Demeter seems like the perfect poster boy for Apple. Two years ago, the 30-year-old computer programmer became one of the first people to sell his product—a puzzle game called Trism—through Apple's App Store, a virtual marketplace where third-party software developers connect with customers wanting downloads for their iPhones. He pulled in $250,000 in just two months and quit his job writing code for ATMs. Demeter's success caught the eye of Apple's public-relations team, which profiled him in an inspirational video at Apple.com and gave him a shout out at its June 2009 World Wide Developers' Conference (WWDC). Media hailed the San Francisco resident an "App Store Millionaire" who would never have to work again—a happy financial reality that Demeter confirms. "Nine-to-five is no longer a concept for me," he tells NEWSWEEK. (Story continued below...)

Only that's not because of Apple.

Demeter's new-found wealth—he won't specify the exact amount in case people bombard him for loans—comes from investing his earnings in Apple's archrival Palm. "I bought Palm's stock for $1.76 and sold it for $12," he says. "It's kind of ironic."

Ironic, but not altogether unusual. The App Store, which launched in the summer of 2008, is thought to be a portal to big bucks for code geeks looking to make a mark. They sell their wares online, setting their own price and keeping 70 percent of the proceeds. But how many programmers really strike it rich? Apple doesn't release individual sales figures for its App Store, and it declined NEWSWEEK's request for comment. But 18 months after it launched and online prospecting began, the App Store isn't developing many new millionaires. Not only have most sellers failed to turn a profit—a fact that is perhaps not surprising given the difficulty of making money in any retail environment these days—even developers with high-ranking games and applications have made far less than commonly thought. Many come nowhere near recouping their investment at all.

In almost a dozen interviews conducted by NEWSWEEK, Apple consultants and programmers jettison the idea that the App Store is a world of easy opportunity, or a fast track to quitting the rat race. Instead they describe an anxiety-wracked marketplace full of bewildering rules, long odds, and little sense of control over one's success or failure. "It's kind of a crapshoot," says Demeter, who spent the last two weekends partying in Las Vegas and New York. "I think we've reached a point where people are thinking I shouldn't quit my day job for this."

More than 125,000 programmers have flocked to write for the App Store, lured by its generous revenue-sharing deal, as well as Apple's feel-good promotional videos buttressed with motivational slogans ("Make This Your Year," "Come Code with the Pros"), blow-out conferences (Norah Jones performed at one this year), big-deal design awards that are covered throughout the tech world, and a download counter that calls to mind McDonald's boast of "100 BILLION served." Last month, Apple claimed to surpass the 2 billion mark. The App Store, as Greg Joswiak, Apple vice president of iPod and iPhone product marketing, said in a keynote address last spring, "levels the playing field and it makes it so the small guys can succeed as well."

But while the chance for success may indeed exist, the odds of triumphing are still pretty long, as David Barnard found out the hard way. Raised in a family of entrepreneurs, the 30-year-old Texan thought the App Store was an opportunity too big to miss. So in 2008 he borrowed $24,000 from his parents, set up a company, and built Trip Cubby, which logs driving miles and expenses for harried business people. The application garnered top-shelf reviews, a spot on Apple's "What's Hot" list, and earned Barnard more than $45,000 in revenue in less than three months. Then came the expenses: $29,000 for programmers, $15,000 living costs, $14,000 to Apple, $7,000 for marketing, $5,000 for legal and administrative services, $4,000 for logo and Web-site art, and $1,800 in loan repayment. By the time he was done, Barnard says, he was several thousand dollars in the red. "My wife and I ended up selling our car to get by," he says. Today, Barnard's follow-up app, Gas Cubby, which tracks fuel economy, is one of the most popular utility programs in the store, helping him earn more than $200,000 to date. "But we spent a hell of a lot of money to get there," he says. *(Editor's Note: $200,000 reflects Barnard's gross revenue, not including expenses that totaled "way more than 50 percent" of that figure and reduced his average hourly wage to around $10, he says.)

Despite the high costs, Barnard was one of the lucky ones. Most apps take at least six months of full-time work and cost between $20,000 and $150,000 to develop, according to Forrester Research, which covers the tech industry. Apple rejects almost 60 percent of submissions at least once, often—according to programmers—with little more than infuriatingly vague or inconsistent explanations. Of the 85,000 that have been accepted, only a few hundred sellers have much chance of supporting full-time work. "It's a lot like the music business," says Barnard, who left a job in record engineering to develop applications full time. "Some indie bands make money, but most don't. Most are not the Michael Jacksons and Madonnas of the world."

But even App Store equivalents of the King of Pop and the Material Girl are struggling. In 2009, Ethan Nicholas left a job with Sun Microsystems after making $800,000 in just five months with his simple artillery game called iShoot. Today, the App Store icon from North Carolina is himself staring down the barrel of a gun, struggling to produce another hit game after iShoot was buried by competitors and copycats. "It's terrifying," says Nicholas, who says he is "not a millionaire" and describes iShoot's success as "pure luck." Despite spending eight months and more than six figures developing a second shooting game to be released this month, he says that he is still "very worried about being a one-hit wonder."

Nathan Hunley is another programmer whose App Store success has not led to commensurate financial or emotional security. His Dizzy Bee game was one of the first 500 products in the App Store in July 2008, and like Demeter, he stars in an Apple promotional video. The opening scene, shot through a honey-glazed lens on the streets of Tokyo and scored with inspirational music, shows Hunley with a look of spalike tranquility on his face. But while developing for the iPhone has given him the flexibility to travel the world while working, it hasn't wiped away his worries. Despite a couple of top 50 hits, Nathan and his cofounder "still go from game to game" and question whether they can afford to continue selling. "We made enough to live, but not nearly as much as if we kept our jobs at a regular game company," he says by e-mail, adding: "We're far from calling ourselves 'app store millionaires.' "

So, it seems, are most other App Store developers. The iPhone's popularity means that mom-and-pop programmers must now compete with some of the world's biggest brands and game developers, many of whom have recently decided that the mobile market is too important to leave to the little guys. Half of the top 10 paid (as in not "free") apps of 2008 were produced by small developers, according to Forrester. Today, only one app in the top 10—RedLaser—was built by an independent developer. Jeff Powers and Vikas Reddy, the 20-something makers of RedLaser, a bar-code reader that makes instant online price comparisons, say that they are "still in the hole" despite more than $100,000 in revenue. "We've upgraded from Ramen Noodles to Cup O'Noodles, and pretty soon we'll be on to Campbell's," Powers likes to joke.

Anything more exciting than canned soup may be a long way off for most full-time developers. Over the past 18 months the average price of apps has crashed: now three out of four cost 99 cents or less, according to the tracking firm 148apps.biz, in part because the Big Brands offer their applications for free as marketing tools rather than as revenue streams. "Speaking as a small developer who's been releasing Mac software for over a decade, the App Store is broken," Gedeon Maheux, cofounder of the software company Iconfactory, wrote on his blog last month under the headline LOSING RELIGION.

Of course, Apple's loss is potentially its competitors' gain. Palm, Google, Microsoft, Nokia, and RIM, the makers of BlackBerry, have each launched software stores in recent months, and are welcoming disgruntled App Store programmers who want to swing their pick on a new mountain. Let the next gold rush begin.