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July - 2011 - issue > Cover Feature
Mobile Apps Market The Big Challenge
Hari Anil
Thursday, July 7, 2011
The famous French romantic writer Victor Hugo once said, ‘There is nothing more powerful than an idea whose time has come,’ this stands true for Mobile Apps, it is a very brilliant idea and all it needed was the right time. Finally that time came and from the looks of it one can beyond doubt say ‘now is the time.’ Angry Birds stands as a testimony for this. If we go a decade back most of us might not have heard the phrase ‘Mobile Apps’, such a thing did not even exist then. Definitely there was application development in the back end but none that would attract the customer base as a whole, none that, even in the wildest of all dreams, would make a world of difference to the customers. Then came apple with its iTunes store and the rest were history.

To put things in perspective, let us take a look at Angry Birds. Developed by Rovio Mobile, it was first released for Apple’s IOS in 2009 and later in Android App stores. It has so far been the most downloaded app with more than 250 million downloads. Is it that magnificent a game or is there any other reason for this sort of success? No doubt on the quality of the game, still there is another factor that might have helped the game equally; the time it came out. The era of smartphones and high speed internet had just begun and this was giving app downloads a whole new dimension. According to a report by The Nielsen Company, by the end of 2011 the majority of mobile subscribers in the U.S. will have smartphones, good news for app developers.

Simultaneous to this enormous opportunity, a wave of challenges is also bubbling up. The challenges range from scarcity of available talent to lack of financial return, difficulty in retaining customers and more. Above all these, people seem to have this strange idea that unlike traditional software an app is a small piece of code that can easily be written. Well in reality an app is a full fledged software and requires equal amount of work if not more. Combine all these and we have a cutthroat market, to survive in which a company has to train itself to be a whole different animal. Let us look into some of the challenges faced by the players of the industry.

Monetizing Apps

The major dilemma for app developers is how to monetize their apps. In its report, ‘The State Of Mobile Apps’, The Nielsen Company stated that users of Apple App Store download one paid app for every two free apps they download, whereas users of Android Market and Blackberry App World stores are downloading more than 3.5 free apps for every single app they buy. Selling via app stores means sharing a major portion of the revenue, in some cases even as high as 70 percent, with the app store. On the contrary, offering free apps does not necessarily mean lack of financial return. By adding advertisements on free apps the companies are actually making money, so much so that at times this is more profitable than making the app paid. The scope for revenue for a paid app ends when the customer pays for it, but for the apps that follows the ad model revenue comes whenever someone clicks on the featured advertisement. For example, Angry Birds, when launched was a paid app in the Apple appstore but was launched in the Android market as a free app, and ended up making even more revenue from advertisements, more than $1 million a month.

Another model that developers are leveraging and is successful is the ‘in app payment model’. In this model a sample of the app is given for free and the completed version can be bought if necessary after using and getting familiar with the app. For example, for a 10 level game the first two levels can be given for free and then those who wants to play the rest of the game can pay for it from the app itself and download the entire version. By adapting a suitable model or models, companies can actually reinforce their finance models.

Attracting and Retaining Customers

Of the 15 billion plus apps downloaded so far, one out of every four apps is never used again. Customers are easily getting fed up with the existing apps and are demanding newer ones. This is forcing developers to bring out newer products with very little time in between. Let us not forget that a major share of the apps available in the market today are not up to the standard and this can be the reason why their user lifecycle is considerably short. Certain apps like Google Maps is a very well made app and it has a seemingly never ending lifecycle. It is also equally important to choose the right kind of apps to develop. “Apps like news, money control, and weather forecast, are something people always needs and will never get rid of. Our focus is on similar apps, unlike games or many of the utility apps they have a very long life cycle,” says Sreelakshmi V, Director, Divum.

Advertising can also be a challenge in the Indian market. Bringing out a good app that addresses a pain point of customers and advertising it through popular channels might be enough in the U.S. but not necessarily in India. Here, companies need to have a whole different approach; a whole different business model. Online reviews do not work in the country. The only way is if people start using the solutions, understand the benefits of it and then spread the review through the word of mouth. Free apps can help here as they double as an advertisement for the company.

Dearth of Skilled Labor

Skilled labor shortage is a very obvious challenge for any market that is this new and has grown at this pace. A recent report by The Wall Street Journal says that the available pool of mobile app developers is a far cry from reaching the required talent to meet the ever increasing demand in the space. Every, would be, entrepreneur needs a piece of this market and they are venturing into it with whatever resources they have, making the talent crunch even more severe. The industry has to act quickly to counter this problem else it will be too late.

Majority of the startup companies in this market have now started working towards resolving this. “We cannot compete with the biggies like Goggle or Accenture in the industry in terms of salary packages. So our strategy is to hire programmers who are hungry to learn and adapt to the mobile space. This will take some time though, so we will hire people now for an app we are planning on delivering by this time next year. By following this model the industry can have a sustained pipeline of skilled workforce,” says Sumit Mehra, CIO, YMedia Labs.

The Gate Keeper

Even after investing a lot of time and resources and creating a product that you know is world class, you still have to go through the gate keeper and convince him. The gate keeper in this case is Apple. It can, at times, be a pain to go past them and reach the iTunes.

A well known but rarely spoken fact among app developers is that iTunes is not really an open eco system as Apple calls it. Of course Apple is not the only one with an app store, there is an evolving Android store too whose rules and regulation are much more relaxed. Still Apple app store remains the Mecca of mobile apps. As Nielsen report suggested, a paid app is twice more likely to be downloaded in the Apple Apps store than from any other apps stores. Free apps also have more chances of getting downloaded from the Apple store.

Many companies are looking for alternative channels, apart from the app stores, to sell their apps. Some are targeting different dealers while others are going directly to the roots, which is the mobile manufacturer so that they can include the apps in the mobile itself.

U.S. vs. India

Will it be wrong if I say we are always a bit reluctant to adapt changes, especially when it comes to technology?

Well, as an example let us look at the ecommerce industry; in the initial stages of ecommerce we were not ready to accept it. Many Internet based Indian ecommerce companies had to migrate to foreign countries like the U.S. in order to survive. Likewise, the Indian mass has not yet responded very positively towards the mobile payment method. In U.S. most people now have PayPal accounts and most of the transactions are cash free. Mobile bill payments and money transfers are very popular among the folks in the U.S. and most of them are demanding such services from their service providers. Even thought all these facility are available in India, majority of the people are still used to the cash transactions. A lack of trust of technology or a plain lack of awareness has prevented us from utilizing mobile to its full potential.

Other apps, such as location based apps are very popular in the U.S., where people are opting for technical solutions for their problems. But a vast majority of Indians are still behind a smokescreen of distrust and lack of awareness when it comes to leveraging technology to make one’s life easier. “We are probably a generation behind U.S. in terms of awareness of the advantages of the apps, and there is not much the companies can do in this regard. This has to change on its own and more and more people have to come forward and start using apps to make their lives better,” says Arun Samudrala, Founder and President, United Mobile Apps.

Walking Blindfolded on thin Ice

There are wide cries on mobile startups failing. Why is this happening? The companies saw a huge market opening up and jumped in it without thinking much, just like jumping in to a frozen lake blindfolded. All one needs is a slippery thin portion to fall into the crisis of a lifetime. So before getting into it, try to stand back for a while, observe, think and try to weigh reasonably, ‘why and what’ you are trying to do. The market is special in several ways but try not to get too overwhelmed by these and be cautious about pot holes.

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