"sizing the eu app economy" by david card and mark mulligan, gigaom research
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Sizing the EU App Economy / Brussels, Belgium / 13th February 2014TRANSCRIPT
Sizing the EU app economyDavid Card, Mark Mulligan
Gigaom Research
February 2014
• Developer strategies, objectives• App revenue forecast• App jobs forecast (profiles)• Bottlenecks facing EU app developers and markets• Potential solutions, opportunities
Agenda
• €63 billion revenue opportunity in 2018, over half contract work
• Gaming = ‘superstar’ economy to-date• Only 42% of independent developers do work-for-hire today• 4.8 million jobs supported in 2018, including 2.8 million
developers• Business bottlenecks outweigh technical challenges• Key potential bottleneck relief:
– Discovery platforms– Marketplaces
Key findings
European app economy
OS suppliersAPI
suppliersDevices
Social
Mobile
Smart TV
Large Independent Developers
New PlatformsEnvironment
App Developer TypesOriginator
In-house Developers
Small Independent Developers, Hobbyists
Aftermarket
App Stores, 3rd party app-discovery
Revenue/Spending• Consumer spending• Business spending• Advertising• In-app spending (virtual
goods)
Jobs/employment
New Platforms
Source: Smith's Point Analytics/Gigaom Research, 2013
New platforms: smartphones just reaching mass market status in EU, 4G lags badly
2012 2013 2014 2015 2016 20170
100
200
300
400
500
Smartphone Shipments, 2012-2017
North America Western EuropeJapan China
(millions)
Source: Internet World Stats, 2012
While Facebook adoption passing 50%
Mar-11 Jun-11 Seo 2011 Dec-11 Mar-120
50
100
150
200
250
Facebook Subscriber Growth
Europe Asia North America
(million
s)
We don't try to make money off apps
App is promotion for something else
Licensing tech to others
In-app charges
Advertising
Develop apps for others
Charge for apps
0% 20% 40% 60% 80% 100%
14%
11%
20%
30%
31%
42%
44%
How does your company try to make money off apps?
Missed opportunity – contract development
Source: Gigaom Research EU independent developers survey, 4Q 2013 N= 199
Share of respondents
Internal use by employees
Charge for apps themselves
Reduce customer service costs
To sell products, services
Marketing for products, services
To improve customer experience of our products, services
Revenue, business benefits
Usage, adoption
0% 20%
40%
60%
80%
100%
38%
28%
38%
37%
39%
40%
16%
19%
34%
32%
29%
35%
38%
38%
35%
39%
Satisfaction with app objectives
Very satisfied Somewhat satisfied
In-house developers feel more successful
Source: Gigaom Research EU independent developers survey, 4Q 2013 N= 193Gigaom Research EU In-house developers survey, 3Q 2013 N= 517
Independent developers
In-housedevelopers
Share of respondents
None
More than 30
16-30
7-15
4-6
2-3
One
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%100%
2%
12%
12%
24%
21%
24%
5%
4%
8%
9%
22%
24%
27%
8%
Number of apps planned
Independent de-velopersIn-house developers
More apps, especially from in-house developers
Source: Gigaom Research EU independent developers survey, 4Q 2013 N= 199Gigaom Research EU In-house developers survey, 3Q 2013 N= 522
Share of respondents
• Smartphones have hit mainstream and tablets are chasing hard
• App spending is accelerating across diverse age groups• In app billing is emerging as ‘the freemium model that
works’• The market is at an early stage of growth (lots of growth
potential)
Key drivers and inhibitors
Market Drivers
• There is a heavy skew towards games, especially for in-app purchases
• There is a heavy concentration of revenue in a small number of companies
• Games is a hit business – makes sustainability challenging• Many smartphone users are ‘dumb’ users • Rise of large emerging markets will absorb much future revenue
growth• Large amount of EU revenue flows out to cheap non-EU
developers
Market Inhibitors
Source: Gigaom Research, 2014
App spending grows from €6.1B to €18.7B
2013 2014 2015 2016 2017 2018€ 0
€ 1,000€ 2,000€ 3,000€ 4,000€ 5,000€ 6,000€ 7,000€ 8,000€ 9,000
EU app spending, 2013-2018
Paid app In-app Advertising
(million
s)
2013 20180 €
5,000 €
10,000 €
15,000 €
20,000 €
€ 5,987
€ 17,369
€ 6,115
€ 18,668
EU App Store Spending and Revenue
App Store EU Developer RevenueApp Store EU Consumer Spending
The EU app store balance of trade
Source: Gigaom Research, 2014
EU App Balance of Trade
2013: -€128m2018: -€1.3bn
The app store ‘Superstar’ economy
42%
Top 100 grossing mobile apps are by EU developers
€800m
28Top 100 app revenue earned by EU developers
Number of EU companies in the top 100
Integrate with commercial apps from business apps stores
