The Real Value of The App Industry & The Real Opportunity For App Stores; Why Apple Doesn’t Rule The Roost
Editor’s note: Apple has the first-mover advantage, and its App Store sets the bar. The result is a buoyant market for apps and ample opportunity for fast-followers to (perhaps) do one better. Benjamin E. Jacobsen – Co-Founder of Mobspot, Inc., a company championing “Mobile App developers and App users on any platform,” and a new author to MSG – gives his take on the size of the market and the prospects for other players.
IS THE APP INDUSTRY WORTH NEARLY $7 BILLION? Will Apple do nearly a billion dollars in revenue in its first year of the App Store? While the exact numbers are debatable, you can’t ignore the monster success Apple has had with its store (which also drives device sales, by the way). How much money has Apple made? This post, titled Apple has made no more than $20 – 45m in revenue from the app store, gives us a figure. One I might add is not too shabby for a product yet to see its first birthday. What makes this more remarkable is that Apple has captured between 1-2 percent total market share worldwide (including feature phones), and only 10.8 percent share worldwide in the smartphone segment. Few (save Juniper) have taken a stab at valuing the total app industry.
StatCounter’s recent announcement that Opera Mini surpasses the iPhone’s Safari as the most popular web browser for mobile phones is testament to the potential of the greater industry. Opera Mini is the most downloaded Java application of all time. So, while I am excited about the enthusiasm for the iPhone, I find the conversation is missing a big-picture perspective. The question we should be asking is: What is the total app market worldwide really worth? After all, Opera Mini’s success story underlines the potential of the app market beyond just the iPhone.
So, allow me to take a shot at valuing the total app industry, worldwide, for pay-apps (apps you pay to own on your phone). This is the total value excluding Of course, we have to exclude free apps like Opera Mini.
In a nutshell: If Apple can do nearly $1 billion in sales its first year and has 10.8 percent smartphone market share worldwide, how much is the total smartphone app market worth?
This post from AppleInsider tells us that Apple could do $777 million in App Store downloads in 2009.
A 10.8 percent worldwide smartphone market share implies that the total mobile app market is $7.2 billion, if all smartphone users spend as much on apps as iPhone users do. We know that this won’t be the case. A much more likely scenario is one in which smartphone users will spend far less.
So, let’s assume users with these handsets (other than the iPhone) spend half (50 percent) of what iPhone users on App downloads. Now let’s do the math.
$7.2 billion is the extrapolated industry valuation of direct revenue from apps if consumers spent as much on apps for other platforms as they do the iPhone. Let’s take $7.2 billion minus $777 million (iPhone app share), and multiply that by 50 percent. That gives us a valuation of $3.2 billion for the non-iPhone app market, or $4 billion total, including the iPhone.
($7.2 billion – $777 million) * 0.5 = $3.2 billion non-iPhone app market.)
Given these assumptions, the total addressable market for non-iPhone smartphone users is approximately $3.2 billion in 2009 alone. This, of course is direct app revenue, and does not include advertising, in-app sales, carrier data revenues, feature phone app sales, and other yet-to-be-developed revenue models.
What does this figure represent? Is this pent-up demand in search of a marketplace? It sure looks like it. In any case, the number is staggering, and why this fact hasn’t gotten more attention is surprising.
But I can tell you from my experience at Opera, the success of the iPhone app store is great for the industry. Apple’s app store (although benefiting from massive multimedia marketing campaigns) is the proof-point our industry needed to see its own much greater potential. Apple gets high ranks for making the job of marketing or selling an app that much easier. Mainstream consumers now realize it’s not rocket science to load an app on their phone. Now it’s part of an every-day routine for many mobile users.
Apple has created a market, but does it dominate it?
AdMob’s Mobile Metrics Report recently released compares mobile Web usage to market share of mobile devices. As this chart from AdMob shows, the iPhone literally tops the charts for mobile Web usage – and that despite the fact the device only accounts for 10.8 percent market share of devices (according to Gartner’s latest estimate).
Symbian is next, followed by RIM and Windows. With the launch of the Palm Pre, greater penetration of Android devices soon to come, and Microsoft opening its Windows Skymarket app marketplace, it’s a safe bet that consumer spending on apps on other platforms might total half of what iPhone users spend on apps (If you disagree, please make your case for lower estimates in the comments below, or email me – ben@mobspot.com .)
Let’s put a growth-figure in here. If we accept the figures from Ovum, which predict 15 percent per year growth for smartphones, then you end up with an app industry worth nearly $7 billion.
Not bad. We are excited about the App Store concept, which has taken much of the pain out of discovering and buying apps. Now is the time to get equally excited about the opportunity for apps on all platforms.
And why shouldn’t we be excited? Apple’s App store has caused a shift in consumer behavior. It has captured our interest (even passion), encouraged us to explore the mobile Web, and put downloading and purchasing apps central to our daily mobile routine.
Where does this leave Apple?
It may be riding the cool factor now, but where is it written that cool apps will only be created for the iPhone? I’m confident developers are already working on more great apps for other platforms.
Apple also doesn’t have a monopoly on delivering a great consumer experience. I’m sure developers are hard at work coming up with new approaches that likewise set the bar.
My take: Apple has created a market. But it has also paved the way for some fast followers to follow suit – and even go one better. I’m excited about the avalanche of apps we’re sure to see available across all platforms, and the impact on mobile industry and consumer behavior at all levels. What do YOU expect?
About the author:
Prior to founding Mobspot, Ben was Director of Global Marketing at Opera Software, where he led multiple record-setting product launches of Opera Mini. Opera Mini is the most downloaded mobile application in the world. He has a BA from the University of Washington and an MBA from Copenhagen Business School.
