Planet of The Apps
Peter is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
We are in a period of consequential change, fueled by rapid innovation and technology. Old ways of doing things are falling by the wayside faster that we can acknowledge, absorb or understand the impact of what is happening around us. The new darling of the digital age is, of course, the app.
As the company that really got the ball rolling, it makes sense that Apple (NASDAQ: AAPL) dominates the app market both in terms of downloads and developer attention.
It is estimated that in 2012 the number of apps available for iOS will top 1 million, up from 590,000 in 2011. Google’s (NASDAQ: GOOG) Android is expected to reach 500,000 in 2012, with Microsoft’s (NASDAQ: MSFT) Windows Phone coming in third at 200,000, while struggling Symbian and Blackberry have fallen far behind and are either already dead (Symbian) or at death’s door (Blackberry).
Windows Phone 8 will continue to see a boost in development due to its integration with the Xbox 360 and Windows 8 simply because Microsoft’s future is riding on it and will provide the development capital to play catch up. Whether that is a sustainable model is unclear as it is in its infancy, but the interest from developers is certainly there due to the integration of the developer’s interface across all forms of Windows 8, from phone, to tablet (Windows RT) and laptop/desktop.
As with most new distractions, companies initially resisted the use of personal devices in the office, but attitudes are changing as fast as the technology. According to a survey by Cisco of US business leaders, 95% have warmed to the idea, and many companies now allow personal devices to be used for work, allowing access to company email and calendars.
According to eMarketer 73% of smartphone users in the United States favor mobile apps over the browser for shopping, 63% for search and 60% for entertainment. It is no surprise that games top the list of most popular apps at 64%. Weather apps come in second at 60%, with social networking close behind at 56%. Maps (51%) and music (44% round out the top 5. 93% of those who downloads apps are willing to pay for games and 76% were willing to pay for news apps. The average price paid for an app is $2.27, while for games it is just over $1.
Mobile devices are cheap and therefore ubiquitous. For many developing and emerging countries mobile is the first entre of people into the digital world, due to the simple fact that many people cannot afford a computer. But a cheap, web-enabled mobile phone is the right price to experience the web. In fact, smartphones (aren’t they all smart these days?) are essentially small computers connected to the cloud. A person with even a basic smart phone today has more information at their fingertips than did Bill Clinton while he was President.
An App a Day
For many people in developing countries, their mobile phone is their computer: used to talk and text, to pay bills and make purchases. These trends are most apparent in Asia, where rising incomes and access to cheap phones and connectivity have resulted in exploding rates of internet adoption, especially via mobile devices. In Vietnam mobile penetration is a whopping 175%, almost 92% in Indonesia versus just 90% in the United States. China and India both stand at around 70%. Prepaid access dominates with people purchasing scratch off cards at local shops and street corner vendors.
Remember that 75% of the people who own a mobile phone are on a pay-as-you-go plan with a $25 Nokia (NYSE: NOK) phone. The next billion people that attach to the web will be more likely to buy an Asha from Nokia than a Lumia.
This poses a challenge to traditional online advertising models as smaller screens mean less real estate for ads, which translates to fewer click-throughs and declining revenues. In China, which is expected to become a $1 billion mobile advertising market within 4 years, users voluntarily view ads in exchange for free mobile service, a win-win-win for users, providers and marketers.
According to Forrester Research, the percentage of U.S. adults who used PCs to access the internet grew from 54% to 62% between 2008 and 2011. During that same period, the percentage of mobile internet users exploded from 4% to 26%.
The rapid rise in adoption of the mobile app has created a crowded marketplace, with thousands of new offerings vying for the attention of users. Competition is fierce and margins are small. There are of course success stories, but for every Angry Birds, there are several thousand apps that will never turn a profit. Games struggle on small screens as well. It would be difficult to manage your FarmVille crops on a small screen, which means that game developers must also continue to innovate new revenue models for this new ecosystem.
Digital Paper Tiger?
Mobile devices now are for the most part just communications and content consumption devices. You can't get much work done on a small screen, and productivity apps still have not made a dent in the traditional office work station. As great as the iPad is, it's still more or less an entertainment platform, and not yet an acceptable PC replacement device for most professionals. Although technology and devices continue to get smaller, there is a limit to how small they can get before they become too small to interact with. Technology has made our devices smaller, but the size of the human fingers has remained unchanged.
As devices become smaller, the next logical step is for users to cease interacting with buttons on a device and instead use some sort of virtual interface, like a holographic projection or some other non-physical method. The current ARM-based SoCs while amazing are just not ready for that…. Yet.
Or perhaps the future lies in digital paper. Users might simply carry a flexible digital film no larger than a sheet of paper, which can be unrolled for use and then folded up and put away. What we know is that computing has become powerful enough that how we interact with the device is more important than what the device is capable of and the app will evolve right along with it.
PeterPham8 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, Microsoft, and Nokia. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.