App nations briefing paper

A report from The Economist Intelligence Unit
App nations:
Start-ups, states
and enterprises
Sponsored by

© The Economist Intelligence Unit Limited 20161
App nations:
Start-ups, states and enterprises
About the research 2
Summary 3
State of the app economy 5
What government can deliver 9
The app economy evolves 12
Contents

App nations:
App nations: Start-ups, states and enterprises is a
report from The Economist Intelligence Unit (EIU)
sponsored by CA Technologies. In May and June
2016, The EIU conducted three integrated global
surveys on the topic of the app economy, in
which a total of 377 respondents took part. The
start-up survey sample numbered 125
respondents; the enterprise sample 127
respondents; and the government sample 125
respondents. Our sincere thanks go to all those
who participated.
Please note that not all answers add up to
100%, either because of rounding or because
respondents could provide multiple answers to
some questions.
Alongside the survey, the EIU conducted in-depth
interviews with the following senior executives
and experts (listed alphabetically):
Marco Abele, head, digital banking, Credit Suisse
Erkko Autio, chair, technology transfer and
entrepreneurship, Imperial College London
Business School
John Borthwick, founder and CEO, betaworks
Evangelos Simoudis, founder and managing
director, Synapse Partners
This report was written by Denis McCauley and
edited by Sunmin Kim.
About the research

App nations:
The app economy is more than the sum of
revenue generated by the production and use of
mobile and web applications. Many
governments view app companies, and the
technology sector as a whole, as an important
driver of economic and job growth in their
nations, regions or localities. Moreover, given the
ubiquitous nature of mobile and cloud
computing, the entities that participate in the
app economy—start-ups, large enterprises and
governments, along with research and
academic institutions and informal, grass-root
communities—are representative of a country’s
broader technology innovation ecosystem. This
report, based on a global survey of start-up,
enterprise and government executives, examines
the state of such interaction in the app economy,
with a particular focus on identifying the optimal
role for governments in helping businesses grow.
Key findings from the research include the
following:
l The US has few peers as an app start-up
environment. Most survey respondents—start-
up and enterprise executives alike—agree
that the US is the world’s best place to start or
grow an app business. Germany, Canada,
Australia, and the UK also receive honourable
mention. However, Europe—not North
America—is believed to have the greatest
degree of collaboration between ecosystem
stakeholders.
l Governments are active ecosystem players.
Almost 40% of both start-up and enterprise
executives see their national governments
taking measures to improve public—especially
internet—infrastructure and to help companies
expand overseas. Many start-up executives
say a few specific types of government
support, such as financial assistance, social
support for their employees and the provision
of workspace, have helped them to grow.
l Governments value the app economy’s
contribution in their jurisdictions. More than
seven of ten government respondents say app
start-ups are an important or crucial driver of
economic growth in their jurisdictions. The app
economy is seen to have benefited
respondents’ jurisdictions in three big ways:
delivering better services to citizens; boosting
employment and job growth; and helping
connect citizens to government.
l But opinions diverge on how effective
government support is. Start-up and
government respondents differ markedly on
how effective the latter’s support is. The
divergences are most stark on the provision of
social support to app economy employees
and efforts to improve internet infrastructure.
Clearly, start-up executives believe
government can do much better in these and
other areas to support their growth. Enterprise
respondents, too, believe that government
can do better.
Summary

App nations:
l Government respondents to act on executives’
biggest concerns. Start-up and enterprise
respondents believe that the greatest risks to
their growth over the next couple of years will
emanate from potential cyber-attacks and
breaches of customer data. Governments
seem in tune with these concerns. Three-
quarters of government respondents expect to
toughen rules and standards relating to data
privacy and cyber-security in the next two
years.
l Governments also plan to deliver more in
several areas. Almost half of government
survey respondents say they have plans in the
works to purchase app services to improve
agencies’ internal processes, to update rules
and regulations for the app economy or to
provide more social support for app economy
employees. Nearly as many report plans to
improve talent availability for technology firms
through education and research initiatives.
Experts interviewed for the report welcome
some of these plans but say that governments
will be most helpful if they focus on the
physical and legal infrastructure that supports
the app ecosystem.

