The mobile industry is a fast-growing market, not only for smartphones and devices, but also the applications. Analysts predict that the mobile app market to grow to US$ 36.7 billion by 2015, with 182.7 billion downloads. How can mobile networks catch up? How can developers monetize their work? How can users choose the best apps?
Canalys predicts that revenue from mobile applications -- both from direct sales and in-app purchases -- will amount to US$ 7.3 billion this year and will grow by 92% in 2012 to US$ 14.1 billion. The app market will grow further at a 50% compound rate annually, to US$ 36.7 billion by 2015.
What's interesting to note here is that direct sales revenue is not the only big source of income, but alternative monetization methods also have a big part. The analysis takes into consideration a few revenue sources aside from premium apps-for-sale. One is in-app-purchases, in which an app can be distributed for free, but additional content is paid. Another is the subscription model, in which content is available for as long as a user pays the regular subscription.
But Who Are the Gatekeepers?
With a fast growing market, Canalys finds interest in the fact that only a handful of companies act as gatekeepers, namely the major mobile operating systems developers like Google, Apple and Microsoft. These companies run the application marketplaces, and usually either have a share of application revenues, or control which apps make it to the app store and which don't.
With this in mind, mobile operators are missing out on the benefits. In essence, application marketplaces and smartphone users are using the carriers as "dumb pipes." Money changes hands, but carriers don't get their slice of the pie. Most of the time, carriers don't even have a say on which apps and what kind of data can go through their networks.
Canalys believes that mobile operators will play a big part in the mobile app market in the future. As application marketplaces grow, users might be overwhelmed with the myriad of app choices, including free and premium ones. Analyst Tim Shepherd says operators should not compete on quantity, though. "[T]oo much choice brings serious problems in terms of application discovery for both developers and users, which operators can turn to their advantage." He adds that mobile operators might be able to improve on the user experience by providing a "narrower, yet fully vetted choice of apps" tailor-fit to subscribers based on their usage habits.
Where Will the Money Come From?
IDC reports that app downloads will grow dramatically from 10.7 billion this year to 182.7 billion by 2015. Not all of this will be paid for outright, however. VP for Mobile and Connected Consumer Platforms Scott Ellison believes that revenues from apps will be a balanced mix of direct purchases, in-app purchases and advertising.This means there is a need to satisfy users' short attention spans.
"App developers are not only focusing on ways to 'appify' just about every interaction you can think of in your physical and digital worlds, they are now focusing on longer term sustainability issues," says Ellison. Because you don't get your $0.99 the moment a user downloads your app, your app will have to be interesting enough for a user to want to pay for more features or spend more time with (possibly viewing ads).
In conclusion, the trends indicate that apps are the way to go for developers, carriers and content authors. But the challenge is how to effectively harness this growth, such that users get value, and not just a bunch of trivial apps that are too confusing because they're too many.