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The App Frenzy Just A Short Lived Fad (2)


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The App Frenzy Just A Short Lived Fad (2)

  1. 1. The App Frenzy —Just a Short-Lived Fad?HTML5 is poised to shake up the smartphone apps market
  2. 2. AuthorsLaurent Viviez, partner, Londonlaurent.viviez@atkearney.comMaria Molina, consultant, Londonmaria.molina@atkearney.comUlrich Loewer, consultant,
  3. 3. T he staggering growth of the smartphone applications (apps) market in the past four years has fundamentally changed the way in which people access and consume content, and causeda paradigm shift in competitive dynamics for telcos, OS/app stores andhandset manufacturers. But native apps might be a short-lived fad.They may be fundamentally challenged by the advent of HTML5 —a platform that addresses several significant drawbacks in the nativeapp customer experience.native smartphone apps took off four years ago across various apps stores. The apps market is nowafter Apple launched the first iphone. initially, worth approximately $12 billion in revenues andApple’s intention was to create Web apps for the is projected to surpass $38 billion by 2014 —iphone, which could be accessed via widgets, but that’s larger than the global music publishingthe fragmented Web app environment prompted industry (see figure 1 on page 2).1,2Apple to release instead a tool that would allow native apps’ extraordinary success is under-developers to create native apps for the handset. pinned by the slick experience they deliver to con-Apple then created the App Store and the app sumers, which addresses most of the limitationscraze began. of Java, wireless application protocol (WAp), and in a very short time, native apps have become browser-based digital services. in so doing, appsa mainstream media means for delivering content have opened up and vastly expanded the marketto mobile devices and are driving significant for digital services for mobile phones.changes in consumer usage behavior. rather thansurfing the Web, people are increasingly using native Too Many Apps, Not Enough Timeapps to read news, watch videos or play games. Moving beyond the hype, we see two structural Smartphone users globally have made 10.9 limitations with the native apps boom—bothbillion downloads of the 600,000 apps available from a demand and supply perspective. First,1 IDC, Silicon Alley Insider, March 20112 Global Entertainment and Media Outlook 2011-2015 estimates that global recorded music revenues will reach $22.1 billion by 2015, taking into account that revenues in this industry have been declining since 2006. The App Frenzy — JuST A ShorT-Lived FAd? | A.T. Kearney 1
  4. 4. HTML5 isn’t just another technology standard. Its impact could fundamentally alter the balance of power on the mobile Internet. from a consumer perspective, accessing content Second, native apps effectively re-create the and services through apps is rather limiting in walled gardens from the early days of the internet. comparison to the relative freedom enjoyed while Today, apps are platform-specific and, to some browsing the internet. As smartphone usage extent, device-specific. That means apps have to grows, we do not believe consumers will be happy be written for each different operating system downloading an app every time they want to (oS) platform and type of device, which increases access a new service. development costs and erects a significant barrier Smartphone owners already have an average to entry for apps developers. The popularity of of 18 apps downloaded, though industry experts native apps artificially strengthens the negotiating predict that most of them will use no more than five hand of the leading app stores — as illustrated by mobile applications at a time.3 Moreover, people the high commissions (up to 30 percent) charged will grow increasingly weary over time of regularly by some stores to developers. updating or reloading (or even repurchasing) apps developing apps for more than one platform when they change their smartphone or tablet. only makes sense for apps that will sell in high Figure 1 Mobile app revenues are expected to grow by 66% in the next four years Mobile applications revenues $38 (US$ billion) $30 CAGR +90% $21 $12 $5 $2 2009 2010 2011 2012 2013 2014 Note: CAGR is compound annual growth rate Sources: IDC 2010; A.T. Kearney analysis 3 Pew Research Center’s Internet American Life Project, April 29-30, 2010 Tracking Survey; The Nielsen App Playbook, December 20092 The App Frenzy — JuST A ShorT-Lived FAd? | A.T. Kearney
  5. 5. volumes. From our research, we know that a As the average native app sells 30,000 copies, simple app (average price $1) needs approximately most are loss making.4 200,000 downloads to break even on the ioS platform (see figure 2). To support both ioS and A New App Paradigm Android, a simple app needs about 1,450,000 The ecosystem might be prepared to put up downloads to be as financially attractive as sup- with native apps’ drawbacks if there were no porting only ioS. For complex apps (average viable alternative. hTML5, the collective name price $5), the volumes required follow a similar for a set of emerging Web standards, is a devel- pattern to those of single apps, although the oper platform that enables apps to run directly gross profits are more attractive. For hTML5, from the Web browser.5 it can support many the economics will be different and once the features, such as video, graphics and multi- break even point is met, it will become signifi- media content, without having to resort to pro- cantly more financially attractive than any other prietary plugins and application programming platform or combination of platforms. interfaces (Apis). Figure 