At last month’s Mobilize event GigaOM Pro hosted a Mapping Session to sketch out the key issues in the application value chain. Often our Mapping Sessions are the first stage in our process for developing research that we present as Sector RoadMap reports and other ecosystem analysis. In this case, however, things worked in the reverse. GigaOM Pro had recently produced a survey and report about app developers in conjunction with the App Developer Alliance. This report, which was published last week (a free copy can be downloaded here at the Application Developer’s Alliance website), helps frame many of the key issues that face the app market today through the prism of the developers. Below I present some of these findings as well as the some of the key disruption vectors that emerged from our interactive Mapping Session.
What happens in a Mapping Session, exactly? We tap the collective wisdom of our analysts and other thought leaders in the market sector we are researching in order to identify the most disruptive trends and their relative importance in shaping a market or industry over the next 12 to 24 months. We also examine which companies are in the best and worst positions to drive these trends — which we call disruption vectors — and gain market share and revenue.
For this session, our experts settled on three major disruption vectors: app discovery, emerging app platforms, and alternative monetization models. However, before these themes crystallized we first identified a few of the overarching challenges in the app market and how they impact developers. We did so through the results of the recently completed survey.
The first major challenge for app developers is the growing incoming stratification of the app-developer market into what are effectively haves and have-nots. The chart below shows how this gulf looks: The picture looks much the same when examining paid apps: While the panel did reach the consensus that this gap is not in the best interest of the market, such gaps are often the unavoidable result of a highly competitive marketplace. The panel also determined that oftentimes these winners of the larger share of the revenue pie are, correspondingly, the larger players in the market. In other words, success begets success, which often results in market power consolidation. Looking again at our recent survey results, the distribution of firm size shows that the large majority of firms are 1- to 3-person shops, while approximately 1 in 5 is a 10-plus person app-development firm. But why do bigger players take home a bigger slice of revenue? Bigger players are able to get their app discovered, whether because they simply are able to flood the market with more apps or they are able to leverage a successful franchise (i.e., Angry Birds creator Rovio pushing out Bad Piggies, which within hours became the top app in Apple’s App Store). It also appears that the bigger players have resources beyond their size and past success. In fact, oftentimes it comes down to the fact that bigger app developers will advertise their apps or get preferential treatment from app-store curators who place them instantly in their showcase of apps.
Ultimately, these themes of app-dev-industry stratification and the discovery challenge transitioned into a conversation about how app developers can succeed in the market, which allowed us to distill our disruption vectors.
App discovery. While we discussed app discovery as a key challenge for everyone from app developers to brands to distributors, there was a consensus that discovery will continue to evolve and, as it does, will open opportunities. Two themes that arose were focus and curation. Today’s consumer-facing app stores — the Apple App Store, Google Play, and others like GetJar — are behemoths that offer thousands of consumer apps. Some of our panel believed that the growth of focused app stores, in particular those in areas such as the enterprise or even those oriented to a particular industry (such as health care or education), would ultimately be a more important trend. The strategies implemented by both Amazon and Barnes & Noble with their customized Android tablet platforms and associated curated app stores were also discussed as something that will become more popular. But in the end the panel recognized that curation is the most important trend, one that will allow platform-centric players as well as other influencers to carry weight.
Emerging app platforms. Another disruption vector was the idea that emerging app platforms could become the key to success. The majority of app developers focus on the same platforms (iOS, Android) and usually distribute through the same storefronts, with the predictable result being a lack of end-user adoption. This focus on the usual suspects ignores the growing numbers of potential app platforms such as API-driven app extensions of popular enterprise and cloud-based apps from players such as Box.net, Salesforce.com, and others. These players have aggressive programs to expand their presence into mobile using third-party app-developer partners. Our conversation surfaced the idea of the mobile enterprise as a potentially underserved market, and the idea is gaining traction in general as more developers realize the consumer market is simply too crowded.
Alternative monetization models. As we saw above, advertising and paid apps (through up-front purchase and in-app payments) for apps distributed through traditional consumer-facing storefronts were widely adopted as the traditional monetization models for apps. But newer models may be emerging. One of our audience members asked about the concept of a “Spotify for apps,” which began a conversation about the premise of app rental an alternative to ownership. The acceptance of rental models for other forms of digital content has varied, depending on whether it is music, videos, or games. But the current sentiment in apps ownership versus rental is perhaps closest to what it was for music a decade ago, when ownership was the dominant model. However, there has been growth in software-rental models (Software-as-a-Service offerings) over the past few years, which illustrates that people do understand monthly or annual subscription pricing for software use. While this concept hasn’t been firmly planted or allowed to grow in the relatively newer soil of the app marketplace, that may eventually change. This change could become more pronounced as the line between web and apps begins to dissipate, as new technologies such as HTML5 emerge, and as content increasingly becomes more software driven.
The Mapping Session for the modern appconomy was a good one, and we encourage GigaOM Pro subscribers to participate in the future. The slide deck we used to drive the conversation can be seen below, and it is available for download through SlideShare.