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The Present And Future Of the App Business The appearance of a thousand new applications a day, the ongoing battle of advertising budgets, and the rise in the cost of hiring programmers is the reality of the mobile applications market. However, legislative initiatives and new technologies will soon change a lot

By Stepan Sergeev

Opinions expressed by Entrepreneur contributors are their own.

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Steve Buissinne from Pixabay

The boom in mobile applications that began more than 10 years ago has allowed many companies to attract audiences numbering in the tens of millions of users, and their founders to make some impressive fortunes. It was not so difficult back in 2009, when the App Store only had about 100 thousand registered applications, and the marketing platforms for their promotion were only just emerging. There are now more than a thousand new apps launched in the Apple Store every day, and the advertising budget for every cost per install (CPI) has reached an unprecedented $3.6 ($4.3 for games).

It has become incredibly difficult for small development studios to ensure their products have at least some degree of visibility before a potential audience, and the old methods of promotion have either stopped working altogether or have become prohibitively expensive. What can change such a stalled state of affairs? We can only hope for several promising trends to arise, including the adoption of new legislation in developed countries, the simplification of development processes, and the emergence of new technologies that could open up new market niches.

Let's consider that you have an idea, and we will walk through the entire development journey that a small studio consisting of 3-4 people and a founder must overcome in order to present their product in the App Store and gain a more or less acceptable core audience.

The Search For an Audience

We live in a world in the grip of the economics of attention. A huge number of players are competing for every minute the user spends behind the screen. These include the creators of media, games, social networks, instant messengers, and all kinds of services and applications. The total dominance of the advertising model of monetization is leading to the fact that attention retention is the only determining, and most important, factor in the earnings of these players.

The weighted average time that a user spends with his gadget in hand is currently inching closer to 5 hours a day. Back in 2019, this figure was 30% lower. Five hours is akin to a physiological limit, beyond which this indicator cannot grow if we do not want to turn our user into a regular of the Matrix. This means that competition among developers is only going to increase.

Another thing to take note of here is that creators of applications cannot count on capturing this entire time frame, as statistics show that 70% of user activity is spent on social media and photo and video apps like YouTube and TikTok. An indie developer will never be able to compete with them in principle. The ensuing battle will unfold for the remaining 30% in a world where, as we recall, more than a thousand applications are launched every day.

Various psychological techniques, game mechanics, and, of course, huge advertising budgets are being employed in this war, which has long overstepped the boundaries of common sense. According to the App Annie analytical service, total mobile ad spending was estimated at $295 billion in 2021 and is projected to grow to $350 billion in 2022.

How can a small development company make a stand in such conditions? In fact, there is only one way left now that leaves at least some measure of hope – the search for a suitable community. One to which the application in question and the function it performs can break through "banner blindness'.

Finding an unoccupied niche and becoming the only one in it is the sole path for a small company if it is not ready to spend more on advertising than on development itself. By the way, how much does that cost? Let's count the numbers.

The Development Process

Let's say you work from your living room. Or garage, it matters little in reality. Let's only count the most obvious expenses involved, excluding office rent, medical insurance, a paid gym, and a corporate taxi.

Statistics from Glassdoor show that in the US, the average salary of a sought-after, highly qualified mobile developer with 4-6 years of experience is about $9,000 per month. If this figure scares you, let's move to the quiet Eastern European country of the Czech Republic. Conversion of said sum into the local currency results in a $3,600 figure. Let's use this as a benchmark.

Based on experience, it is possible to state that it takes 4 months for a team of 4 people and a founder to create a typical utility application. Of course, this period varies greatly depending on whether they are making a primitive time-killer game or a social network, but the average value will be in the given range. It is easy to calculate that in 4 months, a team of 5 people will require $72,000 just to cover their salaries. Do the math to calculate how much a year of development efforts will cost.

By the way, there is the possibility to consider that a host of different specialists like targetologists, SMM managers, etc. will be required after the release of the product in the App Store. On the other hand, resources allocated to development can be reduced.

What can be done to avoid being left threadbare before the application is even launched? A good manager endowed with the gift of persuasion can try to negotiate with project participants about some options on future profits. Despite the dreary realities, there are still many passionate enthusiasts in the IT industry who are ready to believe in success with all their hearts. However, rising salaries and a generally high demand for programmers, especially experienced ones, can become an obstacle to effective persuasion.