2 “Apponomics” comparison: Gross profit of apps versus apps sold Simple $1 apps Complex $5 apps (such as small tools and simple games) (such as business software and complex games) $1.5 $5 All platforms profitable: ~0.6 million downloads $4 (US$ millions, after store commission) $1.0 Number of copies an HTML5 app $3 average app sells ~30,000 profitable: ~0.2 million downloadsGross profit $2 $0.5 $1 Adding Android more Adding Android more profitable than iOS after profitable than iOS after ~1.4 million downloads $0 1.0 million downloads $0.0 0 500,000 1,000,000 1,500,000 0 500,000 1,000,000 1,500,000 Apps sold -$1 Apps sold (in thousands, (in thousands, across all platforms) across all platforms) -$0.5 -$2 HTML5 only iOS only iOS + Android All five platforms Assumptions: Simple app: $130,000 development cost, price per app $1; complex app: $540,000 development cost, price per app $5 Effort for additional platform: 80% for programming and project management, 20% for design Store sales commissions: 30% for iOS, 10% for Android, 5% for other stores and HTML5 (payment commission). Platforms considered include: RIM, Android, iOS, Windows 7 & Symbian. Source: A.T. Kearney analysis 4 Apple website 5 HTML5, the fifth revision of the hypertext markup language (and file extension), is still under development as of September 2011. The App Frenzy — JuST A ShorT-Lived FAd? | A.T. Kearney 3
  6. 6. We might be prepared to put up with smartphone apps’ draw- backs if there weren’t a viable alternative. HTML5 promises to be a game changer. hTML5 enables developers and content leading stores, they will face the same challenge providers to deliver a consistent experience across selling their hTML5 apps through the Web. different devices, while emulating native apps’ Moreover, fragmentation (and some incom- ability to download and cache data for use when patibility) might also be an issue for hTML5, not connected to the Web, which reduces the particularly if different browsers implement the need to be constantly online. standard in slightly different ways. in addition, From the developers’ perspective, using the need to accommodate different device screen hTML5 could dramatically reduce the time spent sizes and computing power could be a limiting coding, as one app will run across different plat- factor for some high-performance apps, such as forms. hTML5 works with any online payment games. The Java programming environment, which technology, enabling developers or content com- was also designed to enable apps to be written panies to provide customers with a choice of pay- once and run anywhere, was undermined by ment methods. Finally, hTML5 allows developers inconsistent implementations and differing to embed links to specific Web pages into specific device capabilities. parts of an app, a technique that can be particu- Still, overall, hTML5 is a significant step larly useful for promotions and advertising. To forward. it has the same strengths that made date, this “deep linking” has not been easy to do the Web (which is built on previous hTML in native apps. versions) so successful, but it also supports the hTML5 also opens up the range of distribu- seamless integration of flash-style media and tion channels and loosens the grip on the closed interactivity, coupled with off-line capabilities. oS-centric stores (see figure 3). These attributes make hTML5 apps more of course, hTML5 won’t be a silver bullet robust in areas with bad mobile coverage or no that eliminates all of the downsides to native apps connectivity. in a single stroke. Although hTML5 will reduce developers’ dependence on app stores, which typi- Growing Support for HTML5 cally take a commission of between 10 percent Although hTML5 is still under development and and 30 percent, they will still incur some market- pending final standardization (targeted for 2014), ing, distribution and transaction costs. some companies have already launched hTML5 Although many developers complain about apps. For example, the Financial Times’ hTML5 the difficulties of standing out from the hundreds app for the ipad can be downloaded through the of thousands of native apps now available in the Web browser, rather than through the App Store,4 The App Frenzy — JuST A ShorT-Lived FAd? | A.T. Kearney
  7. 7. Figure 3Range of distribution channels for apps Four distribution channels Key functions OS-centric Operator-led Third-party store Open web Application Operator portal Online shop Web search Search store (Example: Vodafone’s (Example: Amazon engine (Example: Apple apps and downloads) appstore for Android) (Example: Google) App Store) Payment Mobile Credit card Credit card platform phone billing Payment (Example: Amazon or online payment (Example: Apple’s (Example: monthly bill credit card payment) (Example: Paypal) iTunes) or prepaid credit) App testing App testing App testing Reputation of app Security (Example: Apple’s and monitoring (Example: Amazon developer and app approval process) via network appstore review) third-party toolsSource: A.T. Kearney analysisenabling the newspaper to bypass Apple’s approval The Future of Appsprocess and commission charges. Widespread support for the new standard suggests The FT believes the hTML5 app will save that most digital services and content for mobileit money. “The advent of new Web technologies phones will eventually be delivered via hTML5is changing the economics of the apps market by browser-based apps. however, the hTML5 chan-enabling us to use the same software across plat- nel will likely be complemented by platform-forms and allowing us to maintain a direct rela- specific super-apps focused on particular topicstionship with our customer,” says rob Grimshaw, (see figure 4 on page 6). For example, there mightManaging