Analytics firm Distimo recently compared the Apple (NASDAQ:AAPL) App Store to the Google (NASDAQ:GOOGL) Play Store in terms of revenue, and found that the App Store still maintains its revenue dominance over Android, despite the fact that the latter now controls 81% of the smartphone market. Evidently, a leading market share doesn't necessarily correspond to a leading revenue share.
The October update found the App Store controlling 64% of the revenue and Google Play Store controlling 36% in 34 countries. Since May, Apple has lost 7 percentage points of its revenue share, likely because Android increased its market share by 6% during that time. Additionally, the total revenue pie for apps continues to grow, suggesting that the total demand for apps remains strong across the board.
Two billion-dollar questions
Why is it that Android's market share is more than six times greater than Apple's, but it earns around half of what Apple does? What makes Apple's ecosystem so much more compelling for developers?
To get at the heart of it, Android's OS fragmentation is still a huge problem in the Android user experience and raises the barrier of entry for developers. Not all apps on the Google Play Store are compatible with every version of Android, and this creates a number of problems for the ecosystem's earning potential.
Lower-cost devices, which have been largely credited for Android's market share growth, tend to not have the most up-to-date hardware and software -- and, therefore, capabilities -- making it more challenging for developers to support multiple versions of their apps. The end result is that developers may be forced to make trade-offs, which can lower their addressable market and earnings potential considerably.
Between the three Jelly Bean versions currently available, 52.1% of devices run Jelly Bean but only 2.3% run the most advanced version, which incorporates an additional API protocol for developers to tap into. Apple, on the other hand, reportedly had more than 50% of its user base convert to iOS 7 after its first week of existence.
According to industry expert Steve Cheney, the cost of app development for Android is on average two to three times greater than iOS. He attributes this to a combination of "enormous" QA issues posed by fragmentation, a lack of sophisticated tools, generally more cumbersome APIs, and fewer exposed advanced features than iOS. Clearly, Android's platform wasn't primarily built to maximize Google Play revenue and make it easier for developers. By and large, Android was built for Google to expand the use of its lucrative services like Google Search.
Although Google Android enjoys its massive market share, fragmentation remains the greatest reason why Google Play's overall revenue share has lagged behind the App Store's. Going forward, I expect Android's unit growth to continue driving the Play Store's revenue share higher, but I don't necessarily think that alone will be enough for loyal iOS developers to develop for Android first. It's much more complicated than that.
Fool contributor Steve Heller owns shares of Apple and Google. The Motley Fool recommends and owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.