Sizing the EU app economy
David Card, Mark Mulligan
Gigaom Research
February 2014
Agenda
•
•
•
•
•

Developer strategies, objectives
App revenue forecast
App jobs forecast (profiles)
Bottlenecks facing EU...
Key findings
•
•
•
•
•
•

€63 billion revenue opportunity in 2018, over half contract work
Gaming = ‘superstar’ economy to...
European app economy
Aftermarket
New Platforms
New Platforms
App Developer Types
Originator
Environment

Social

OS suppli...
New platforms: smartphones just reaching mass
market status in EU, 4G lags badly

(millions)

Smartphone Shipments, 2012-2...
While Facebook adoption passing 50%
Facebook Subscriber Growth
250

(millions)

200
150
100
50
0
Mar-11

Jun-11

Europe

S...
Missed opportunity – contract development
How does your company try to make money off
apps?
Charge for apps

44%

Develop ...
In-house developers feel more successful
Satisfaction with app objectives
19%

Usage, adoption
Revenue, business benefits
...
More apps, especially from in-house developers
Number of apps planned
8%
5%

One

27%
24%

2-3
4-6

24%
21%

7-15

22%
24%...
Key drivers and inhibitors
Market Drivers
•
•
•
•

Smartphones have hit mainstream and tablets are chasing hard
App spendi...
App spending grows from €6.1B to €18.7B

(millions)

EU app spending, 2013-2018
€ 9,000
€ 8,000
€ 7,000
€ 6,000
€ 5,000
€ ...
The EU app store balance of trade
EU App Store Spending and Revenue
20,000 €

€ 18,668
€ 17,369

EU App Balance
of Trade
2...
The app store ‘Superstar’ economy

42%

€

28

Top 100 grossing
mobile apps are
by EU developers

Top 100 app
revenue earn...
Half of in-house developers also use 3rd party developers

Mobile and social apps approach
Develop in-house

63%

Outsourc...
Consumer spending flows into EU but out again as
outsourced developer costs
Contract work drives total developer revenue from
€17.5B to €63B

(millions)

EU app developer revenue, 2013-2018
€ 50,000...
Distribution of 2013 EU app income
App Store Revenue

Contract Work 0
Revenue

€ 318
€ 1,144
€ 3,669

€ 7,861
€ 4,526

Sma...
EU app economy powers 1.8M jobs now, could go
to 4.8M in 2018
EU app economy jobs, 2013-2018
3,000

(thousands)

2,500
2,0...
2.7M developers in 2018, most at independents
EU app developer jobs, 2013-2018
1,200

(thousands)

1,000
800
600
400
200
2...
EU app economy supports attractive jobs
Independent EU developers cite business, talent bottlenecks
Most challenging bottlenecks for independent EU
developers
Bus...
Independents: difficult to charge, expensive to gain
customers
Top business & financial bottlenecks for EU independent dev...
Talent bottlenecks include salaries, education, business skills
Top talent bottlenecks for European apps
36%
40%

Harder t...
Developers frustrated by platform divergence
Top tech bottlenecks for European apps
33%
38%

Lack of cross-platform compat...
Platforms again, and a variety of market fragmentation
issues
Top market bottlenecks for European apps
App platforms domin...
Key solutions and opportunities
• Reducing customer acquisition • Hubs (could be part of
costs
Marketplace)
– Third-party ...
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"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 2014