The second aspect of the process that can help reduce costs in the future is the use of new development environments with a high degree of automation. It is now possible to instruct a bot to write a simple but functional application by simply providing it with an interface template. This will allow for the creation of an MVP about twice as fast as it would have taken back in 2015.

Another powerful and promising means of increasing the pace of development is the use of PWA applications. More like web pages, they are created quickly and can be placed on the home screen of a smartphone for increased visibility while avoiding the installation process itself at which many users are lost.

Deployment And Promotion

The application actually becomes public even before its official listing in the App Store. The app is evaluated by both automated store mechanisms and live specialists at the stage of moderation.

Every detail influences the future fate of the product, from interface elements, button labels, overall visual appeal, to smooth operation. When preparing for the release, it is necessary to ensure that the application does not consume too much battery power, demonstrates high performance and, of course, meets all of the officially published requirements of the platform. Surely, there are also internal service regulations within the platform, but we can only wonder what they pertain to.

For example, there is a strong belief that projects implementing the operating system features unveiled at the latest Apple presentation get the best launch conditions. Thus, the hosting company is engaged in the simple and free (for it) popularization of its innovations.

Finally, on the day of publication, the product is in line with a thousand other newborn apps. And it finds itself far down at the bottom of the list of search results. This is the well's rock bottom, with a glimmer of light barely visible high overhead. The battle of marketing budgets in recent years has led to the fact that developers will have to pay about $100 thousand per month to ensure at least some acceptable installation KPIs.

The amount practically does not depend on the selected channel, as prices across them have long been leveled. Amounts that are several times larger will be necessary for a truly effective budget that will allow the application to "take off' quickly, depending on the application. Let us leave out the games, where advertising expenses for promotion have become exuberant.

Sometimes, developers have "windows of opportunity' associated with the release of new advertising inventory by Apple. This is precisely what happened, for example, after the launch of Apple Search Ads. Not everyone managed to take advantage of the opportunity to buy a place in the search results at an affordable price. The rate for such placement took off like a rocket, quickly reaching the average market rate of $3.6 per install.

Advertising channels have been burned to the ground, and there is no way for a small company to reach profitability using these tools. Therefore, the stake is often placed on ASO (App Store Optimization) and Featuring.

True, there was a time when search engine optimization could have helped the application get a higher rank in the SERP. However, as this tool spread and many detailed optimization instructions were developed, it became more difficult to stand out from the crowd again. The adherence to the principles of ASO, such as the quality of visual creatives, optimization of the app page in the store, ratings above 4, quality reviews, etc., are just one of the prerequisites for preparing a project for publication. Compliance with it will not help oust applications from the top, as the task of the latter is to maintain a high position in the search results at any cost.

Featuring is getting into one of the thematic directories that are frequently published by Apple. The option can still help some indie projects attract a starting core audience, but the difficulty with this approach lies elsewhere. People are tired of switching between tabs and it's getting harder to lure them out of the store's main search box. Therefore, all the possibilities offered by Featuring, such as semi-automatic targeting by audiences, countries, devices, etc., no longer ensure a decisive win. If top apps can still get 10-30% of installs from this channel, smaller projects won't even get close to that share.

What can we do about it? First of all, collect statistics and analytics in the hope that valuable insight will flash by in the rows of numbers and help reduce acquisition costs. At the same time, never spend money on the myriad of analytics systems out there. Experience shows that a small development studio can easily get by with the standard set of platform tools in conjunction with AppsFlyer for attribution of installs and marketing, and Google Firebase for product analytics. This will allow for effective minimum budget management.

We've already mentioned that the best prospects currently lie with development studios that make a niche product for a niche audience. This is largely due to the fact that a narrow niche allows for achieving CPIs well below the market average. The effectiveness of advertising will be much higher if developers learn how to find the right communities and influence them directly. Guerrilla marketing and word of mouth in such communities will attract an audience, and subsequent active engagement with the community will help retain the audience.

What are some of the other new opportunities that will open up for developers, allowing them to make a bolder statement? Most of them will soon arrive from the realms of innovation and jurisprudence.

