Where is the opportunity in the app economy for developers and businesses?

Where is the opportunity in the app economy for developers and businesses?

The birth of the mobile app not only revolutionised the way in which we engaged with consumer services, it also allowed for widespread consumer adoption of business models like marketplaces, which has entirely changed the application landscape today. 

Apple was the first to realise the value of an application economy and figured out that the fastest way to expand on it was to create sufficient incentives for developers to create applications, which end consumers would use and hopefully pay for. Apple's walled garden of hardware, software and select services - all within the same ecosystem, made it easier for developers to scale and lock in users. 

They (developers) suddenly saw a new income option which was truly built at scale (build once and millions can use), and Apple ensured they were paid. Mobile operating systems like iOS came to the fore. This was followed by Android's spectacular success in open source. By 2015, the majority of the world's population was using either one of these  operating systems through which developers and businesses could reach out to a potential target audience of 4 billion end consumers.

From its humble origins in 2008 to now,  mobile apps have grown and the business has adapted. So now, as a developer or a business, how do you plan to engage consumers with your app, given that there is customer fatigue, much more competition  and rising costs for getting your product marketed and noticed?

The true answer like always, lies in utilitarian value. To understand this a bit better I rummaged through the internet around usual suspects like Gartner, AppAnnie, Applause, AppBrain and TechCrunch to collate some forecast data around how the industry seems to be gearing up for the next five years. While most forecast data needs to be taken with a pinch of salt, what I found when I put it all together in one view, was mostly congruent with key themes and trends  that we are already seeing in the market. 

The following charts do give some clear trends which developers and businesses need to keep in mind while planning for 2020.

Forecasted rate of global app downloads till 2021

Numbers in$billions Source: TechCrunch, AppAnnie

From its humble origins in 2008 to now,  mobile apps have grown and the business has adapted. So now, as a developer or a business, how do you plan to engage consumers with your app, given that there is customer fatigue, much more competition  and rising costs for getting your product marketed and noticed?

By 2021, a stunning 352 billion apps are forecasted to be downloaded by users. A huge opportunity for businesses and developers. Round off the maths, and it's fairly simple to assume that every user in average will have about 60 apps on his/her phone. Additionally smartphones will become cheaper along with deeper data and internet penetration in new markets where there will be new users. 

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Instead of creating the next Facebook or Snapchat, imagine a net new category of users who would experience the internet for the first time through the phone, and the services that would make their lives easier. Services in the realm of shopping, transportation, payments, education, govt e-services, banking, healthcare and so on. 

Freemium vs Paid. Which model makes more sense?

Let's look at the total free app downloads over the last five years

Numbers in $billions. Source: Gartner

Freemium continues to be a model of choice, showing consistent growth and adoption over the last five years. It's steady, it works, it's time tested and you get user adoption. Once you have users it's probably easier to monetise them by providing deeper value through in-app services.

Now let's look at the total paid app downloads over the last five years

Numbers in $billions. Source: Gartner

In comparison, paid apps have shown a much more conservative growth path which is lower than what was expected. However,  the growth has been remarkably steady after the first two years, which shows that there is a consistent sweet spot of users wiling to pay for services if the perceived value is right. The fundamental question you need to answer - does the user derive enough value from it, to pay upfront for it? 

The analysis becomes a lot more easier when we see revenue derived from in-app advertising and mobile store payments by categories.

Forecast on global in-app advertising and app store revenue

Numbers in $billions. Source: AppAnnie, AppLause

*Please note forecast does not include gross spends by consumers and publishers

One thing is crystal clear and completely congruent with human behaviour. For users, communication and leisure are two of the primary activities they  use their phones for. Communication is a core activity, given it is a calling and messaging device. Right after that comes leisure and that's where games come in. It is evident that users are willing to pay upfront for games, given that their perceived value does not change with repeated usage. However, when it comes to services, people are far more wiling to try something for free and then pay for it over time, if they derive increased value over repeated usage.