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  • US just under 50% 4GW. Europe 2-3% 4G today, growing to 9% in 2014; 50% by 2017
  • FB 1.2B MU, over 900 million mobile 750 daily. $7.8BTwitter – not so much an app platform as a data platform. Twitter user growth a little sluggish. 240Mactive MU, up only 4% sequentially
  • Overall, the in-house developers are succeeding better at their objectives. But that’s at least partly because they’re not facing user resistance to paying for apps. In some ways, their commercial objectives are easier than those of a company depending on apps for its revenue.
  • 53% of all the companies we surveyed said they outsourced app development. Even those that did their own development in-house also used third parties – just over half said they also outsourced. This is a great opportunity for independent developers, as only 42% of them said they did that kind of work currentlyMonitise Create (formerly Grapple Mobile), a U.K.-based digital agency, builds apps for brands that use them for marketing. It counts NatWest, Barclay’s, Tesco, McDonald’s, and Premiere Inn among its customers. Three years ago, Grapple Mobile was a 3-person firm. It now has 120 employees and is set to double in size. Similarly, Golden Gekko (based in London with a large Barcelona office) plans to grow its staff 40 percent to 50 percent next year.
  • 53% of all the companies we surveyed said they outsourced app development. Even those that did their own development in-house also used third parties – just over half said they also outsourced. This is a great opportunity for independent developers, as only 42% of them said they did that kind of work currently (see slide 3).
  • The EU app developer workforce will grow from 1 million in 2013 to 2.7 million in 2018. By that point 39 percent of developers will be small independent developers, 37 percent large independent developers, and 24 percent in-house developers. Contract work will account for the majority of the revenue for the small, independent developer segment.
  • The developer category is biased slightly toward highly educated, experienced coders. Scripters and designers are next in the hierarchy, but even testers do relatively wellOur surveys suggested that support staff at the small independents were actually more experienced and better compensated than developers. As noted, at more-established companies, the jobs that support apps are more diversified. On average, fewer than 50 percent had three or more years of experience, although a similar three-quarters had college or advanced degrees.
  • We asked the independent developers about challenges they faced. The next 4 slides following go into detail on each of the categories summarized here:Business & financial – includes revenue issues like user willingness to pay, fees, payment systems, and financial issues like access to capitalResources – includes staffing issues like competitive salaries, education, skillsTechnical – includes technology-related issues related to platforms, APIs, development toolsMarket – includes EU market conditions like multiple languages, smaller country markets, regulationIndependent developers said that business and resource bottlenecks were causing them the most difficulty.
  • This slide represents the detailed bottlenecks under the broader heading of business and financial challenges. Remember that the independent developers’ preferred revenue model was charging for apps, with in-app charges also ranked high. Here they show they’re afraid that customers won’t pay, or properly value apps. Almost a third (30%) specified customer acquisition costs as a key challenge. That’s probably exacerbated by a lack of third party discovery and promotion vehicles. They also resent platform revenue-sharing demands – e.g., developers that sell an app through Apple’s app must share 30% of the fee with Apple – another factor related to charging for apps. Advertising issues don’t concern them as much, but many haven’t tried selling advertising yet. Note that relatively few (14%) cited access to capital or financing as one of their top challenges. This contrasts with what we heard at the workshops, and may just indicate that the initial startup costs for a tiny shop are low, and they haven’t really tried to scale yet.(We didn’t ask the ICT developers about these, because few in-house developers are trying to make money directly off apps.)
  • Both the independents and the in-house developers listed salary competition with US companies as the top resource bottleneck. The other bottlenecks didn’t trail far behind the top challenges, so there’s no single solution to try to identify, though it might be easier to address education and business expertise through policies and initiatives than it would be to achieve higher wages.
  • Both types of developer feel the strain of developing for multiple platforms. ICT developers list slow EU mobile bandwidth as a relatively threatening bottleneck, but the independents see delivering cross-platform experiences as a bigger challenge. Fewer than a quarter of either group called out API issues. However, most of these bottlenecks – similar to the resource bottlenecks – attracted the same 15% to 25% of responses. That means it’s harder to identify the biggest bottleneck, or solution.
  • Similarly, there wasn’t one dominating bottleneck for European market conditions. We got more or less similar feedback from the workshops and 1:1 interviews. However, US platform companies seem to be a bigger bottleneck than the interviews or workshops indicated. Perhaps the companies we talked to were more excited about reaching US markets than those we surveyed.
  • The discovery engine: Amazon, perhaps, but this could be done by a startup as long as the platform companies allowed their app directories to be public. I think they'd have to, but they could make it difficult. There have been a few attempts to do this, but they didn't achieve critical mass (e.g., Appsfire; GetJar was just acquired)The marketplace. This could be a startup or a joint venture, possibly involving universities. Alternatively, enterprise software companies like SAP might be able to do it. I don't think telcos could, but possibly systems integrators. The concept shares some DNA with startup accelerators, too. If I really stretch, I could see LinkedIn or a similar company building an app B2B marketplace.
  • "Sizing the EU App Economy" by David Card and Mark Mulligan, Gigaom Research