director of be a travel super app for each oS, aggregating Although hTML5 has some detractors, it also a host of travel-related services (tourist guides,has many supporters, including Apple itself, which reservation services and local weather, for example).is contributing to its development and lending There will also still be a market for platform-weight to its reliability, security, performance, specific graphics-intensive apps, such as 3d games,support for touchscreens, and other capabilities. written to take advantage of the full multimediain addition, the hTML5 platform has strong capabilities of each from the mobile industry, with the mobile As it shakes up the apps market, hTML5operator-led wholesale applications community is likely to have a significant impact on the mobile(WAC) backing this emerging standard. industry’s structure and competitive dynamics. The App Frenzy — JuST A ShorT-Lived FAd? | A.T. Kearney 5
  8. 8. Figure 4 The app evolution by platform TODAY TOMORROW “Planet of the Apps” “Mobile Web” iOS Android Blackberry Windows 7 Symbian iOS Android Blackberry Windows 7 Symbian Browser-based content (based on HTML4 and plug-ins) Browser-based content and platform- independent web apps (based on HTML5) Web Web Web Web Web apps apps apps apps apps Apps Apps Apps Apps Apps Apps Apps Apps Apps Apps Super Super Super Super Super apps apps apps apps apps Native Platform independent Source: A.T. Kearney analysis To some extent, a parallel can be drawn with the however, the impact on oS platforms is likely development of the Web, with the shift from the to be gradual. The positive brand vibes, created early walled gardens, such as AoL, to a more over the past few years, are likely to stay in con- open, interoperable environment. Similarly, the sumers’ minds and continue to influence their mobile internet is likely to evolve toward a less choice of handset. Moreover, the major apps proprietary environment, reducing the oS stores (for example, Apple’s App Store and owners’ control over the overall value chain. Google’s Android Market) are likely to survive Already, the boundaries of apps (both native and the shift, but perhaps evolve into more of a dis- hTML5) are going beyond the smartphone eco- covery tool, rather than the primary channel system to move into the pC environment exem- through which to download apps. While sup- plified by Apple’s use of its Mac Appstore to sell porting hTML5, Apple is likely to look for ways native apps to Mac users. to maintain a competitive advantage and the Today, people tend to upgrade from an revenue stream that its market-leading Apps Android device to another Android device, or an Store provides. iphone to another iphone, because they don’t want to lose the investment they have made in A Game Changer native apps. By enabling purchased apps to run hTML5 isn’t just another technology standard; across platforms, hTML5 reduces that kind it is potentially a game changer. its impact could of lock-in. be profound enough to fundamentally alter the6 The App Frenzy — JuST A ShorT-Lived FAd? | A.T. Kearney
  9. 9. balance of power on the mobile internet. it is apps that could be used to produce a distinctivelikely to continue to enjoy broad support from user interface.across the telecoms, media and technology sec- in time, some content providers and devel-tors — mobile operators, for example, could use opers may come to regard hTML5 as a mixedhTML5 to open up a new revenue stream blessing. Although hTML5 will reduce theirby offering a secure payment environment for reliance on current oS platforms, it may intensifythe purchase of Web apps; more broadly, the competition even further, by lowering barriersstandard could help these operators regain influ- to entry. it may be difficult to charge for apps, justence over their customers if the power of the oS as it is tough to charge for access to websites today.platforms wanes. hTML5 may also help reduce At the very least, however, hTML5 is goingthe commoditization risks for device manu- to significantly change the way many apps arefacturers by enabling them to create a great distributed — a shift that will have ramificationscustomer experience by using hTML5-enabled across the entire mobile ecosystem. The App Frenzy — JuST A ShorT-Lived FAd? | A.T. Kearney 7
  10. 10. A.T. Kearney is a global management consulting firm that uses strategic For information on obtaininginsight, tailored solutions and a collaborative working style to help clients additional copies, permissionachieve sustainable results. Since 1926, we have been trusted advisors on to reprint or translate this work,CEO-agenda issues to the world’s leading corporations across all major and all other correspondence,industries. A.T. Kearney’s offices are located in major business centers please contact:in 38 countries. A.T. Kearney, Inc.AMERICAS Atlanta | Boston | Chicago | Dallas | Detroit | Mexico City Marketing & Communications New York | San Francisco | São Paulo | Toronto 222 West Adams Street Washington, D.C. Chicago, Illinois 60606 U.S.A.EUROPE Amsterdam | Berlin | Brussels | Bucharest | Copenhagen 1 312 648 0111 Düsseldorf | Frankfurt | Helsinki | Istanbul | Kiev | Lisbon email: Ljubljana | London | Madrid | Milan | Moscow | Munich Oslo | Paris | Prague | Rome | Stockholm | Stuttgart Vienna | Warsaw | ZurichASIA PACIFIC Bangkok | Beijing | Hong Kong | Jakarta | Kuala Lumpur Melbourne | Mumbai | New Delhi | Seoul | Shanghai Singapore | Sydney | TokyoMIDDLE EAST Abu Dhabi | Dubai | Johannesburg | Manama | Riyadh& AFRICA© 2011, A.T. Kearney, Inc. All rights reserved.A.T. Kearney Korea LLC is a separate and independent legal entity operating under the A.T. Kearney name in Korea. (0511.179)
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