"Sizing the EU App Economy" by David Card and Mark Mulligan, Gigaom Research

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Published on February 17, 2014

Author: eurapp

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Sizing the EU App Economy / Brussels, Belgium / 13th February 2014

Sizing the EU app economy David Card, Mark Mulligan Gigaom Research February 2014

Agenda • • • • • Developer strategies, objectives App revenue forecast App jobs forecast (profiles) Bottlenecks facing EU app developers and markets Potential solutions, opportunities

Key findings • • • • • • €63 billion revenue opportunity in 2018, over half contract work Gaming = ‘superstar’ economy to-date Only 42% of independent developers do work-for-hire today 4.8 million jobs supported in 2018, including 2.8 million developers Business bottlenecks outweigh technical challenges Key potential bottleneck relief: – Discovery platforms – Marketplaces

European app economy Aftermarket New Platforms New Platforms App Developer Types Originator Environment Social OS suppliers API suppliers Devices Large Independent Developers Mobile In-house Developers Smart TV Small Independent Developers, H obbyists Revenue/Spending • Consumer spending • Business spending • Advertising • In-app spending (virtual goods) Jobs/employment App Stores, 3rd party app-discovery

New platforms: smartphones just reaching mass market status in EU, 4G lags badly (millions) Smartphone Shipments, 2012-2017 500 450 400 350 300 250 200 150 100 50 0 2012 North America 2013 2014 2015 Western Europe 2016 Japan 2017 China Source: Smith's Point Analytics/Gigaom Research, 2013

While Facebook adoption passing 50% Facebook Subscriber Growth 250 (millions) 200 150 100 50 0 Mar-11 Jun-11 Europe Seo 2011 Asia Dec-11 Mar-12 North America Source: Internet World Stats, 2012

Missed opportunity – contract development How does your company try to make money off apps? Charge for apps 44% Develop apps for others 42% Advertising 31% In-app charges 30% Licensing tech to others 20% App is promotion for something else 11% We don't try to make money off apps 14% 0% 20% 40% 60% 80% 100% Share of respondents Source: Gigaom Research EU independent developers survey, 4Q 2013 N= 199

In-house developers feel more successful Satisfaction with app objectives 19% Usage, adoption Revenue, business benefits 39% 16% To improve customer experience of our… Independent developers 35% 40% 38% Marketing for products, services 39% 38% To sell products, services 37% Reduce customer service costs 38% Charge for apps themselves Internal use by employees 0% Very satisfied 28% 35% 29% 32% 38% 20% In-house developers 34% 40% 60% Somewhat satisfied 80% 100% Share of respondents Source: Gigaom Research EU independent developers survey, 4Q 2013 N= 193 Gigaom Research EU In-house developers survey, 3Q 2013 N= 517

More apps, especially from in-house developers Number of apps planned 8% 5% One 27% 24% 2-3 4-6 24% 21% 7-15 22% 24% 16-30 9% 12% More than 30 Independent developers In-house developers 8% 12% 4% 2% None 0% 20% 40% 60% 80% 100% Share of respondents Source: Gigaom Research EU independent developers survey, 4Q 2013 N= 199 Gigaom Research EU In-house developers survey, 3Q 2013 N= 522

Key drivers and inhibitors Market Drivers • • • • Smartphones have hit mainstream and tablets are chasing hard App spending is accelerating across diverse age groups In app billing is emerging as ‘the freemium model that works’ The market is at an early stage of growth (lots of growth potential) Market Inhibitors • • • • • • There is a heavy skew towards games, especially for in-app purchases There is a heavy concentration of revenue in a small number of companies Games is a hit business – makes sustainability challenging Many smartphone users are ‘dumb’ users Rise of large emerging markets will absorb much future revenue growth Large amount of EU revenue flows out to cheap non-EU developers

App spending grows from €6.1B to €18.7B (millions) EU app spending, 2013-2018 € 9,000 € 8,000 € 7,000 € 6,000 € 5,000 € 4,000 € 3,000 € 2,000 € 1,000 €0 2013 2014 Paid app 2015 In-app 2016 2017 Advertising Source: Gigaom Research, 2014 2018

The EU app store balance of trade EU App Store Spending and Revenue 20,000 € € 18,668 € 17,369 EU App Balance of Trade 2013: -€128m 2018: -€1.3bn 15,000 € 10,000 € € 5,987 € 6,115 5,000 € 0€ 2013 2018 App Store EU Developer Revenue App Store EU Consumer Spending Source: Gigaom Research, 2014

The app store ‘Superstar’ economy 42% € 28 Top 100 grossing mobile apps are by EU developers Top 100 app revenue earned by EU developers Number of EU companies in the top 100 800m

