What’s next for the global app market, as spending surges?
This year will mark the 10th anniversary of the global app market, driven by Apple and Google. Now there are more than 5 million apps across both platforms.
Since the first wave of apps were produced in 2008, they have impacted the lives of people on an unprecedented level. There are now apps for almost anything and everything – hugely successful apps that incorporate AR and VR, apps dedicated to events, and even one to replicate the experience of popping bubble wrap!
Who would have thought that apps could have evolved from the simple Snake game on the Nokia phone (yes that was an app), to driving an industry predicted to be worth US$6.3 trillion in 2021?
Last year saw some significant milestones reached for the app industry:
- By the end of October, the iOS App Store and Google Play had more than 2 million and 3.5 million apps available, respectively.
- New apps continue to be introduced at a fast pace. During October, roughly 50,000 new apps were launched on the iOS App Store and more than 150,000 were added to Google Play.
- Across mature markets, users have up to 90 or 100 apps installed on their devices, 30 of which they use on a monthly basis. On average, people are spending two hours per day — which equates to one month out of every year — in apps.
- More than 40 countries will generate over $100 million in consumer spend last year for iOS App Store and Google Play combined.
- Apps play a key role in almost every industry today, including retail, banking, travel, QSR, the consumer packaged goods industry and media and entertainment.
The evolution of mobile apps have transformed the everyday lives of people, and users now expect their favourite apps to be continuously improved. Convenience is a core theme that underlies many of our predictions as we look to this year.
Worldwide gross consumer app store spend surpasses $100 billion
The continued evolution of markets across the globe has led app monetisation to grow at an outstanding rate. Apart from games, which traditionally account for the majority of overall spend, we foresee spending in e-commerce apps such as those from Alibaba and Amazon to drive worldwide consumer spending growth – which is expected to reach 30 per cent annually, exceeding $110 billion this year. In Asia Pacific, consumer spending on apps hit $17.1 billion in the first half of last year alone.
App store curation drives higher overall In-app purchase revenue and expands opportunity for independent publishers
Last June, both Apple and Google announced updates to their iOS App Store and Google Play aimed to alleviate
With so many apps on the market and more being added every day, it makes app discovery more difficult. Last June, both Apple and Google announced updates to the iOS App Store and Google Play aimed to alleviate this issue through app curation and editorial content. We predict that these updates will have a significant impact on apps in 2018, especially for apps that help people occupy their leisure time. These types of apps, which tend to be entertainment-centric, are most likely to connect with consumers when they are casually browsing through the app stores. Conversely, “needs-based” apps such as UberEats or banking apps are far more likely to be downloaded based on word of mouth recommendations or focused searches when a user encounters a particular need.
Broader adoption of AR apps
Pokemon Go and Snapchat sparked huge interest in augmented reality (AR) among the masses, and we foresee that AR will take another significant step forward towards realising its massive potential this year. Facebook, Google and Apple have taken the lead at their developer conferences last year, and together with the Chinese powerhouses Alibaba, Baidu and Tencent, have set the foundation for AR-related initiatives. These initiatives will accelerate the space by making it easier and faster for publishers to develop AR apps, while also stoking consumer interest. For example, in Japan, starting in May 2017, there has been a significant increase in iPhone app downloads for the top ranking apps by “Augmented Reality” app store search in Japan, and other Asia-Pacific markets.
Since last May, downloads of AR apps rose significantly on iPhone due to increased range available, as well as existing apps incorporating AR functionality.
Fragmentation of the video-streaming space accelerates
It is now no longer uncommon to see people catching up on their favourite Netflix series or Hollywood movies while on the move. Last year was extraordinary for video-streaming services and the total time spent using video and entertainment apps tripled to almost 40 billion hours in Asia Pacific alone.
Between the first half of 2015 and the first half of last year, the time spent using video players and entertainment apps on Android phones in Asia Pacific tripled, reaching nearly 40 billion hours – almost half of the worldwide total.
