Cheer up, the mobile app economy isn’t doing that badly — but it is maturing

In June, Apple announced it had reached 75 billion downloads in the App Store. In July, Google Play said it had crossed the 50 billion download milestone. These impressive figures painted a rosy picture for the app economy: An enormous smartphone user base, with 1.9 billion devices expected to sell before 2015 and mobile data traffic accelerating, seemed to promise exponential growth to the app economy in the years to come.

That’s not the whole story, though. An August ComScore report found that nearly two out of three U.S. smartphone users don’t download any apps in a given month.

Where does the app economy really stand today? Have the mobile enthusiasts been wrong this whole time, or are industry naysayers too quick to blow the whistle?

Growing pains of the app economy

The app market has a classic long-tail profile in both distribution and monetization. In the past, the distorted shape of the market was justified by the refrain that the overall industry was growing so dramatically, professional players would soon emerge from the detritus and build successful businesses despite the market imbalances.

However, recent research suggests more fundamental flaws in the app market that threaten the very core of an app publisher’s business: Waning consumer demand, unequal distribution and customers who don’t want to pay.

ComScore’s study suggested that the demand for apps in the U.S. had waned significantly, with only the top 7 percent of smartphone owners accounting for “nearly half of all download activity in a given month.”

Equitable distribution, meanwhile, has long been out of reach for most smaller developers, with top charts densely populated by large web companies and the leading names in mobile.

Facebook WhatsApp

The consequences of this distribution problem were recently shown by Vision Mobile, which found that about half of [company]Apple[/company] iOS developers and 64 percent of [company]Google[/company] Android developers are operating on as little as $500 per app per month, and that 35 percent of iOS and 49 percent of Android developers make less than $100 per app per month. Only about the top 1.6 percent of app developers make more than $500,000 per app per month (with some developers in this group making tens of millions per month).

Finally, consumers are also reportedly not willing to pull out their wallets and pay for an app. A September Deloitte study showed that nearly 9 in 10 users in the U.K. had not paid for app content since the beginning of the year.

With fading demand, lack of proper distribution opportunities, and customers that aren’t willing to pay, what holds the app market together? What makes app publishers invest resources, time and faith in mobile apps? Or is this really the end of apps?

A deeper look at the data

Our data shows that since the beginning of the year, monthly global demand growth for mobile apps has slowed significantly on Google Play, and outright declined on iOS, as compared to the prior year period. This generally corroborates the comScore data, but also bares two important points: 1) The scale is still in billions of downloads per month on each platform (Google nearly 2x Apple), and 2) there is a qualitative difference between the slowing market growth and a fading interest in mobile apps.

[dataset id=”876364″]

On the supply side, we have seen a relatively steady growth in the number of available apps, generally in the 2 to 3 percent range (net of attrition) on a monthly basis.

[dataset id=”876373″]

Assuming that demand is flat and supply is increasing month-to-month, the data suggests that app downloads are spread more thinly against the same active user base, or that more apps never get downloaded. Does this prove the gloomy predictions of app-athy and the imminent end of the app economy? We don’t think so.

Apps that stick

The developments in the app economy resemble a healthy maturation in the ecosystem. Despite the fact that demand has not increased in a way that would signal significant market growth, Localytics pointed out that the amount of time people spend using apps has soared by a fifth over the past year. ComScore added that mobile app usage now exceeds time spent with desktop internet access, a startling statistic given the dominance of desktop in professional environments.

Stickiness — user interaction and retention — is the true long-term barometer of the app industry’s health. What we are witnessing now is that the introductory stage of the app economy’s lifecycle – more apps and more app-driven experiences – is giving way to a more measured and mature marketplace, where the most successful apps are those that support experiences already core to people’s lives — entertainment, banking, healthcare — via mobile.

Web giants like Facebook, Google and Yahoo have already entered the app space, but the wave of non-traditional digital services being pushed via mobile apps is just beginning. Traditional offline players may exhibit growing pains while navigating the distribution challenges and product requirements of the app stores, but apps that genuinely address real problems will be the next success stories of the maturing app economy.

Patrick Kane is a founder and CEO of Priori Data, a Berlin-based app market analytics company.