Half of in-house developers also use 3rd party developers Mobile and social apps approach Develop in-house 63% Outsource to third parties 53% Integrate with commercial apps from consumer apps stores 39% Integrate with commercial apps from business apps stores 19% 0% 20% 40% 60% 80% 100% Share of respondents Source: Gigaom Research EU In-house developers survey, 3Q 2013 N= 525

Consumer spending flows into EU but out again as outsourced developer costs

Contract work drives total developer revenue from €17.5B to €63B (millions) EU app developer revenue, 2013-2018 € 50,000 € 45,000 € 40,000 € 35,000 € 30,000 € 25,000 € 20,000 € 15,000 € 10,000 € 5,000 €0 2013 2014 2015 2016 2017 App store revenue (paid, in-app, advertising) Contract work revenue Source: Gigaom Research, 2014 2018

Distribution of 2013 EU app income App Store Revenue Contract Work 0 Revenue € 318 € 1,144 € 3,669 € 7,861 € 4,526 Small independent developers Large independent developers In-house developers Source: Gigaom Research, 2014

EU app economy powers 1.8M jobs now, could go to 4.8M in 2018 EU app economy jobs, 2013-2018 3,000 (thousands) 2,500 2,000 1,500 1,000 500 2013 2014 App Developers 2015 2016 2017 Additional app economy jobs Source: Gigaom Research, 2014 2018

2.7M developers in 2018, most at independents EU app developer jobs, 2013-2018 1,200 (thousands) 1,000 800 600 400 200 2013 2014 Small independent developers In-house developers 2015 2016 2017 2018 Large independent developers Source: Gigaom Research, 2014

EU app economy supports attractive jobs

Independent EU developers cite business, talent bottlenecks Most challenging bottlenecks for independent EU developers Business & financial 13% 38% Talent 11% Technical 8% 32% 28% Market 5% 22% 0% Most difficult 50% Somewhat difficult 100% Share of respondents Source: Gigaom Research EU independent developers survey, 4Q 2013 N= 197

Independents: difficult to charge, expensive to gain customers Top business & financial bottlenecks for EU independent developers 40% Users won't pay at all or pay enough 30% Expensive customer acquisition costs Platform revenue sharing demands 22% Proprietary or fragmented payments systems 17% Lack of 3rd party discovery/promotion 17% Complex taxation environment 16% Low spending on app advertising 15% Access to capital/finance 14% Restrictive privacy or data regulation 0% 12% 20% 40% 60% 80% 100% Share of respondents Source: Gigaom Research EU independent developers survey, 4Q2013 N=197

Talent bottlenecks include salaries, education, business skills Top talent bottlenecks for European apps 36% 40% Harder to attract talent: lower salaries for developers vs. US 31% 33% Relatively less-developed coding, mobile and social networking app development education 27% 32% Independent developers Lack of business expertise at startup developers 29% In-house developers 28% Relatively fewer software companies to spin off developers 25% 24% Relatively fewer developers 0% 20% 40% 60% 80% 100% Share of respondents Source: Gigaom Research EU independent developers survey, 4Q2013 N=194, Gigaom Research EU In-house developers survey, 3Q 2013 N= 522

Developers frustrated by platform divergence Top tech bottlenecks for European apps 33% 38% Lack of cross-platform compatibility 21% 28% Lagging European 4G adoption Breadth, depth of services/tech aviailable via API 23% 19% Difficulty in adding social functionality to apps Programming or development tools Difficulty in delivering good/common user experience across mobile and web Immaturity of open-source tech, community Data available via API 0% 8% 18% Independent developers 24% 18% In-house developers 31% 18% 16% 16% 24% 14% 20% 40% 60% 80% 100% Share of respondents Source: Gigaom Research EU independent developers survey, 4Q2013 N=193, Gigaom Research EU In-house developers survey, 3Q 2013 N= 522

Platforms again, and a variety of market fragmentation issues Top market bottlenecks for European apps App platforms dominated by Apple, Google, Facebook, etc. 37% 31% 33% 30% Multiple languages 25% 28% Inconsistent regulatory policies 17% 24% Restrictive regulatory policies Euro users lag other markets in tech adoption Independent developers 25% 19% In-house developers 21% 19% Small European country markets 6% Multiple currencies 0% 15% 20% 40% 60% 80% 100% Share of respondents Source: Gigaom Research EU independent developers survey, 4Q2013 N=197, Gigaom Research EU In-house developers survey, 3Q 2013 N= 522

Key solutions and opportunities • Reducing customer acquisition • Hubs (could be part of costs Marketplace) – Third-party discovery platform – Search-marketing techniques (paid listings, enforced relevance) • Marketplaces – Matchmaking – Qualifying – Negotiating – Business skills education – Technical education – Code sets, templates • Cross-platform solutions – Technologies (HTML5), methodologies (responsive design)

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