App nations:
Experts differ on the current growth trajectory of
the global app economy. Some observe a
decline in annual app downloads in the US and
Europe and reach the conclusion that the app
market is at its saturation point. Others believe
that overall app economy revenue will continue
to grow, particularly in emerging economies.1
There is little dispute, however, that the app
economy has already been an important
contributor to economic and job growth in
several countries. More than seven of ten
government officials (72%) in the survey, for
example, believe that app start-ups have had
this impact in their respective jurisdictions.
There is also a consensus amongst the survey
respondents that the world’s best environment for
app-based businesses is found in the US.
Evangelos Simoudis, a venture investor and
1 A bullish outlook may be found here: http://venturebeat.
com/2016/02/10/the-app-economy-could-double-to-101b-by-
2020-research-firm-says/. A less optimistic view is reported in this
article: https://arc.applause.com/2016/05/10/idc-apps-economy-
growth-slows/.
founder of Synapse Partners, a venture capital
firm, agrees: “In my opinion, the US is the world’s
best environment for start-ups, full stop. Not only
Silicon Valley but New York, Boston, Los Angeles,
Austin and other hubs provide complete
networks of entrepreneurs, venture investors,
angel investors, corporate investors and large
corporations that act as customers, partners or
even acquirers.” He adds to that supportive legal
and tax regimes and communications
infrastructure, which governments have been
instrumental in providing.
How collaborative does the interaction
among these stakeholder groups need to be for
the ecosystem to thrive? Collaboration, while
important, isn’t the key to a thriving app
economy. In the survey, a majority of start-up
respondents in each major region of the world
State of the app economy
0
5
10
15
20
25
30
35
Which do you think is the best country to start or grow an app business?
% of respondents from each sample
US Germany Canada UK Australia
Source: Economist Intelligence Unit survey, 2016.
Start-ups Enterprises Government

App nations:
say their app economy is at least somewhat
collaborative, more so in Europe and Asia-Pacific
compared to those from North America. (And
start-up respondents less often describe their
ecosystems as collaborative compared with
enterprise and government respondents.)
Indeed, expert views on the importance of
government collaboration, in particular, vary
across regions. John Borthwick, CEO and founder
of New York City-based betaworks, an app
start-up studio, agrees that the US boasts highly
supportive environments for tech start-ups but
believes the best government approach to
helping tech start-ups is a non-interventionist one.
For Erkko Autio, who is chair of technology
transfer and entrepreneurship at London’s
Imperial College Business School, a non-
interventionist government approach makes
sense in the US, where “natural” entrepreneur
ecosystems are mature. In other regions where
such ecosystems are much younger or
incomplete, as in parts of Europe (London being
a notable exception), he says governments often
need to step in and provide more direct support.
Business v government
views
If enterprise and start-up survey respondents are
any judge, their governments are trying to be
proactive. This is certainly the case at the national
level, where almost 40% of start-up and enterprise
respondents see governments taking measures to
improve physical—and especially internet—
infrastructure and to help start-ups expand
overseas. All the experts interviewed for this report
agree that infrastructure is the area where
government efforts are most vital.
And many start-up executives value some
(though not all) forms of support that
governments are providing. Perhaps not
surprisingly, financial assistance in the form of
grants or seed funding is high on this list. Others
say that extending forms of social support to
start-up employees (often freelancers and other
non-permanent staff) have been very helpful to
their firms’ growth, as has been providing
workspace in co-working or other arrangements.
Enterprise respondents, for their part, agree that
social support for app economy employees has
been very helpful to their own growth; other
government initiatives they value highly include
those taken to improve internet infrastructure and
those to help firms expand internationally.
While some experts doubt the value of
government funding for start-ups, they agree that
government initiatives can be instrumental in
supporting a more flexible workforce and in
expanding the pools of talent available to
start-ups. As businesses grow, says Mr Simoudis,
access to a good talent pool is vital and,
increasingly, needs to be on a flexible basis. “You
may not need to hire them on a full-time basis, so
you need flexibility in terms of under what
0 5 10 15 20 25 30 35 40
Among the following ways that governments might support the app economy,
which have been implemented at the national or state/provincial level?
% of startup respondents
Provide changes in public infrastructure that
improve internet connectivity
Provide initiatives for international expansion
Provide specific, relevant social support for employees
(ie, health insurance for freelance talent)
Update or streamline regulations to enable
the growth of app-based businesses
Provide education, scholarships or research
funding to improve tech talent
National State/province

