Introduction and paid apps
The smartphone app has been a phenomenon like no other in the digital economy, but are its days of runaway growth finally on the wane?
One hundred billion apps had been downloaded by July 2013 and by now there are well over two million apps available – big numbers indeed – but barely 10% of smartphone users in the UK actually pay to download apps. That's according to research from Deloitte earlier this year, which also revealed that almost a third of UK-based smartphone users no longer download new apps in a typical month – a figure that's up from 20% in 2013.
Deloitte's report, entitled 'The rise of App-athy', also revealed that 14% of smartphone users have never downloaded an app. The concept of an app might not be dead, but are app developers now operating in a market that's past its peak?
How we use apps is changing
The number of apps we download continues to fall. This is partly to do with demographics – people now getting their first smartphone tend to be older, with 31% of over 55s never downloading apps. Meanwhile, those of us who've had smartphones for years generally have the apps we need, and are happy to use mobile websites for occasionally-used services.
However, there are new apps appearing all the time for completing tasks that previously weren't possible. Checking bank balances with a smartphone has seen a sharp increase in usage according to Deloitte – 40% of respondents did this in 2014, 10% more than in 2013.
"Like our underwear we're going to rotate our apps," says Marcos Sanchez, VP of Global Corporate Communications at app analytics firm App Annie, which tracks the performance of 4.2 million apps for clients including Facebook, Yahoo and Google. "Apps can only do so much, but that doesn't limit the apps market – there are plenty of ways that app developers will continue to innovate."
Are paid apps dead?
The demand for paid apps in the UK is even lower than for free apps, with a miserly 5% of smartphone users spending more than £5 per month on apps and games. While once it dominated, the concept of paying money to download an app to a smartphone or tablet is now a niche market, at best. The freemium model is the dominant business model by a long way, and it's not going away anytime soon.
"Paid apps are a small margin of the money being made, so it's not that important to think about them," observes Sanchez.
There are four types of apps: paid, free, paid-ium (you pay for the app and have paid-for upgrades within the app) and freemium (free app, paid-for upgrades). The huge majority of apps are games, almost all of which follow the freemium model – together they account for well over 90% of revenue in the Google Play store, with similar dominance in Apple's App Store.
Can non-games apps ever be a real business again?
Despite the dominance of games apps, Sanchez thinks that paid-for, non-games apps will mature and stage a comeback. It's largely about the step-up in smartphone hardware. "I now use now my smartphone to make modifications to documents, largely because it has a bigger, HD quality screen and the processor is faster, and the network plans are faster and cheaper," he says. "You can now do a lot more interesting things with non-games apps, and I suspect over time that non-games apps will start to monetise."
At the high-end, better cameras, microphones and high-resolution screens mean new apps are possible, but by far the more lucrative end of the market is in emerging economies, and new smartphone users.
Emerging markets and wearables
How important are cheap phones in emerging economies?
Both are crucial to the apps market's future growth. Google's $100 (around £64, AU$120) Android One smartphone has a cheaper screen, a slower processor and a poorer build quality than the kind of smartphones popular in Europe and the US. However, at that price – and likely subsidised to zero in some markets – it's going to change the app market completely simply by massively expanding the potential customer base.
"Smartphones are going to grow in a way that laptops were never able to, and tablets, too, because they're a lot more expensive," says Sanchez, who thinks that there is still a lot of growth to happen in places like Brazil, Turkey and India that are beginning to see a rise in smartphone usage.
"Smartphones have advanced enough for them to become the computers of the world – there are millions of people who would never have been able to afford a laptop or a desktop computer who can now have a smartphone," he adds. "The apps market is nowhere near its peak."
What kinds of apps will be aimed at emerging economies?
We may live in a global market, but app developers can't just take an existing app and throw it at a billion new customers. "It's about cultural adaptation, which can take the form of changing a storyline within an app or a game or changing the types of images or the dollar amounts for in-app purchases," says Sanchez, who believes that new ways of in-app advertising will dominate.
"In-app advertising is going to be a more important way of monetising because whereas in a place like Japan people might drop a hundred dollars a month on apps, that's not going to happen in India, but India has a huge economy and many companies want to get in front of those eyeballs via a smartphone."
Will iBeacon bring new kinds of apps?
A good example of how new hardware and software can cause a spike in new app development is Apple's iBeacon technology, which should produce apps with a wider role in terms of increasing revenue for high street businesses.
"I walk by Starbucks every day at 8am, there's a beacon on the storefront and it sees my phone, and it notices that on Thursdays I don't buy anything at Starbucks," says Sanchez. "So maybe it throws up an offer that says 'Visit Starbucks and we'll give you 30% off a latte'." He adds that this kind of in-app monetisation could get really complicated depending on how much geo-location and demographic information is used.
Will wearables drive new growth?
As well as smarter smartphones giving apps a fillip, there are new devices coming, most notably wearables and smartwatches. "I suspect that the likes of Fitbit are what will probably usher smartwatches into the mainstream," says Sanchez. "When people are comfortable with a wearable on their person, that will be extended into smartwatches, which have a lot more diverse functions."
For example, it's possible to get navigation directions via new smartwatches like the Moto 360 watch, with drivers getting a haptic buzz when it's time to turn a corner, and where a map is only a glance at a wrist away. Wireless music in the home, too, is increasingly controlled by apps on a smartphone, which in turn gives a nearby smartwatch another cool function.
Could the rise of wearables and the birth of the Internet of Things (IoT) mean app usage growing over the next decade? "The IoT is closer than people think," says Sanchez. "Conceptually, the smartphone is becoming a 'remote control for your life' as Google and Apple both make it central whether you're playing a game, listening to music, or driving."
Gartner forecasts that 26 billion connected devices will be installed globally by 2020; each one of them is going to need an app or three. The way we consume apps might be changing, but with new connected devices and a billion new users incoming, the app concept isn't going to go away anytime soon.