The Economics of Mobile
12 January 2015

The Economics of Mobile

JOIN INNOAPPS HACKATHON FINAL which will feature a smart cities pitching competition & a panel discussion about the role of mobile in the cities of the future. 

app

So you want to build an app, because you heard there is an app revolution going on, that app developers are making tons of money and that there are golden opportunities to enter – and eventually disrupt! – the market. Ok we’re fine with that. Some months ago even the EU published a GigaOM report to seize the European app ecosystem, finding out that EU developers took in $23.7 billion (€17.5 billion) in revenue in 2013. And, they said, “we forecast that figure will increase to $85.3 billion (€63 billion) in five years”. Boom!

However, both the report and experienced people in the market have noted that mobile ecosystem has its own dynamics and rules. “Many of the current market dynamics have the air of a gold rush in the Wild West. A relatively small number of astute, opportunistic companies have quickly learned how to make the economics of the fledgling app economy work and dominate app store revenues”.

And how do they do it…? The study explores the whole ecosystem – including companies that develop for others and independent developers –  and we will focus on both: what are those current market dynamics and how to enter in this Wild West and how to make money out of it.

  • Focus one thing and do it great. We have already talked about this, when we explored the opportunities on smart cities and mobile – and what you can do to make citizens live their cities in a smarter way by delivering something great on their pockets. What makes an app a good app is that it solves one problem at a time. And as the stores become super full – “iTunes App Store now has 1.2 million apps, has seen 75 billion downloads to date” – people do filter and do not download everything – just the basics (and the games, which are a different market to look at).
    • See the most downloaded apps of 2014: Facebook Messenger, Snapchat, Youtube, Facebook, Instagram, Pandora Radio, Google Maps. Messaging, media consumption, social media, photo, music and location. All of them use one of the native characteristics of mobile and do just one thing great. Learn from the ones that rule the market.
  • Platforms. The app is not the web and what has changed the economic model around it has been the App Store: the place where you go to get your packed deliveries, instead of having them wandering around the web. So before starting the development is good to have a look and understand them. 
    • Benedict Evans is an expert on mobile. He writes a blog – which is always worth a read –  where he explores the ecosystem. “The first phase of the platform wars is over: Apple and Google both won. Apple now sells around 10% of all the 1.8bn (and growing) phones sold on Earth each year and Android the next 50%, split roughly between say 2/3 Google Android outside China and 1/3 non-Google Android inside China. Over time this will expand such that smartphones take almost all phone sales – perhaps 400m or 500m units a quarter, with Apple taking the high-end and Android the rest, and there’ll be close to 4bn smartphones on earth”, he says. “And though Apple sells a minority of devices, its positioning and execution means it has a much larger share of traffic and a majority of content and e-commerce revenue in developed markets, so its ecosystem is perfectly sustainable, as is Google’s”.
    • What a platform means matter for business. Who has those phones? A minority of rich people that spends money on the phone (iOS users) or a much larger audience that spend less (Android users)? Understanding the geography and economics of platforms helps defining the business. Here is a map that might help you in this task.
      And you can also try escaping from the store model and use HTML5, that works everywhere.
  • Business models.

The data.

 

Blog post EYIF

The explanation, by Gigaom report. “But you might be surprised where a lot of that revenue comes from. In addition to $8.1 billion (€6.0 billion) in app sales, in-app spending for virtual goods, and advertising, EU developers recognized $15.6 billion (€11.5 billion) in 2013 from contract labor. And much of the developer-for-hire business is for companies that aren’t really in the app business per se but use apps to support and market their mainstream offerings like financial services, retailing, and packaged goods. That is one business model. Want more? 

Classics are: charge for your app, insert adds, insert in-app purchases. Or develop a new business model. As the report notes, “there’s not much one can do to increase users’ willingness to pay for apps. It might be easier to help reduce the cost of finding customers. We see a potential opportunity in third-party discovery platforms outside the Apple and Google app stores. It will be challenging”.

  • And what else? Well, have a look at appslikeAirbnborUber that use technology as a medium to solve a real-life-city problem like finding a place to stay when you travel or a cab and to connect people providing and demanding those services. The “app economy” jumps out of mobile and its software is justtheultimate layer to support a logistic business.

    Perhaps there is where you find your golden egg.