App nations:
conditions you are able to bring somebody into
your company. Accessing experts on a more
periodic or short-term basis is a really important
way to advance your start-up.” Mr Autio agrees,
recognising however that liberalising labour
regimes to accommodate a more flexible
workforce is a major challenge in most of Europe.
Start-up respondents’ views of the efficacy of
government support may, on balance, be
positive, but government respondents appear to
believe the measures they are taking to be wildly
successful. The gap in start-up respondents’
opinions is most stark when it comes to the
provision of social support to app economy
employees and efforts to improve internet
infrastructure. The gap also exists when it comes
to providing workspace and updating rules and
regulations for the app economy. Many start-up
respondents don’t believe these government
activities to be very helpful or relevant.
0 10 20 30 40 50 0 10 20 30 40 50
Out of the activities that your government undertakes to support the app
economy, what effect have they had on your company’s growth?
% of start-up and enterprise respondents saying support has been ‘very helpful’ to their growth
Provide specific,
relevant social support
for employees
Provide direct
investment (ie, grants,
seed funding)
Provide work spaces
for start-ups
Provide specific,
relevant social support
for employees
Provide changes in
public infrastructure
that improve internet
connectivity
Provide initiatives for
international
expansion
Start-ups Enterprises
0 10 20 30 40 50 60 70 80
Respondents deeming government support “very helpful” to start-up growth
% of government and start-up respondents
Provide specific, relevant social support for employees
(ie health insurance for freelance talent)
Provide changes in public infrastructure
that improve internet connectivity
Provide work spaces for start-ups
Provide direct investment
(ie grants, seed funding)
Start-ups Government

App nations:
0 10 20 30 40 50 0 10 20 30 40 50
Yes, it was
very helpful
Yes, it was
slightly helpful
It made no
difference
No, it was slightly
hindering
No, it was
very hindering
Yes, it was
very helpful
Yes, it was
slightly helpful
It made no
difference
No, it was slightly
hindering
No, it was
very hindering
Start-ups: Was partnering with one
or more large companies helpful?
% of start-up respondents
Enterprises: What effect did your
work with start-ups have on your
company’s growth?
% of enterprise respondents
What role do large companies play in the
app ecosystem and how do they view the
participation of start-ups?
Enterprises have a generally positive view of
their work with start-ups. More than one-third of
respondents from this group (35%) describe
their work with app start-ups as “very helpful”
to their own growth and another 30% view
them as “slightly helpful”. Only 22% found them
“hindering”. This may signal a more open
attitude to partnering with app start-ups that
Mr Simoudis, amongst others, has observed of
late. “Corporations are starting to become
much more open to working with start-ups,
either because they have existential problems
themselves or because they realise that if they
do not take that approach, they may be
disrupted irreversibly.”
This spirit of collaboration even extends to
traditionally closed institutions such as large
banks, according to Marco Abele, head of
digital banking at Credit Suisse. “We came to
the conclusion a couple of years ago that a
bank cannot continue to be relevant working
on a stand-alone basis,” he says. Credit Suisse
now partners with mobile start-ups in several
different areas, Mr Abele reports; these
include fintech accelerators in which it and
other Swiss banks support and obtain ideas
from app start-ups.
Enterprises in the app economy