    1. 1. Sizing the EU app economy David Card, Mark Mulligan Gigaom Research February 2014
    2. 2. Agenda • • • • • Developer strategies, objectives App revenue forecast App jobs forecast (profiles) Bottlenecks facing EU app developers and markets Potential solutions, opportunities
    3. 3. Key findings • • • • • • €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
    4. 4. European app economy Aftermarket New Platforms New Platforms App Developer Types Originator Environment Social OS suppliers API suppliers Devices Large Independent Developers Mobile In-house Developers Smart TV Small Independent Developers, H obbyists Revenue/Spending • Consumer spending • Business spending • Advertising • In-app spending (virtual goods) Jobs/employment App Stores, 3rd party app-discovery
    5. 5. New platforms: smartphones just reaching mass market status in EU, 4G lags badly (millions) Smartphone Shipments, 2012-2017 500 450 400 350 300 250 200 150 100 50 0 2012 North America 2013 2014 2015 Western Europe 2016 Japan 2017 China Source: Smith's Point Analytics/Gigaom Research, 2013
    6. 6. While Facebook adoption passing 50% Facebook Subscriber Growth 250 (millions) 200 150 100 50 0 Mar-11 Jun-11 Europe Seo 2011 Asia Dec-11 Mar-12 North America Source: Internet World Stats, 2012
    7. 7. Missed opportunity – contract development How does your company try to make money off apps? Charge for apps 44% Develop apps for others 42% Advertising 31% In-app charges 30% Licensing tech to others 20% App is promotion for something else 11% We don't try to make money off apps 14% 0% 20% 40% 60% 80% 100% Share of respondents Source: Gigaom Research EU independent developers survey, 4Q 2013 N= 199
    8. 8. In-house developers feel more successful Satisfaction with app objectives 19% Usage, adoption Revenue, business benefits 39% 16% To improve customer experience of our… Independent developers 35% 40% 38% Marketing for products, services 39% 38% To sell products, services 37% Reduce customer service costs 38% Charge for apps themselves Internal use by employees 0% Very satisfied 28% 35% 29% 32% 38% 20% In-house developers 34% 40% 60% Somewhat satisfied 80% 100% Share of respondents Source: Gigaom Research EU independent developers survey, 4Q 2013 N= 193 Gigaom Research EU In-house developers survey, 3Q 2013 N= 517
    9. 9. More apps, especially from in-house developers Number of apps planned 8% 5% One 27% 24% 2-3 4-6 24% 21% 7-15 22% 24% 16-30 9% 12% More than 30 Independent developers In-house developers 8% 12% 4% 2% None 0% 20% 40% 60% 80% 100% Share of respondents Source: Gigaom Research EU independent developers survey, 4Q 2013 N= 199 Gigaom Research EU In-house developers survey, 3Q 2013 N= 522
    10. 10. Key drivers and inhibitors Market Drivers • • • • 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) Market Inhibitors • • • • • • 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
    11. 11. App spending grows from €6.1B to €18.7B (millions) EU app spending, 2013-2018 € 9,000 € 8,000 € 7,000 € 6,000 € 5,000 € 4,000 € 3,000 € 2,000 € 1,000 €0 2013 2014 Paid app 2015 In-app 2016 2017 Advertising Source: Gigaom Research, 2014 2018
    12. 12. The EU app store balance of trade EU App Store Spending and Revenue 20,000 € € 18,668 € 17,369 EU App Balance of Trade 2013: -€128m 2018: -€1.3bn 15,000 € 10,000 € € 5,987 € 6,115 5,000 € 0€ 2013 2018 App Store EU Developer Revenue App Store EU Consumer Spending Source: Gigaom Research, 2014
    13. 13. The app store ‘Superstar’ economy 42% € 28 Top 100 grossing mobile apps are by EU developers Top 100 app revenue earned by EU developers Number of EU companies in the top 100 800m
    14. 14. Half of in-house developers also use 3rd party developers Mobile and social apps approach Develop in-house 63% Outsource to third parties 53% Integrate with commercial apps from consumer apps stores 39% Integrate with commercial apps from business apps stores 19% 0% 20% 40% 60% 80% 100% Share of respondents Source: Gigaom Research EU In-house developers survey, 3Q 2013 N= 525
    15. 15. Consumer spending flows into EU but out again as outsourced developer costs
    16. 16. Contract work drives total developer revenue from €17.5B to €63B (millions) EU app developer revenue, 2013-2018 € 50,000 € 45,000 € 40,000 € 35,000 € 30,000 € 25,000 € 20,000 € 15,000 € 10,000 € 5,000 €0 2013 2014 2015 2016 2017 App store revenue (paid, in-app, advertising) Contract work revenue Source: Gigaom Research, 2014 2018