Tags: Android, app store, Apple, Content Discovery, Google, iPhone, Microsoft, Mobspot, Opera, Opera Mini, Palm Pre, RIM Windows, Skymarket, StaCounter
June 10th, 2009 at 1:24 am
Makes sense. Will be interesting to see how the market shakes itself out. Anybody have a feel for how much Apple has spent marketing their apps? Between their storefronts and their commercials they’ve spent a good bit championing the mobile apps cause. Will also be interesting to see how the app market delineates itself by use – will Apple rule the casual market whereas RIM will own the biz market, and will there be substantial fluctuations in the lifetime user value as a result?
Also, is it really such a great accomplishment that Opera Mini’s market share is greater than the Safari? They’ve been in the market for a substantially longer time, and they are being compared against one app that is operating on a singular device. I think the real story is what (if anything) are they doing to keep the newcomers from eroding their market share before they wither away in irrelevance like they have on the desktop.
June 10th, 2009 at 2:07 pm
Great article,
Our company Communication Software Inc. develops Medical apps for the iPhone and Android. We were deeply involved in development of the first Internet Boom in the 90’s were I saw the same situation as the apps today. The first websites as are the apps of today were whatever anyone thought were cool with very little business planing to back them. Also, if you remember the 90’s online businesses were offering non sustainable business models, example pricing models that lost money which is the same in today’s app market. Most apps are free and with many of these; free is not cheap enough. This will change as the market matures and these poor business models companies and developers disappear.
As for which phone will lead the market in the future, it is hard to tell. Like so many new ideas, the leader fail behind as followers learn from the leader mistakes.
I believe Android is the wild card. It is open source and the development is in Java, the OS is free and manufactures are getting behind the platform because of cost. There are 18 new Android phones to be released this year. One thing you can count on it is going to be a good fun ride so hang on.
Jeff Brandt
motionPHR a Personal Health Record for the iPhone
myMedBox a Personal Health Record for Android/Google Phone
June 10th, 2009 at 10:12 pm
Ben… I think the forecasted numbers look conservative. 15% growth assumes only unit growth, and no growth in App ASP. With folks like TomTom jumping onboard, we are in for a serious increase in app ASPs in 2009. Increases in device performance (processor, camera, battery etc.) will draw more apps investment. What do you think TomTom will fetch? $30, $50?
June 11th, 2009 at 11:59 pm
I agree that the App market will be very large but also think your numbers are inflated at this point, for two reasons. One is that there is an existing dysfunctional app market within the Carriers and from downloads from off-deck vendors. This isn’t a good market environment but the fact remains that the subscribers are downloading to the handsets.
Second, why will the app behavior be dramatically different than mobile web behavior? Apple has 8% of the device market but 40% share of the mobile web. Why not use the 40% factor as the base of the expected Apple app marketshare, or evaluate this against the current estimate of downloads from item 1 above.
That said, these are interesting numbers and if someone can build a competitive eco-system (device, software, market) it will start to get very interesting. You never know where that competitor will really come from; 4 years ago people scoffed at the idea that Apple could compete in the wireless industry.
I look forward to reading more of your analysis and comments.
June 12th, 2009 at 6:40 am
Brilliant article Ben! No need to pay Gartner or IDC when analysis like this is freely available
The industry should thank Apple for leading the way in the awareness for apps. However, almost equally important, is data from INQ (http://www.mippin.com/mip/pct.jsp?p=57295221) showing that it is not how smart the phone is, it is how smart the marketers are. Data plans need to be standard, and all phones should be marketed as data capable, and we would really see the explosive growth.
JT
June 12th, 2009 at 3:32 pm
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June 12th, 2009 at 9:46 pm
I agree that the first-to-market players blaze the trail, both in innovation and in effort. I also feel that customer uptake (and purchasing) of apps is going to see its initial flash then plateau. Early adopters are more primed to do so today than ever before. As we saw many innovative Web apps rot on the vine in the 90’s, it seems that phone apps have a universally tangible and accessible medium that relates to customers immediately. I guess I’m saying that the customer now drives the demand for innovation and in turn demands a good price point to boot (Pun intended). So when the app demand and customer service begins to plateau is where the better experience starts to emerge as the leader. When will that happen? What is the magic price point and technique for app development and delivery? Well, if this was PDF technology, I’d say we are still setting type, but with nice pre-built sentences and words.
June 14th, 2009 at 9:39 pm
@bigdood – some good points. Regardless of the length of time Opera’s been around, you still can’t ignore ~23 million users of Opera Mini, and about the same number of people using the desktop browser. Market share is one thing, people are another. I’m a firm believer of making all content available to all people.
June 14th, 2009 at 9:42 pm
@ Matt P – I think you’re probably right the the growth estimates are conservative. I wanted to project something fairly plausible though. No idea what Tom Tom will fetch. I think I may try and capture more of the eco-system in future posts on industry valuation, though. Though the app market is 7 billion, there’s still a ton of other revenue that will occur.
June 15th, 2009 at 1:03 am
[...] has some numbers to put against predictions that apps won’t really matter by looking at the real value of the app industry (it’s apparently $3.2bn in 2009 growing to $7bn in 2013) and the opportunities for app stores [...]
June 15th, 2009 at 5:57 pm
@ NW Guy – thanks for the comment. You make some good points. I think it’s inevitable that devices will be easier to work with over time. OEMs have to (and are) learning. Carriers will change too, and realize that a large portion of their revenues will come from data.
I didn’t use the 40%, because it’s not entirely representative. I also think Opera Mini shows the potential of apps on all platforms (which is partially why I highlighted the example).
June 15th, 2009 at 5:59 pm
@JT Klepp – thanks! It was fun writing it. Completely agree w/ you. The industry is changing, and OEMs and carriers will realize the inevitable. If they don’t, they become obsolete.