Sectoral Analysis of the Mobile Applications Industry By Nikhil Abrol – IMT Ghaziabad

Layout of Presentation PART 1 Analysis of the Global Mobile Apps Industry PART 2 Classification of Mobile Apps PART 3 Analysis of the Top Publically listed App based Companies PART 4 App Development PART 5 Analysis of the Indian Mobile Apps Industry PART 6 Future of Mobile Apps

Part 1 Analysis of the Mobile Apps Industry A Global Perspective

Mobile Apps are taking over: A change in paradigm Mobile apps are not a phenomena, they are here to stay! Based on the graph we can see that the average time spent on the mobile apps is increasing vis a vis time spent on traditional web browsing In 2010, smartphones outsold personal computers, which caused tech analysts to shift their attention to the handheld platform During the fourth quarter of 2010, 100.9 million smartphones were shipped worldwide, whereas only 53.9 million units had been shipped in the corresponding quarter of 2009 Source: aabri.com case study

Revenue of the Mobile Apps Industry Globally Total revenue of the mobile apps industry is around $35 billion globally and is expected to rise at CAGR of 120% from 2014 – 2017 We see from the Gartner report that the majority (70%) top-line contribution for app developers comes from the Paid for Apps We can see that there is a predicted increase in the revenue from the In-app purchases and we see that it will also overtake the revenue from Paid for apps, this is because in both the apps market, the top grossing apps are those who allow users to download for free and then sell them add-ons, Hence more developers are shifting to this model

Free Apps vs Paid for Apps The free apps downloads will continue to hold around 90% of the market share, this is contrary to the commonly held belief that the apps industry would look towards a paid apps revenue model as the market matures The emergence of IAP or In App Purchase revenue model is a better means to generate revenue – it encourages performance-based purchasing i.e. users are willing to spend more if they are happy with the experience Advertising, meanwhile, is a marginal driver of revenues for most app makers Gartner notes that the proportion of free apps using advertising is actually falling: It will decline from 88 percent in 2013 to 86 percent in 2017 since In-app advertising is not yet an effective means of reaching targeted audiences for advertisers Source: Gartner

The Global Smartphone Market It is important to take a look at the increasing worldwide smartphone market as most of the mobile applications are smartphone based The Smartphone Market is growing by 28.6% with Samsung as the market leader with 30.2% share Increase in competition as new Chinese entrants such as Lenovo, Huawei, Xiomi etc. are gaining popularity and eating into market share of Samsung and Apple Source: idc.com

Different OS, Different App Markets Period Android iOS Windows Phone BlackBerry OS Others Q3 2014 84.4% 11.7% 2.9% 0.5% 0.6% Q3 2013 81.2% 12.8% 3.6% 1.7% Q3 2012 74.9% 14.4% 2.0% 4.1% 4.5% Q3 2011 57.4% 13.8% 1.2% 9.6% 18.0% Android is the most preferred Operating System with a large and increasing market share Continuous decline in blackberry OS and phones Windows Phone and IOS market share have remained stagnant Source: idc.com

Number of Apps in Different OSs Android users have the maximum number of apps to choose from, around 1.3 million apps in Google Play store Apple Apps store is not far behind with 1.2 million apps and they experienced a boom much before the android market Windows phones and amazon kindle are sold less hence app developers produce less apps for them Top 10-15 apps comprise 80% those downloaded globally, posing a challenge for developers to make money through app development Source: statista.com

Porter’s 5 forces analysis for the Mobile Apps Industry Rivalry within Industry Intense – Developers fighting for the same audience in just 2 main markets Threat of Substitute Products: Moderate-High – Many developers are providing same utility products Threat of New Entrants: High – As many Imitator’s app come up in a short duration and offer the same utility Bargaining Power of Suppl iers: Low – Platfor m specifi c applica tions Competition from free products Bargaining Power of Buyers: Very High – There are close to 1billion users

Part 2 Classification of Mobile Apps

Different Types of Mobile Apps Native Apps Native apps live on the device and are accessed through icons on the device home screen Native apps are installed through an application store (such as Google Play or Apple’s App Store) They are developed specifically for one platform, and can take full advantage of all the device features Web Mobile Apps Web mobile applications are software programs that run directly from the web browser on mobile phones and tablets Some examples of popular web applications are popular social networks (the versions that are accessed through the browser), email and chatting applications, online mobile games, and cloud-based office applications Hybrid Apps Hybrid apps are part native apps, part web apps Like native apps, they live in an app store and can take advantage of the many device features available Like web apps, they rely on HTML being rendered in a browser, with the caveat that the browser is embedded within the app Source: nngroup.com

Apps by Category and Average time spent on them per person per month Search Portals & Social 10 hours 56 minutes Entertainment 10 hours 34 minutes Communication 3 hours 48 minutes Productivity and Tools 2 hours 16 minutes Commerce and Shopping 1 hour 33 minutes Source: entrepreneur.com

Part 3 Analysis of the Top Publically Listed App based Companies A Financial Analysis

