The State Of The Mobile App Industry

Ben Lee

Ben Lee

CEO and Co-founder of Neon Roots

Ben Lee is the co-founder and CEO of Neon Roots, a digital development agency with a mission to destroy the development model and rebuild it from the ground up. After a brief correspondence with Fidel Castro at age nine, Ben decided to start doing things his own way, going from busboy to club manager at a world-class nightclub before he turned 18. Since then, Ben has founded or taken a leading role in 5 businesses in everything from software development to food and entertainment.

It’s been 8 years since the launch of the App store and 7 years since Apple’s pivotal “There’s an app for that” ad campaign, and my, how things have changed. What began as novelty items, simple time-waster games, and clever ways to use your iPhone camera’s flash function as a flashlight have grown into a critical part of the world’s economy and digital infrastructure, an integral aspect of day-to-day life, and booming, billion-dollar businesses.

Apps have integrated themselves into nearly every aspect of our lives: we use them to get where we’re going, to find a place to sleep for the night, and to navigate the ever-expanding world of content media. So just how far have we come, exactly? Let’s take a look at the state of the mobile app market in 2016.

Meteoric Growth

Few industries grow as quickly and as dramatically as the mobile app industry has. When Apple first launched the app store back in 2008, industry revenues amounted to $1.8 billion, a formidable number in its day.

Since then, though, the industry has grown more than most could ever imagine: there are almost 4 million apps available to consumers, and iOS mobile app developers alone generate $25 billion in revenue. The entire app industry creates some $46 billion in revenue and that number is projected to increase to $77 billion in 2017, with some saying that the industry could grow as high as $101 billion by 2020. And all this for a product that fits in the palm of your hand.

Mobile Apps Mean Big Business

The vast majority of that money is coming from paid app downloads, but it may not stay that way for long. Revenue from paid app downloads saw massive growth in the 5 years to 2016, leaping from $7.1 billion to $27.6 billion – a 289% increase. But recently, the trend has leveled off, and it’s forecast to stay that way – the three years from 2015 to 2017 show only a 7.4% increase in forecast revenue growth. Considering that the same three-year period in 2011 saw 185% growth, this is a stark decline.

paid revenue mobile app downloads

But does that mean the money is drying up? Not at all – it’s just moving models.

An In-App Future

Apps make money from 3 core monetization models: paid apps, in which the app makes money by charging a fee per download or a monthly subscription fee; advertising, where the app makes money every time a user sees or clicks on an ad; and in-app purchases, where the app makes money from purchases that user makes inside the app. And if the money is any indication, the future – at least for the time being – lies in in-app purchases.

Global in-app purchases totaled $24 billion in 2016, and that number is forecast to increase to $37 billion next year, a whopping 50% increase. When compared with 2012’s numbers, in-app purchases have grown a staggering 1,652% – from $2.1 billion to 36.8 billion. This eclipses the growth seen in paid app purchases in the same 5 year period.

In fact, 2017 will mark the first year that revenue from in-app purchases surpasses revenue from paid app downloads. While in 2016, in-app purchases accounted for 40.8% of total app revenues and paid downloads accounted for 47.5%, 2017 will see paid app downloads shrink to 37.8% of the market and in-app purchases grow to 48.2%. All of this tells us that in-app purchases are officially entering their golden age.

in-app purchase paid download mobile app revenue

Apps in a Service Economy

One possible future for apps, though, is that they expand into something more than apps. We can see this today in service-based apps – apps that act as an interface, sometimes the only or primary interface, for a larger, service-based business.

Uber, TaskRabbit, and Handstand are all great examples: while all three of these are technically apps, the actual value they provide to the user is something outside the app environment. Uber gives you a car to take you somewhere, TaskRabbit gives you a personal assistant for a few hours, and Handstand makes it easy to book sessions with a personal trainer. For the time being, these all still feel like quintessential “apps” – but as the app market continues to develop and mature, we may see apps more as an entry point for larger, brick-and-mortar operations.

