Economics of Superstars Meet the Internet: Comparing Music and Apps
By David Tobia
November 21, 2012
November 21, 2012
- Before the iPhone, the app economy did not exist. Since then, it has grown to produce 400,000 jobs and billions of dollars in business.
- But just like every other market, the app economy is controlled mostly by a few large players. To illustrate this point, The Atlantic notes that while Apple has paid $6.5 billion to app developers, only 25 percent have made more than $30,000 and only 4 percent more than $1 million.
- The article compares apps to the music industry in that there are many people trying to do the same thing, and when one gains traction, it translates to tremendous growth internationally. This means that minuscule differences can suddenly spark one app or musical artist to international glory, while a similar application or artist struggles to gain any notoriety.
- “It’s the Economics of Superstars law, applied to apps: In a crowded international field, small differences in talent can translate to huge differences in outcomes,” suggests the article. “The most popular photo app, Instagram, was bought by Facebook for $1 billion. The 10th best photo program probably isn’t worth 1 percent of that figure.”
- But there are differences between apps and music, such as the tendency of “venture capital firms who buy equity in promising apps with the expectation that ad money, or something else, will follow audience,” explains The Atlantic.
- “But since many of these bets are made with the expectations that somebody somewhere will figure out the model for monetizing mobile attention, it’s not alarmist to suggest that the longer big companies like Google and Facebook struggle with mobile ads, the smaller VC’s appetite for some apps will become.”
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