Coming soon
Coming soon
Introduction
On 15th May 2013 the 50 billionth app was downloaded from the Apple App Store. It is almost impossible to believe that the App Store only launched on July 11th 2008. In less than five years, the number of downloaded apps has gone from none to the equivalent of more than seven per person for every man, woman and child on earth. Even by the mobile industry’s spectacular development, the growth in apps is astonishing.
What is less immediately obvious but more interesting is the impact on our lives. In an industry growing so quickly it is difficult to get up to date, comparable information but what we do know from Apple is that their App Store offers more than 850,000 apps to iPhone, iPad and iPod touch users in 155 countries around the world. Meanwhile the Google Play app store is not far behind with a reported 48 billion downloads to date and a similar number of apps on the store.
The numbers in perspective
It took six months, from July 2009 to January 2010 for the number of Apple App Store downloads to grow from 1.5 billion to 3 billion in total. Yet it only took three and a half months for the number to grow from 40 billion to 50 billion. When you think that smartphone penetration is, even in developed countries, only now reaching 50% plus of the population, and consider the hundreds of places where smartphone penetration is non-existent, you get the sense that the current rate of growth of the app economy is unlikely to slow down.
The mind boggling numbers continue when you consider the amount of money paid out to app developers. Currently, for the Apple App Store this is reported to have been $9 billion – a huge new industry developed from scratch is now exceeding the national GDP of 70 or so countries in the world. And that is the Apple App Store alone in less than five years. Where we will be in five years’ time is anyone’s guess, but it would be fair to say that the app economy will not be disappearing any time soon.
Winners and losers
What these huge figures tend to hide is the uneven distribution of all of these downloads, apps and dollars. Whilst Apple regularly publishes the top 25 free and paid for apps it does not accompany these with numbers. What little information is available comes from app developers. Rovio, the publisher of the Angry Birds series of games is reported to have had 2 billion downloads. If so, that series of apps alone accounts for 2% of all downloads to date. Angry birds is the most downloaded paid iPhone app so you can be fairly sure, on the basis that more people will want something that is free compared to something that costs, that several of the top free apps are generating a similar, if not the same number of downloads. With Facebook, Google, Twitter, Instagram, eBay and Groupon all dominating the top free apps list, you can safely assume billions of downloads.
And if you divide the amount paid out to developers by the number of apps available, you can see that, on average, each app earns a developer around $10. Now of course this number is skewed by apps for which there is no cost, but what it starkly illustrates is that the economics of app development can be compared to the gold rush in America in 1849: lots of people hoping to become millionaires but very few achieving it. App developers, apart from a very small and select number, are unlikely to be reaching for the cigars and Chablis any time soon. The media recently reported extensively on 17-year-old Londoner Nick D'Aloisio, who sold his company to Yahoo in March for an estimated £18m. He had been running the Summly app for two years. Yet the fact that this announcement generated so much news tells a tale in itself. It is newsworthy because it is so rare.
Lessons for app developers
In this environment, app developers that do not have a carefully thought out strategy and plan for their business are extremely unlikely to succeed. In fact they might as well buy lottery tickets, since the chances of success are probably equally unlikely. Recognising this, how will the economics of the app boom change over time and what can developers do to help themselves?
Whilst it is impossible to predict the future in apps, it is possible to make some carefully measured best guesses as to what the future might hold and how to exploit it. The retail cost of apps has always been relatively small but it is getting smaller. Consider also that the number of free apps is growing compared to the number of paid for apps and it is easy to see that the traditional “free versus fee” model of app development is being replaced.
Instead what has emerged is a hybrid model, based on in-app purchases and advertising. The current trend is to chase downloads rather than revenues, in the hope that, once downloads come, so will the money.
The importance of context
But this relies on a number of factors. In-app purchases need to be relevant and contextual to the app downloaded to date. If the days of offering a free game, getting a user hooked and then charging a fortune for the next levels are not gone yet, they will be soon. The Office of Fair Trading investigation in the UK is probably an early indication of likely future regulation and action.
Advertising also needs to be carefully considered. When app developers reach a volume number of users, advertising can prove an effective way to monetise, but only if it is again relevant and contextual. How long until an Office of Fair Trading investigation into kids games that advertise dating sites or a similar issue?
Recommendation as the future of app growth
Most important of all is the issue of recommendation. To an extent both of the major app stores have become victims of their own success in this respect. Trawling through thousands of apps to get to the small number that are relevant to you is an impossible task particularly when you consider the vast number of factors that impact this. To name but a few: how big is the app? How many positive recommendations does it have? Can I trust those recommendations? Are my friends using it? Will it actually do what I need it to do? Furthermore how do I make sense of 100 or more apps offering broadly the same thing? Which Sudoku game is best from the hundreds available?
The risk here is that the best apps will not make it, hidden in the depths of app store lists and destined to be forgotten. We already know from research by Distimo that over half of Apple app store users do not look beyond the first 25 apps in any list.
When you consider the risk versus reward potential it is understandable that many developers are not prepared to mortgage their house on marketing campaigns that might just help them get visibility. The risk is that talent and great ideas will leave the industry because the sheer volume of apps available means that the outcome is not worth the effort.
What is needed is strong, independent recommendation engines that help to highlight the hidden gems of the app stores. As well as providing benefits to users, this gives a strong showcase to the best independent and up and coming app developers – also enabling a cost-effective model for generating downloads through recommendation. If your best friend is using an app constantly, you are likely to want to do the same. Further means through which this can happen should be a sustainable part of the future app economy. This is a way of supporting the app stores and developers, delivering an ecosystem where all parties benefit.
Conclusion
The app market, unbelievably, is still in its infancy. However the huge growth is probably the biggest risk it faces in the future: to enable users to discover new and relevant apps, as well as providing developers with a sustainable business model, the industry needs to develop new ways to drive interest to current and new users, before app fatigue sets in. This will be one of the biggest challenges for the industry to sustain itself beyond billions of downloads and in to the trillions.