Going Past the Screen

Service apps also show us how the mobile app economy may transcend the boundary of “apps.” As mobile apps continue to grow and provide more functions off the screen, they’ll provide services – and generate revenue – for industries outside of mobile app development.

One example of this is Domino’s Pizza Anyware mobile app, which lets users order a pizza for delivery right from their phone – even, in a true marker of the times, in as little as zero clicks. Domino’s understood how to leverage the app space to generate money for its core business, and it’s likely that more and more companies will do the same as the industry matures.

Expect Huge Growth in Healthcare

One industry that’s primed to capitalize on the mobile app industry like few others is the healthcare industry. As healthcare moves away from the traditional model of private practices and hospitals, instead relying on the internet, mobile devices, and users themselves to track patients and administer care, mobile apps are bound to play a big role.

The medical mobile app market is projected to reach $26 billion by 2017, and some 80% of physicians now use mobile phones to carry out their professional duties, up from 36% in 2007. This comes in tandem with an increase in the use of tablets and other mobile connected devices by physicians. Says Director of Physician Research at Manhattan Research, James Avallone, “Increased screen sizes, faster processors, better technology in general are all playing a role in causing physicians to turn to these devices more and more.”

But the real change will come from patient adoption of mobile medical apps. Apple has already started ushering in a new era of mobile-centered health with its iOS Health app, and the success of popular fitness tracking devices like Fitbit, which comes with its own mobile app, demonstrate increasing consumer demand for mobile medical devices.

mHealth, or mobile health, the term used to describe healthcare augmented by mobile devices, is already disrupting the healthcare industry, and Deloitte estimates that one in six doctors visits in 2014 were virtual, representing 400% growth as compared to 2012. For the healthcare industry, mHealth is just beginning to revolutionize and disrupt – but we’ll likely see this same trend across a wide range of industries traditionally not associated with mobile apps.

Heavy Competition

As the app industry matures into a more lucrative, ubiquitous business, it’ll also get more crowded – and competition will continue to increase. The boom in the app industry has led to a profusion of apps and software-based startups, as even the Apple App Store alone has grown from less than 20,000 apps in 2008 to well over 2 million in 2016.

apps in apple app storeThis trend doesn’t show signs of stopping, and as the app space gets more crowded, mobile app development companies will need to focus more energy, attention, and financial resources on getting discovered by consumers – in fact, in the same way that Search Engine Optimization (SEO) arose out of the profusion of websites in the late ‘90s and early ‘00s, App Store Optimization (ASO) is fast becoming a crucial factor in the mobile app space, and companies are popping up quickly to offer ASO services.

A Focus On Getting Found

This is one element of a major shift in the cost structure of the app industry. Since the industry’s inception, the primary cost – one that often proved insurmountable – for app-based companies was development. Mobile app development was and is hugely expensive for native, branded, and high-quality apps, easily costing anywhere from $100,000 to over $1 million for a native app.

That process, however, is changing. Companies are designing tools that make creating high-fidelity prototypes – and sometimes even fully-realized apps – easy, without the creator ever needing to write any code. Tools like Epic and Proto.io allow users to quickly, easily create beautiful renderings of a mobile app, and we can expect these tools to grow in capabilities. This breakdown in app development costs comes coupled with an increase in the need and cost for app-based companies to promote their apps and acquire users, representing a significant shift in the cost structure of the app industry.

Nowhere But Up

Wherever the industry is headed, however, one thing is for sure: business is booming. The app industry has grown steadily for almost a decade, and that growth seems to be continuing well into the 2020s. App developers will need to adapt to changing circumstances and increased competition, monetization models will change as user tastes change, and the way consumers interface with mobile apps is likely to change as service apps and the Internet of Things grow in prominence. Regardless of how the future plays out, though, the app industry is likely to become a more and more integral part of daily life and the global economy.