Net-  if you are a game developer getting users to pay for an upfront fee and then add-on supplements as they break new levels in entirely acceptable. However, for a service led model, in -app advertisement is probably going to play a massive role in the next five years in terms of revenue generation and user adoption.

A $65 billion dollar opportunity for mobile ad platforms, mobile ad tech and mobile ad networks. (forecasted numbers)

But then which categories should we focus upon?

Let's look at the most popular app categories on the Apple app store

Numbers in percentages. Source: PocketGamer.Biz

While the engagement with games as a category is understandable, what truly stands out is the growth in education as a category, as modern day professionals take to the internet to up-skill themselves and be more prepared for the future.

Anyone today, can build an app without writing a line of code, or learn how to play the guitar from YouTube videos . The internet has truly removed the barriers of entry towards learning and what makes it more sustainable, is that it is need based. So you need lesser emphasis on push marketing and selling, as users search for newer avenues to make themselves more competitive in a changing world. Lifestyle, travel and utilities are the other immediate categories where growth is consistent for businesses to leverage on.

Defining a growth category where there is existing or forecasted user intent is thereby crucial for businesses and developers. 

So what should be your distribution approach?

Source: AppAnnie, BlackBerryWorld, Amazon, Apple, TechCrunch, VentureBeat

It is no surprise that Google Play and Apple Store lead the way in terms of apps available, given the proliferation of iOS and Android smartphones in the market. However, Amazon has come up well, even with a late start. While the Fire HD might not have set the cash registers blowing up, with products like Echo and Alexa, Amazon is doing some amazing work in the realm of IOT and a lot of developers are building apps that can be integrated within that for the promise of a connected home.

Products like Nest and Alexa are a new breed which integrate AI, Machine learning and services within an IOT framework and with Apple's HomeKit SDK and Google's Connected Home SDK , that trend is going to continue and grow.

Being an app developer is not easy and spending time to create and publish your app across 5 app stores is difficult and time consuming. The same applies for businesses. There is a need to understand the platform and how users behave within it to drive a practical business strategy for user adoption. 

So which markets should you focus your distribution on, or think about, when scaling a consumer internet business?

Let's look at some forecast figures of app downloads by region:

Numbers in $billions. Source: AppAnnie, TechInAsia

*Please note this a forecast with rounded numbers

Given the sheer population of APAC it is probably logical that majority of app downloads happen here, and the growth in app adoption outpaces EMEA and Americas by a fair margin. While that does not necessarily mean that revenue is higher from APAC, it does mean, that when you think about scaling your business, this is where the growth is. 

The reason is fairly simple. Large parts of emerging markets within APAC, went from DialUp to Mobile 4G without truly experiencing the desktop internet. So, for a lot of net new users their only experience of the internet has been through mobile apps. As data prices continue to fall and smartphones continue to become cheaper, there will be more new users who will adopt these new apps and become potential paying customers  for services that matter to them the most.

However, APAC comes with its own challenges of policy, lack of adequate infrastructure and disorganised industry sectors. Which means, that the opportunity comes with a cost of adapting to those market realities and building solutions which take into account infrastructure, policy and partnership structures. 

In conclusion:

Apps are going to stay for a while. Sure they have to adapt and share space with newer trends in AI and machine learning like Bots (which are also applications of a kind), but as products and services diversify and new business models come up, applications will still provide a gateway for users to access the web and its services. 

There will be more focus on payments, marketplaces, education, travel, healthcare and automated systems which complete transactions on your behalf. There will be more adoption of the mobile internet in emerging markets and these markets will throw up business models which will be new and different from what works in the west. 

There will be a lot of innovation around eCommerce, FinTech, Transportation, Education and government embracement of eServices. 

There will be commoditisation of code as more and more solutions will come up to get non technical users to build market ready MVPs to pitch for services and products. 

In summary, the glory days of app development are evolving. The future will be around optimising scale for niche solutions, far more intent based. Consolidation will give way to unbundling, and API's will start deeper integration with AI.

However,  there is still a lot of opportunity in adapting to the present. Those who do, will not only reap the rewards, they will also define the way we engage with apps as they evolve into the next phase.

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