App nations:
Governments seeking ways to support app
economy growth should first understand that
start-ups’ needs evolve as they grow. Mr Simoudis
describes it as a journey. “When I’m just getting
going as a three-person start-up, I want access to
financial resources, whether in the form of loans
or venture funding. I also want good laws in terms
of setting up and dissolving a company. And I
obviously want good infrastructure, whether it is
connectivity, roads, airports, etc.”
Once it starts to earn revenue and grow, he
says, the start-up wants flexible labour laws. “You
want to be able to hire and fire people without a
lot of restrictions, because business is very fluid at
that level. You also want good intellectual
property [IP] laws, because by then you’ve
started to create some IP and need to protect it.
And you want access to universities, both to hire
talent but also to find additional IP that may
complement yours.” At this and later stages,
start-ups also look for government help in
improving cyber-security, as do large enterprises.
Infrastructure writ broad
The good news from the research is that
government officials appear broadly to
recognise what both start-ups and enterprises
need from them and that many have plans to
deliver in the above and other areas.
Among government survey respondents, close
to half say that plans are in the works to purchase
app services to improve agencies’ internal
processes, to update rules and regulations to
make them relevant to the app economy and to
provide more social support for app economy
employees. Nearly as many report plans to
improve talent availability for technology firms
through education and research initiatives. And
another 42% say efforts will be undertaken to
What government can deliver
0 10 20 30 40 50
Government respondents whose organisations “have plans” to provide support to
the app economy in different areas
% of startup respondents
Buy app services for internal processes or
better engagement with the public
Provide specific, relevant social
support for employees
Provide education, scholarships or
research funding to improve tech talent
Provide work spaces for start-ups
Provide initiatives for
international expansion

App nations:
provide workspace for start-ups. The latter is
strongly supported by Mr Autio, who believes that
co-working spaces are catalysts of the types of
knowledge “spillover” that help power the
growth of start-up ecosystems. Of particular
importance to large enterprises, 35% of
government respondents also plan to provide
initiatives for international expansion
For Mr Borthwick, the above types of support
(aside from purchasing app services, which he
believes has little real impact on most start-ups)
amount to shoring up infrastructure. And getting
the infrastructure elements right, he says, is what
government needs to focus on most. These
include high levels of connectivity with high-
speed fibre and wireless networks, and ensuring
working space is available for start-ups.
The other key elements, says Mr Borthwick, are
talent and research. An obvious growth
bottleneck for small technology players is a
dearth of engineering talent. He complains that
too many engineering students in the US shift to
liberal arts programmes midway through their
university careers (nearly 22% of undergraduates
in science, technology, engineering and math
across the country don’t finish their degrees,
according to a 2010 study by the University of
California, Los Angeles ). A government initiative
that he thinks will help reverse this in New York City
is a plan launched by the previous mayor to
establish an engineering and business school
dedicated to producing local talent—Cornell
Tech. “In ten years or less,” he says, “we’re going
to have a very good source of engineers and
technical research in artificial intelligence,
machine learning, natural-language processing
and many other specialist areas.”
Marco Abele sees a similar dearth of design,
algorithm and community-building skills in
Switzerland’s financial industry. In addition to
education initiatives, the Swiss government, he
says, is looking at adjusting its immigration regime
in order to attract such talent from outside its
borders.
Focusing on regulation and
cyber-security
Yet another element of infrastructure critical to
start-ups is the regulatory regime. As Mr Borthwick
suggested and the survey also shows, rules and
laws that make it easy to register a company,
that protect IP, that enable the flexible
management of labour and that prohibit
anti-competitive behaviour, to name just a few,
are high on start-ups’ wish list for government
actions to support the app economy.
Most important of all, however, is the issuance
of rules and standards relating to cyber-security
and privacy of consumer data. Both start-up and
enterprise survey respondents agree that the
greatest risks to their growth over the next couple
of years will less often emanate from competition
than from potential cyber-attacks and breaches
of customer data (privacy).
0 10 20 30 40 50 60 70
To what extent will the severity of each of these types of risks to your company’s
success in the app economy increase or decrease over the next two years?
% of start-up and enterprise respondents expecting risks to increase “somewhat” or “significantly”
Cybersecurity
Privacy (eg risks to customer information)
Competition from app start-ups
Data sovereignty (eg geographic
location and jurisdictional legal concerns)
Compliance
Start-ups Enterprises