Financial Analysis of Top Public App Companies Zynga King Glu Mobile Take- Two Interactive Market Data Market Cap $ 2.47 bn $ 4.27 bn $ 0.54 bn $ 2.43 bn Company Listing US: Nasdaq US: NYSE Headquarters San Francisco, US Dublin, Ireland New York, US Employees 2,034 665 - 2,530 Financial Performance Sales FY 2013 $ 0.87 bn $ 1.88 bn $ 0.22 bn $ 2.35 bn Growth -31.85% 1046.08% 111.29% 93.54% Operating Profit FY 2013 $ 0.12 bn $ 0.72 bn $ 0.70 bn Margin 13.60% 38.40% 29.79% Relative Valuation Price to Earnings Ratio 6.13 x 19.84 x 16.34 x Price to Book Value 1.28 x 23.68 x 3.15 x 3.11 x 1 Year Stock Return -39.51% 1.40% 54.34% Source: Bloomberg.com, WSJ.com

Part 4 App Development A Cost-Benefit Analysis

The Process of App Development Planning Idea Generation Choose a platform Design Prototypes Development Customer Development Modify & Finalize Design Finalize Design Software Development Testing Marketing & Distribution Marketing Prepare for release Launch Maintenance Source: crashlytics.com

Costs of Developing Apps Based on the type of app, a basic simple app would cost somewhere around $3000-$8000 According to that article, a survey of 96 mobile app developers showed the average cost to develop an app was $6,453 A complex app that has features like cross platform, email or social login, personal profiles, in app purchases, customer ratings, website connection, app layout and design, app icon etc. can cost around a $100,000- $120,000 Average app developer in the US charges around $100 per hour Source: formotus.com

Cost-Benefit Analysis using example Advantage of Developing Mobile Apps What makes the creation of mobile apps so cheap is a simple trick: producers can first put out an initial version featuring 30-60 levels or 30 hours of simulation gameplay. If the app sinks, the production can be closed down. If it soars, new levels and expansion packs can be churned out at short intervals Less time for app development: around 4 months Initial marketing costs if any can be held below $30000 Clash of Clans Developed by Supercell Initial app development cost $160000 Currently is the top grossing app in the iPhone Apps Store Took a team of 5 developers 4 months to roll out the initial app Due to In-app purchases, its weekly revenue is around $180000-$220000 Source: bgr.com

Part 5 Analysis of the Indian Mobile Apps Industry

Indian application market likely to touch Rs 3,800 crore mark by 2016 Scope of the Industry App downloads in India are estimated to account for less than 5% of global app downloads despite being the world’s second largest mobile user market after China App downloads in India are expected to grow at a compounded annual growth rate of 75-80% till 2015 to about 9 billion from around 1.56 billion in 2013 At present, there are 9,000 app development companies in India - According to a Nasscom report, most of these were launched during the last three years 67% of the Indian developers are not making enough to sustain them or their business, i.e. they are below the ‘app poverty line’ of $500 per app per month With the growth of the domestic app market (user base and download numbers), more and more individuals will concentrate on developing apps for the Indian market, creating more apps and download opportunities Indian application market likely to touch Rs 3,800 crore mark by 2016 Source: mint.com businessstandard.com

The Indian Mobile User App downloads in India are estimated to account for less than 5% of global app downloads despite being the world’s second largest mobile user market after China Only 15% of mobile phone users in India download apps, with 90% of them preferring free ones 38% of the smartphone users are between the age group of 15-35 Some of the apps that have garnered more than 100,000 downloads include Zomato, MakeMyTrip, M-indicator, OLX, Flipkart, Hike, Redbus, Freecharge, Snapdeal and more According to a survey by Appszoom there are 99 times more Android users compared to iOS users in India Source: bgr.com livemint.com

Part 6 The Future of Apps What’s Next?

Future of the Mobile Apps Industry The market for mobile apps is already big - and it’s just going to keep getting bigger. If a business doesn’t already have a mobile app, it might get left behind In 2015, 1 billion smartphones will be sold - twice as many as the number of personal computers  By 2017, its expected that over 268 billion downloads will generate $77 billion worth of revenue

The Future Trends in the Mobile Apps Industry Outside Promotion To get noticed in the crowded apps store, mobile app ads are on the rise Facebook says mobile app adds are now 59% of its revenue Context Aware Marketing Improve users experience by utilizing persons interests, history, preferences and precise indoor location to personalise content and services Preparing to be Worn As smartphones and wearable technology improves, mobile apps will need to keep up in order to deliver information in new and innovative ways Advanced User Experience Developers are pushing the envelope for user interface design to accommodate more content by utilizing novel technologies for that “wow” factor Mobile Connected Smart Objects Mobile app controlled smart objects such as fridge, TV, A.C., LED Lights, toys, medical devices, home appliances, power sockets etc.

By Nikhil Abrol – IMT Ghaziabad ft14nikhilabrol@imt.ac.in Thank You By Nikhil Abrol – IMT Ghaziabad ft14nikhilabrol@imt.ac.in