I’m excited about the Apple Watch. I’m a lot more excited what the wearable tech will be like in 5 to 10 years, but now let’s focus on the first month of Apple Watch.
Today, hundreds of thousands of people will receive their newly minted Apple Watch, and they will play with it to their hearts content, and then they will install some apps. But for the vast majority of app developers this first month will be a disappointment.
Let’s put aside the fact the watch is a new form factor. It requires new types of interactions. We’ll learn what’s interesting, what’s annoying and what’s critical to have on your wrist — Yes, there are plenty of other smart watches out there, but nothing has caught up yet.
Like most apps in any store, user adoption follows a power law curve. A few apps are in the “head” of the curve and get wide adoption while the rest have fewer and fewer users, also known as the long-tail.
Let’s assume the average user will install ten apps on the watch in the first month of usage. There are currently 2,300 approved apps. I’m guessing half of users will get their watch in April (based on the 1,000,000 sales estimate and rumors of a backlog extending to June) there will be 5,000,000 app installs during that period. Let’s also assume that out of that number, half will be flagship apps: Facebook, Instagram, Twitter, etc.
That leaves 2,500,000 million installs to be battled by 2,300 apps. If this were a perfect distribution, the average app would get just about 1,000 installs in month 1. But that’s not how it works, a few of the 2,300 apps will get most of the share. If we look at a simple power-law distribution, 1% of the apps will get 99% of the installs. That means 23 out of the 2,300 apps will have 100K installs or more while the remaining 2,270 will get about 11 installs.
Here is the equations for the app installs for the first month (assuming 500K activated units):
- 0.2-Percenters Flagship apps (5): 90-99% adoption = 450K-500K installs
- 1-Percenters: 500K Watches x ((10 – 5) x 99%) Installs / (2,300 Apps x 1%) = 108K installs / app
- 99-Percenters: 500K Watches x ((10 -5) x 1%) Installs / (2,300 Apps x 99%) = 11 installs / app (eleven!)
11 installs per app in the first month
Yeah, that’s crazy isn’t it. Well, what if we turn the expectation knob full on “optimistic”? Let’s say Apple will ship 1M watches in the first month and the average user will install 25 apps in the watch, not 10. That means most of the apps will get about a mindblowing 50 installs in the first month.
It will get worse before it gets better
Apple won’t sell as many watches in Q2/Q3 as they did with the pre-order. Most people were obsessed with the idea of having an Apple Watch already pre-ordered one. The next boost in Apple Watch adoption will be in the holiday season. If Apple can break 5M sold units in 2015, it’s 5X what this app installs looks like in this first month. The number of Apps available by the end of the year, it’s likely to be in the tens of thousands. That changes the equation to something still unpalatable for the average app developer:
Here is what 2015 will look like, being optimistic about average number of installs (25 per Watch*), and 10K apps available in the App Store and 5M units activated:
- 0.2-Percenters (20) Flagship Apps: 90-99% adoption = 4-5M installs
- 1-Percenters: 5M Watches x ((25 – 20) x 99%) Installs / (10K Apps X 1%) = 250K installs / app
- 99-Percenters: 5M Watches x ((25 – 20) x 1%) Installs / (10K Apps X 99%) = 25 installs / app (Twenty five!)
Maybe I’m a couple of orders of magnitude off on my math. Maybe the power-law is not as steep as I describe it here. Instead of top 1% of the apps getting 99% of the installs, maybe they get 80% of the installs, in which cases your average app would get 500 installs in 2015. Did you read that? Five-hundred installs for the whole year.
The Silver Lining
There are two big winners by my calculations. The first is that we’ll see about 20 apps that are not the flagship ones take off. It will be very interesting to see the categories they belong to (Payment? News? Messaging? Fitness? Game?) and the type of value they are adding. And, from a product perspective, the type of interaction and UI they implemented.
The second winner will be Facebook. No, I’m not talking about their Watch App, those won’t make a dent in their service usage or revenue. I’m talking about the 9,900 apps that cost tens of thousands to millions of dollars to implement, and they will spend enormous amounts of money to acquire users. Some of these apps will invest tens of thousands of dollars or more in customer acquisition. That could account for an extra $50-100M in ad revenue in 2015 alone.
There was a pattern in the early days of Mobile Apps: Spend above and beyond to acquire users to get the top ranking in your category. It was easier to maintain that position while the user base of the platform grew exponentially. Many Apps will take a similar approach expecting the watch to have hundreds of millions of users in the next five years. Spending $25-100K in the first few months to guarantee your future position is a “cheap” price to pay. This strategy will work for a handful of apps, it will fail for most.
* This Nielsen report indicate the average iPhone user has 27 apps installed so that number is not far off.