    17. 17. Distribution of 2013 EU app income App Store Revenue Contract Work 0 Revenue € 318 € 1,144 € 3,669 € 7,861 € 4,526 Small independent developers Large independent developers In-house developers Source: Gigaom Research, 2014
    18. 18. EU app economy powers 1.8M jobs now, could go to 4.8M in 2018 EU app economy jobs, 2013-2018 3,000 (thousands) 2,500 2,000 1,500 1,000 500 2013 2014 App Developers 2015 2016 2017 Additional app economy jobs Source: Gigaom Research, 2014 2018
    19. 19. 2.7M developers in 2018, most at independents EU app developer jobs, 2013-2018 1,200 (thousands) 1,000 800 600 400 200 2013 2014 Small independent developers In-house developers 2015 2016 2017 2018 Large independent developers Source: Gigaom Research, 2014
    20. 20. EU app economy supports attractive jobs
    21. 21. Independent EU developers cite business, talent bottlenecks Most challenging bottlenecks for independent EU developers Business & financial 13% 38% Talent 11% Technical 8% 32% 28% Market 5% 22% 0% Most difficult 50% Somewhat difficult 100% Share of respondents Source: Gigaom Research EU independent developers survey, 4Q 2013 N= 197
    22. 22. Independents: difficult to charge, expensive to gain customers Top business & financial bottlenecks for EU independent developers 40% Users won't pay at all or pay enough 30% Expensive customer acquisition costs Platform revenue sharing demands 22% Proprietary or fragmented payments systems 17% Lack of 3rd party discovery/promotion 17% Complex taxation environment 16% Low spending on app advertising 15% Access to capital/finance 14% Restrictive privacy or data regulation 0% 12% 20% 40% 60% 80% 100% Share of respondents Source: Gigaom Research EU independent developers survey, 4Q2013 N=197
    23. 23. Talent bottlenecks include salaries, education, business skills Top talent bottlenecks for European apps 36% 40% Harder to attract talent: lower salaries for developers vs. US 31% 33% Relatively less-developed coding, mobile and social networking app development education 27% 32% Independent developers Lack of business expertise at startup developers 29% In-house developers 28% Relatively fewer software companies to spin off developers 25% 24% Relatively fewer developers 0% 20% 40% 60% 80% 100% Share of respondents Source: Gigaom Research EU independent developers survey, 4Q2013 N=194, Gigaom Research EU In-house developers survey, 3Q 2013 N= 522
    24. 24. Developers frustrated by platform divergence Top tech bottlenecks for European apps 33% 38% Lack of cross-platform compatibility 21% 28% Lagging European 4G adoption Breadth, depth of services/tech aviailable via API 23% 19% Difficulty in adding social functionality to apps Programming or development tools Difficulty in delivering good/common user experience across mobile and web Immaturity of open-source tech, community Data available via API 0% 8% 18% Independent developers 24% 18% In-house developers 31% 18% 16% 16% 24% 14% 20% 40% 60% 80% 100% Share of respondents Source: Gigaom Research EU independent developers survey, 4Q2013 N=193, Gigaom Research EU In-house developers survey, 3Q 2013 N= 522
    25. 25. Platforms again, and a variety of market fragmentation issues Top market bottlenecks for European apps App platforms dominated by Apple, Google, Facebook, etc. 37% 31% 33% 30% Multiple languages 25% 28% Inconsistent regulatory policies 17% 24% Restrictive regulatory policies Euro users lag other markets in tech adoption Independent developers 25% 19% In-house developers 21% 19% Small European country markets 6% Multiple currencies 0% 15% 20% 40% 60% 80% 100% Share of respondents Source: Gigaom Research EU independent developers survey, 4Q2013 N=197, Gigaom Research EU In-house developers survey, 3Q 2013 N= 522
    26. 26. Key solutions and opportunities • Reducing customer acquisition • Hubs (could be part of costs Marketplace) – Third-party discovery platform – Search-marketing techniques (paid listings, enforced relevance) • Marketplaces – Matchmaking – Qualifying – Negotiating – Business skills education – Technical education – Code sets, templates • Cross-platform solutions – Technologies (HTML5), methodologies (responsive design)
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