Size means little in the app economy

Tear up the rulebook, forget about what you learnt in Economics 101 and don’t bet on the market leader; the app economy is one segment which is supercharging start-ups like few others could dream of.

Jamie Davies

June 30, 2020

5 Min Read
Size means little in the app economy

Tear up the rulebook, forget about what you learnt in Economics 101 and don’t bet on the market leader; the app economy is one segment which is supercharging start-ups like few others could dream of.

Many of us take the app economy for granted, simply believing that apps happy because a teenager is bored in their bedroom. But this is a segment of the technology industry which is thriving, employing 530,000 people directly in Europe alone. And most importantly, it is not just big business which is benefiting.

No-one cares about your phone, Karen

While some would define themselves by the device which is in their hands, realistically this is putting faith in the wrong segment of the mobile industry. The differences between tier one manufacturers are marginal at best, and non-existent to sceptics. Nowadays no-one really cares about a device’s technical specifications, unless you are particularly finickity, it is about what you are able to do on your device.

This is the challenge which Huawei is facing today, and why it might lose considerable market share in the international markets; Android makes Huawei phones useful.

Sidy Diop, a Director for Economic Advisory at Deloitte, highlighted the ecosystem is probably more important to consumers than the device itself. This is why the likes of Google and Apple spend so much money creating toolkits to simplify app creation and pay so much attention cultivating an audience. Without the app ecosystem, smartphones are nothing more than expensive, and poorly designed, doorstops.

When President Donald Trump set in motion a series of events which effectively ended the on-going relationship between Google’s Android OS and Huawei, he also severed the link with the app ecosystem. Huawei devices will no-longer have access to any Google applications (Gmail, YouTube, Chrome etc.) nor the apps which have been developed for the Google Play Store.

This is a devastating move, as Deloitte research highlighted 88% of time spent on smartphones are on applications. This is why Huawei is spending $1.5 billion to develop its own app ecosystem, though it will have to negotiate the credibility challenge before too long.

App economy as the great equaliser

It doesn’t matter how big you are, ideas are much more powerful than cash in the app economy.

A recent report from Newzoo, a gaming and esports analyst firm, highlighted the mobile gaming segment is one of the diverse ecosystems due to its accessibility, both for consumers and developers. End-users can download applications easily, while developers can create content with limited resources.

These trends have been accelerating in the right direction in recent years, thanks to the commoditisation of cloud computing resources, and the assistance of the OS platform owners in empowering these innovators.

Positive impact of App Stores

For developers

For consumers

Efficient distribution channel

Efficient distribution channel

App Stores develop trust capital

Security and privacy standards

Reduce production costs

Ranking and personalisation

Reduce transaction costs

Variety of applications

Developers can of course pay to have an application promoted, but app stores are a one-stop-shop for applications for the consumer. And because the consumer trusts Android or Apple’s iOS, making purchasing decisions are easier. Simply being on an app store offers credibility in the eyes of the consumer, allowing developers to monetize ideas in ways they wouldn’t have been able to (or as seamlessly) with a direct-to-consumer model.

What is worth noting is that corporations have more cash to develop ideas, making it more likely content will crack the mass market, but you only have to look at the success stories of recent years to realise how empowered SMEs and start-ups are in the app economy. Rovio created Angry Birds, Tinder normalised online dating and Spotify disrupted the music industry. These companies were one-man-bands in the not too distant past.

Don’t tweak the rules too much

One of the biggest threats to the app economy is bureaucracy.

The regulatory landscape for the app economy is under consideration in numerous regions, though it is in Europe where the more interesting work is being done. The European Commission has a history of tackling monopolistic behaviour, or what would be deemed an abuse of market power, but tweaking the rules has to be done carefully. Good intentions can land badly and that is the risk here.

The beauty of the app economy today is its simplicity. You don’t have to be a multi-billion-dollar corporation to thrive and survive in the app world, you just have to have a good idea. Google and Apple, and perhaps Huawei in time, make it easy for SMEs or single developers to succeed by offering access to end-users on a global scale, developer toolkits and monetization programmes.

The question is whether these platform owners have too much power, or are wielding it irresponsibly?

The European Commission is currently investigating Apple for anticompetitive behaviour on the back of complaints from Spotify. The music streaming service argues it should be able to monetize the app in ways it deems reasonable, not having to implement Apple payment services or pay a commission to the App Store. This is a valid complaint, but any changes forced on Apple will have knock-on consequences in other areas.

This is where bureaucrats will have to be very careful over the coming months. Yes, regulatory changes are probably needed, but sometimes regulators have to accept some concessions themselves. Too much tweaking or removing too much benefit for Apple with perhaps disincentivise Apple for large-scale investment in the App Store, which could lead to less empowerment for the SMEs and one-man-bands.

This is a tightrope walk for the regulators, as the app stores are vehicles for good. There might be some elements which regulators don’t like, but ultimately the status quo is probably a net gain for the app economy and the developer community which is thriving of the back of lower barriers to entry. Regulatory change could shift the balance of power back to big business, and then the most exciting aspect of the segment is lost.

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