Integrate with commercial apps from consumer apps stores
Outsource to third parties
Develop in-house
0% 20%
40%
60%
80%
100%
19%
39%
53%
63%
Mobile and social apps approach
Half of in-house developers also use 3rd party developers
Source: Gigaom Research EU In-house developers survey, 3Q 2013 N= 525
Share of respondents
Consumer spending flows into EU but out again as outsourced developer costs
Source: Gigaom Research, 2014
Contract work drives total developer revenue from €17.5B to €63B
2013 2014 2015 2016 2017 2018€ 0
€ 10,000
€ 20,000
€ 30,000
€ 40,000
€ 50,000
EU app developer revenue, 2013-2018
App store revenue (paid, in-app, advertising)Contract work revenue
(million
s)
€ 3,669
€ 7,861
Distribution of 2013 EU app income
Source: Gigaom Research, 2014
€ 1,144
€ 4,526
€ 318
Small independent developersLarge independent developersIn-house developers
App Store RevenueContract Work Revenue
Source: Gigaom Research, 2014
EU app economy powers 1.8M jobs now, could go to 4.8M in 2018
2013 2014 2015 2016 2017 2018 -
500
1,000
1,500
2,000
2,500
3,000
EU app economy jobs, 2013-2018
App DevelopersAdditional app economy jobs
(th
ou
san
ds)
Source: Gigaom Research, 2014
2.7M developers in 2018, most at independents
2013 2014 2015 2016 2017 2018 -
200
400
600
800
1,000
1,200
EU app developer jobs, 2013-2018
Small independent developersLarge independent developers
(th
ou
san
ds)
EU app economy supports attractive jobs
Market
Technical
Talent
Business & financial
0% 20% 40% 60% 80% 100%
5%
8%
11%
13%
22%
28%
32%
38%
Most challenging bottlenecks for independent EU developers
Most difficult Somewhat difficult
Independent EU developers cite business, talent bottlenecks
Source: Gigaom Research EU independent developers survey, 4Q 2013 N= 197
Share of respondents
Restrictive privacy or data regulation
Access to capital/finance
Low spending on app advertising
Complex taxation environment
Lack of 3rd party discovery/promotion
Proprietary or fragmented payments systems
Platform revenue sharing demands
Expensive customer acquisition costs
Users won't pay at all or pay enough
0% 20% 40% 60% 80% 100%
12%
14%
15%
16%
17%
17%
22%
30%
40%
Top business & financial bottlenecks for EU independent de-velopers
Independents: difficult to charge, expensive to gain customers
Source: Gigaom Research EU independent developers survey, 4Q2013 N=197
Share of respondents
Relatively fewer developers
Relatively fewer software companies to spin off developers
Lack of business expertise at startup developers
Relatively less-developed coding, mobile and social networking app development education
Harder to attract talent: lower salaries for developers vs. US
0% 20% 40% 60% 80% 100%
24%
28%
32%
33%
40%
25%
29%
27%
31%
36%
Top talent bottlenecks for European apps
Independent devel-opersIn-house developers
Talent bottlenecks include salaries, education, business skills
Share of respondents
Source: Gigaom Research EU independent developers survey, 4Q2013 N=194,Gigaom Research EU In-house developers survey, 3Q 2013 N= 522
Data available via API
Difficulty in delivering good/common user experience across mobile and web
Difficulty in adding social functionality to apps
Lagging European 4G adoption
0% 20% 40% 60% 80% 100%
14%
16%
18%
18%
18%
19%
28%
38%
24%
16%
31%
24%
8%
23%
21%
33%
Top tech bottlenecks for European apps
Independent developers
In-house developers
Developers frustrated by platform divergence
Source: Gigaom Research EU independent developers survey, 4Q2013 N=193,Gigaom Research EU In-house developers survey, 3Q 2013 N= 522
Share of respondents
Multiple currencies
Small European country markets
Euro users lag other markets in tech adoption
Restrictive regulatory policies
Inconsistent regulatory policies
Multiple languages
App platforms dominated by Apple, Google, Facebook, etc.
0% 20% 40% 60% 80% 100%
15%
19%
19%
24%
28%
30%
31%
6%
21%
25%
17%
25%
33%
37%
Top market bottlenecks for European apps
Independent developers
In-house developers
Platforms again, and a variety of market fragmentation issues
Source: Gigaom Research EU independent developers survey, 4Q2013 N=197,Gigaom Research EU In-house developers survey, 3Q 2013 N= 522
Share of respondents
• Reducing customer acquisition costs
– Third-party discovery platform– Search-marketing techniques
(paid listings, enforced relevance)
• Marketplaces– Matchmaking– Qualifying– Negotiating
• Hubs (could be part of Marketplace)
– Business skills education– Technical education– Code sets, templates
• Cross-platform solutions– Technologies (HTML5),
methodologies (responsive design)
Key solutions and opportunities