By the end of 2012, 60 percent of U.S. broadband households owned at least one app-enabled consmer electronic device. With connected device ownership at mainstream levels, there is a solid foundation for app development and rapid growth in app economies.
Of the primary devices used to access apps, smartphones have the highest penetration rates. Since 2010, however, newer app platforms such as tablets and smart TVs have experienced notable growth. Tablet adoption increased 208 percent from 2011 to 2012, and smart-TV penetration took off in 2011, increasing by 42 percent over 2010.
As connected device penetration rises, so does consumer usage of content outside of traditional channels. Parks Associates estimates smartphone and tablet app downloads in North America will reach nearly 7 billion by the end of this year.
The availability of connected apps has affected consumer media habits. For example, Parks Associates research finds consumers are increasingly using mobile devices and second-screen apps as alternatives to traditional remote controllers and interactive program guides while watching TV. Thirty-six percent of smartphone owners and 35 percent of tablet owners regularly use these apps to search for product/service information while watching TV, and over one-third search for show-related information or check TV listings.
Developer Success Factors
This crowded field of screens and connected devices puts more emphasis on the complete app development process. With more platforms in the hands of consumers, they have many more apps fighting for their time and attention.
These new mass-market conditions make each step in the development process critical. Regardless of the type of developer — from gaming companies and broadcast or cable TV networks, to amateur developers — several factors are critical to developer strategy. The main developer success factors include cross-platform reach, development ease, low-cost development and access to effective monetization solutions.
Device Scale and Audience Reach
The ability to reach the largest audience is the top priority among developers when selecting an app platform. In order to generate revenues, whether from fees or advertising, developers must support as many device platforms as their budgets allow. Cross-platform development tools are providing solutions that help achieve maximum cross-platform reach — generally within the smartphone market, but increasingly within tablet and smart TV platforms.
Among smartphones, Apple’s iPhone and Google’s Android-powered devices dominate market share. Android is the leading smartphone OS, capturing nearly one-half of the market, and Apple’s iPhone market share continues to grow. As of the third quarter of 2012, iOS and Android accounted for approximately 80% device penetration.
BlackBerry ownership share has been flat since 2011, and Windows phones experienced minimal growth between 2011 and 2012. Based on these findings, developers at a minimum will need to develop for both iOS and Android devices in order to reach a substantial portion of the smartphone population. Developing for all four guarantees the broadest reach, but would be expensive and time consuming with minimal returns.
The tablet market is similarly split. At the end of 2012, 40% of U.S. broadband households had at least one tablet. The Apple iPad owns the largest percentage, but Amazon’s Kindle Fire has close to one-fourth of the market. Programmers will need to develop for both models to capture the majority of the tablet population.
Finally, by 2016, 62 percent of North American TV households will have a smart TV. This device category is an important platform for apps; however, there is a clear divide between the mobile and smart TV app markets in terms of device and technology infrastructure, app development tools, and monetization control.
The disparate app development market impedes the ability of developers to create a true cross-platform app product. As a result, the industry likely will not realize a holistic cross-platform app development system in the near future (i.e., an ecosystem where smartphone and tablet developers can easily scale their products to smart TV platforms using standardized technology and developmental tools).
At this market stage, the inability to create an app once and deploy it across all connected platforms and devices, despite the availability of HTML5 technology, challenges app development and increases potential costs.
Programming and Development
Using existing programming skills (i.e., experience with a specific authoring language and development environment) provides a fundamental advantage for developers seeking multiplatform app deployment. Taking advantage of existing assets and knowledge base speeds up the development process considerably, and allows a developer to quickly bring an app to market.
It costs developers time and money to learn a new technology standard or recode an app product for a new device platform. Low-cost development is equally important to developers, particularly small or novice developers with limited investment capital.
The availability of open-source licenses reduces development costs. In some cases, developing an app for a new CE platform adds 50 percent to development budgets. The largest development expense cited by developers is coding time — that is, paying personnel to develop, debug and test an app. Additionally, developer registration fees for multiple app storefronts combined with marketing expenses further increases a developer’s up-front investment.
The stages of app development:
- Developer tools and software license fees.
- Development, debugging, and testing labor (first two stages account for approximately 55 percent of development costs).
- UX design (approximately 10% of development costs).
- Marketing (approximately 10% of development costs).
- Management (costs included with developer tools and software license fees).
Finally, tapping into turnkey monetization solutions is core to developer success, as these revenues will support app development, management, and distribution.
Developers can choose from a variety of business models, including download fees, in-app purchases, and in-app advertising. In order to generate the highest possible revenues, app developers depend on the leading distribution channels, the iTunes App Store and Google Play, because these services offer the primary monetization options and generate the highest app revenues.
App developers determine revenue models and set app prices, but they share a portion of their revenues with the app store. The standard revenue split between app owners and app distribution services is 70/30 — 70% goes to the developer and the app store keeps 30%.
Opportunities Bring Challenges
New trends in connected CE device ownership form a solid foundation for the continued growth of the connected app development and distribution ecosystem. Alongside adoption of connected CE devices, consumers of all ages use apps for entertainment, information, and social networking.
However, the opportunity present in rising connected device adoption rates produces an inherent challenge for an emerging industry segment — market fragmentation.
This issue is not unique to this industry, particularly at a time when consumers can access content or a service from multiple device platforms and distribution sources on their own terms. A company that seeks to distribute content, a product or a service must create an app product for multiple device platforms (from smartphones to smart TVs) to have the best chance to reach as many users as possible and achieve sustainable app revenues.
This step is necessary but difficult when faced with varying technology approaches, development environments, and distribution points. At this stage, many apps will launch and fail as they struggle to meet the new demands of this new market, but those who succeed will do so with in-depth consumer research and segmentation, targeted market intelligence, and a solid app development process.
Excellent article. A couple points. First, your comments regarding monetization largely ignore the fact that plenty of developers – myself included – do well for themselves not selling apps, but monetizing them with mobile ads (Thank you tapjoy and airpush!)… Secondly, Android has huge momentum over iOS right now. As you all reported a few weeks ago, Android phones reached a significant milestone during the fourth quarter of 2012. They drove more mobile advertising impressions than iPhones during a quarter, for the first time ever. There’s no shortage of monetization opportunities out there for developers today, particularly those focusing on Android.