App nations:
Governments seem in tune with these
concerns. Three-quarters of surveyed
government officials expect to toughen rules or
laws in their jurisdictions relating to data privacy in
the near future. Nearly as many (73%) say the
same about cyber-security. Such government
activism may also result in the issuance of
standards and dissemination of good business
practices. According to Mr Simoudis, the US
government’s various cyber initiatives launched
over the past few years have proven useful for
start-ups by providing advice on security
practices and funding for cyber-security start-ups.
All such efforts align with the conviction—held
by all stakeholders in the app economy—that
privacy and cyber-security regulations are
important or critical to securing a level playing
field for app start-ups and to addressing issues
experienced by large enterprises as they grow
their app-based businesses.
0 10 20 30 40 50 60 70 80
To what extent do you expect regulations or laws related to the app economy to
increase or decrease in stringency in your jurisdiction over the next two years?
% of government respondents expecting stringency to increase “somewhat” or “significantly”
Privacy (eg risks to customer information)
Cybersecurity
Compliance
Data sovereignty
Anti-trust or competition
The app economy, along with its ecosystem,
has clearly developed at different speeds in
different parts of the world, with the US widely
acknowledged as the global pacesetter. No
surpise, then, that the perspectives of start-up,
enterprise and government app economy
stakeholders differ at times from region to
region. Following are the most noteworthy
divergences:
l European start-up and enterprise
respondents report more government
activities to support the app economy at
both national and state or provincial level.
North American respondents report the
fewest such initiatives.
l European government officials generally
have more plans in the works to provide
different types of support to the app
economy than do their counterparts
elsewhere.
l Asia-Pacific government officials, however,
have a great focus on areas of education,
social support for employees and providing
workspaces for start-ups.
l More stringent rules and regulations relating
to cyber-security, compliance and anti-trust
law were more often expected in Asia-
Pacific over the next two years than in the
other major regions.
Differing regional perspectives

App nations:
Technological innovation evolves rapidly, and
some believe bots (including “chatbots”), which
incorporate artificial intelligence that directly
interacts with customers will dominate in the next
wave. Whatever the future holds for the app
economy, the dynamics of its ecosystem are
likely to endure. Tech start-ups of all stripes will
undoubtedly remain engines of innovation,
simultaneously posing competitive threats to and
opportunities for larger players. And large
enterprises will continue to recognise and act
upon the opportunities afforded by focusing on
app-based business growth.
One element of change in the future evolution
of the ecosystem, which this research shows
there’s some appetite for, may be more large
enterprises seeking to benefit from collaboration
with start-ups. Greater collaboration could
involve, for example, seed funding, acceleration,
partnering and idea-sharing (alongside, of
course, cut-throat competition and acquisition).
What of the government role? The research
has revealed broad agreement among the
different stakeholder groups, as well as experts,
that governments’ best contributions to app
economy growth are behind the scenes in areas
such as improving the underlying physical and
legal infrastructure, including labour regulations.
Governments will also help by standard-setting
for cyber-security and consumer data protection.
As apps become more intelligent, data more
voluminous and their analysis ever more
sophisticated, the need for strong government
guidance in these two areas seems likely to
remain.
Some governments—at national, regional and
local levels—will undoubtedly do much more to
help their app economies to grow. This may be
warranted, as the strength and maturity of
ecosystem players—not to mention the wider
culture of entrepreneurship—can differ greatly
from place to place, even within start-up-friendly
countries. Striking the right balance of support for
both start-ups and larger enterprises will remain
an ever-present challenge for governments in the
app economy and the broader technology
ecosystem.
The app economy evolves

App nations:
Whilst every effort has been taken to verify the
accuracy of this information, neither The Economist
Intelligence Unit Ltd. nor the sponsor of this report can
accept any responsibility or liability for reliance by
any person on this report or any of the information,
opinions or conclusions set out in the report.
Cover:MikeKenny/Shutterstock

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