In the first 10 months of last year, these apps drove significant growth of worldwide consumer spend for the entertainment category for both iOS and Google Play. However, as some of the biggest names in the entertainment industry and app economy — including Netflix, Apple, Google, Facebook, Snap and Disney — have announced plans to expand their footprints in variety of ways, we expect this year to mark the early stages of an inflection point for this space, in terms of fragmentation. Our research shows that Android users in South Korea who use video streaming apps are significantly more likely than average to be accessing other video and related entertainment services.
Overall, this space will continue to see steady growth in terms of revenue and engagement, but in the years that follow, consumers may start to rationalise how they spend their time and money among a dizzying array of choices, resulting in some players succumbing to profit pressures as they get crowded out of this competitive space.
Mobile pushes towards the centre of the retail customer journey
Analysts and experts have projected a “retail apocalypse” in recent times, and we see apps as a way to reinvigorate consumers’ retail experience. Brick-and-mortar retailers have already embraced apps and shoppers are now very engaged; results are telling from the Great Singapore Sale, which saw an increase in sales thanks to the GoSpree app. In Indonesia, which has a population of 261 million and a burgeoning middle class, users spend an average of just over 90 minutes per month using shopping apps, placing that market second behind only South Korea. Last Single’s Day (11.11), Alibaba generated a record breaking $25.3 billion in sales, with mobile users accounting for 90 per cent of sales. These numbers are only the beginning of what is a rapidly evolving retail experience for consumers.
This year, apps will continue to cause consumers to change their shopping habits which will in turn redefine the relationship between – and even the very nature of – existing retail channels (for example, mobile apps, web, brick-and-mortar). China is a huge influencer in this area. We are seeing people in western markets increasingly use physical stores as a place to pick up items purchased on mobile. In addition, the long-standing role of the cash register in the store payment process will become reduced, or in some cases replaced, by mobile phones. For many consumers, mobile will be a core part of the shopping experience regardless of channel.
Restaurant aggregators drive mobile conversion as delivery-as-a-service further penetrates premium markets
As we expected, there was some consolidation in the food delivery space last year. Looking ahead, we expect that aggregators such as Korea’s Yogiyo will continue to expand the market for this space by opening up underpenetrated markets as well as converting users who do not currently use mobile apps from intermediaries to order meals. Meanwhile, delivery as a service (DaaS) and providers (such as UberEats and Deliveroo) will gain market share in premium markets where customers are more likely to pay more for higher-end restaurants that don’t have their own delivery fleets. Furthermore, we expect more quick-service restaurants to respond to the increased competition from food delivery by partnering with DaaS apps, similar to McDonald’s growing partnership with UberEats. As with video streaming, this space will face consolidation in later years as it needs to rationalise the fragmentation felt by customers and the profit pressures felt by service providers competing in a crowded space.
Finance-related apps poised for most significant transformation
Last year, especially in Asia Pacific, the growth in downloads in the finance category outpaced all app non-game categories combined, with China leading the way. Person-to-person (P2P) payment apps, like WeChat, AliPay, GoPay, Grab Pay and PayTM have been some of the shining stars in the fintech app revolution. They have transformed how consumers – particularly millennials – exchange money, displacing the use of cash and cheques. In the next year, we expect these services to capitalise on their popularity and broaden the range of services they offer in an effort to expand their revenue potential, fend off increased competition from traditional banks and deepen user engagement. With retailers adopting such apps as an option for customers, we expect increased transaction volumes through P2P payment apps. These initiatives have been well received by users, as they offer greater levels of convenience. In addition, this space will see increased activity from successful players in other categories, like messaging and social networking, who are constantly looking for additional ways to serve, monetise and engage their large user bases.
These are just a handful of areas where we expect the app economy to evolve over the near future. Despite how far this space has advanced over its first decade, it is just scratching the surface of its full potential. Users increasingly expect apps to completely transform the very nature of how they accomplish goals and tasks, as well as create brand new experiences not possible on other platforms.
This story originally appeared in the Spring edition of Inside Retail Hong Kong magazine edition. To read the latest, summer edition in print or digital format, subscribe online.