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May 10th, 2016

The Growth Of The Apps Economy Is Beginning To Slow

“Where monetization will be recorded is an open question with so many players in the game.”

After almost a decade of unfettered growth, the mobile apps economy is on the verge of leveling out.

A report by the International Data Corporation said that the number of mobile app installs would only grow by single digits over the next four years. IDC’s Worldwide Mobile Applications Forecast 2016-2020 said that the number of installs would increase from 156 billion in 2015 to 210 billion in 2020—a year-on-year growth rate of around 6.3%.

Generated revenue would also start to slow, IDC said. In 2015, direct (non-advertising) revenue from mobile app installations was around $34.2 billion. In 2020, direct revenue is forecast to be $57 billion, a figure that equates to a compound annual growth rate of 10.6%.

The App Quality Imperative Creating Apps that Win - 5 Challenges and 5 Solutions Get It Now

In terms of which app store generates the most cash for developers, the winner—again—is Apple. According to IDC’s report, the App Store earned almost 58% of global app revenue in 2015. The massive volume of the Android ecosystem meant that Google Play got more installs in the last 12 months—60% compared to the 15% derived from Apple—but took 36% of direct revenue.

In an email to ARC, IDC’s research vice president for mobile and connected platforms John Jackson said that the continued growth of the apps economy would rely on different forms of monetization. Jackson cited ad blocking as a concern, although he said that its impact had not, “fundamentally derailed anything yet.”

Jackson said;

There are a few tectonic forces at play that I think will conspire to drive the type of direct revenue we model in this report down on a per-user over the long run. Specifically there are the pervasive ‘economics of free,’ which basically means ad supported models that have driven direct monetization almost entirely away from up front to in-app payments. We’ve seen the rise of subscription services with streaming audio and video on demand. These will certainly register in the app environment, though where monetization will be recorded is an open question with so many players in the game.

Apps Economy Growth May Slow, But It Is Not Retreating

A slow-down in the apps economy is not unexpected.

The App Store has over 1.5 million apps available with a similar number in Google Play (about 1.8 million, by ARC’s estimates). According to IDC, there will be more than six billion smart mobile devices in use by 2020 which will bring a different set of challenges to app developers.

smartphone_user

More devices means more opportunities to increase app install rates and drive revenue, but Jackson said that there would be a direct correlation with where those devices are located.

As device ownership reaches saturation point in the developed world, less developed countries will take up the baton. More people in these regions now have access to the Internet thanks to improvements in mobile network infrastructure. In addition, manufacturers have either dropped prices or introduced affordable models in countries like India and China.

“Obviously emerging markets are home to the proverbial ‘next billion’ and are seen as essential growth areas for the tech supply side from device OEMs to service providers. So in this way they are primary drivers of install growth,” said Jackson, in his email. “This will be generally less true for revenue. Emerging markets already boast mature mobile economies – witness the rise of chat apps that have evolved variously across markets to offer additional services like banking. The next couple billion smartphone users will come from these markets and will also be born mobile.”

See also: Apps Have No Choice But To Look Overseas For New Revenue

On the surface, generated revenue figures that are still in the billions of dollars might not seem like a problem.

The apps economy is the success story of the mobile era. Apple has paid more than $40 billion to developers since the launch of the App Store. Thousands of apps are still submitted to the App Store every day. The problem of bloat is well-documented, with Apple reportedly considering a reboot of the the App Store.

Mobile Market Will Need To Adapt To New Market Forces

Jackson said that the next four years would see changes in the mobile market.

“While they provide a convenient measure of the mobile app economy and its beneficiaries, we caution that preoccupation with download/install volumes and associated direct revenue may miss the thrust of changes in the mobile marketplace,” Jackson said in IDC’s press release.

girl_on_phones

App stores would continue to attract developers but companies needed to diversify. In a press release, Jackson cited bots as one example of alternative value in the apps economy, with Facebook and Google looking to cement their place at the top table.

“Facebook and Google continue to dominate mobile ad spending thanks to the scale and sophistication of their network effects, with Facebook’s moves to incorporate news and other interests into its experience will likely pull traffic and install volumes away from discreet apps,” said Jackson. “Similarly, the emergence of ‘bots’, which seek to automate interactions in a contextually infused way, are another in a series of examples of value being created above the OS layer and even above the app.”

Lead Image: “cafnr app_0031,” by Flickr user CAFNR, Creative Commons

Image: “Smartphone User On St. Kilda Beach,” by Flickr user Alpha, Creative Commons