New Technologies

Although it seems that there are applications available to cater to any need, there are still niches that are not as saturated as others. These include projects in virtual and augmented reality. Games like Ingress, and more recently Pokemon Go, showed the potential of augmented reality technology by placing virtual objects in the real world. Things in this direction were expected to develop very rapidly, but we're still not witnessing this growth yet.

The case is similar with virtual reality or, more broadly speaking – the metaverse. It's customary to attribute the multi-user Roblox platform to the latter segment since it demonstrates incredible attendance rates. Its monthly audience has reached 200 million users, and its daily audience has exceeded 40 million. Where are the dozens of other more modern and advanced projects?

They are where Google Stadia and GFN for smartphones seem to have been over the last few years, while strangely remaining exotic. All these products require a very wide communication channel with minimal delays. Not every WiFi network can provide stable 25 Mbps with a latency of 5 ms, and mobile internet is out of the question.

The recipe for salvation has long been known and expected in the form of fifth-generation mobile communications. They will be able to provide such internet connection parameters that are sufficient to cater to the most complex and delay-sensitive applications. All their computing loads will be performed on a remote server, and the gadget will become merely an instrument of feedback and interaction.

It's clear that the widespread adoption of 5G will revolutionize the application market. Games will be the first, as always. Utility project developers will follow suit with the broad expansion of functionality. Of course, this market will also be gradually flooded with competition but will remain a "blue ocean' for developers for some time to come.

Legislative Initiatives

New legislative initiatives that are currently being considered in the US and the European Union will result in no less significant changes for the mobile application market.

The adoption of the Digital Markets Act (DMA) bill, which passed another approval in the EU Parliament on March 24, will be a heavy blow to "bigtech' and monopoly mobile platforms. Designed to ensure fair competition and provide more choice for users, it severely limits the power of the iOS and Android ecosystems.

Large platforms, which include all the major social networks, instant messenger services, and operating systems, have received the status of gatekeepers and will be forced to provide the freedom of choice of browsers, virtual assistants, and search engines, as well as ensure integration opportunities for smaller competitors.

In addition, gatekeepers will be prohibited from providing advantages to their own services in relation to competing ones, providing them with priorities in searches, etc. As the members of European Parliament have stated, Apple could be forced to allow its users to download apps from third-party app stores. Moreover, a possible fine for disobedience can amount to up to 20% of the company's global turnover.

News coming from the US leaves even less room for optimism among the tech giants. American legislators have been working on improving the Open Market Act bill since August of last year, which differs from the European one in its details, but carries the same semantic message.

Just as in Europe, at home, Apple will be ordered to open the possibility of installing applications from third-party stores, and at the same time stop the practice of imposing their own payment system for internal transactions and refrain from preventing developers from pursuing an independent pricing policy both on the Apple platform and beyond its limits.

The EU has opted for softer regulations, while the option being adopted in the US is more stringent. However, in both cases, the adoption of the new legislation is inevitable, as the market has been moving towards this development for the last 5-7 years.

In this regard, what advice can we give to a small development studio? For example, it is worth recognizing that very small startups are not included in the DMA's focus. To a much greater extent, the document is aimed at protecting projects undergoing B, C and Pre-IPO investment rounds. It is at this point that companies are most vulnerable. We all remember the cases when the platform suddenly released an analogue of a popular application, which then surprisingly ranked higher in the search results than the "original'. The disadvantages of monopolization were clear to all, and the dominant situation could not last forever.

As for the emergence of alternative stores, this is a very serious change for Apple, which may be fraught with danger. Loss of traffic in the App Store and monetization through third-party gateways can force a company to start fighting, formally complying with the requirements of the law.

Speaking purely hypothetically, a developer company using some new features may encounter difficulties when working with the platform API, complex and multi-stage procedures for switching users to another payment system for each transaction, etc. A long chain of forms that need to be filled instead of a one-click solution. Why not?

Great attention should also be paid to the fact that laws similar to those being adopted in the US and the initiatives of the EU will be implemented in one form or another in all developed countries. And since the specific set of requirements will vary in the early years, developers will need to tailor their UX for each region.

Each company will have to decide on its own whether to circumvent Apple's principles in the first place. Will this affect, for example, the likelihood of getting into Featuring and participating in other stimulating activities?

As for the strategy that Motiday adheres to, we have decided to opt for a wait-and-see approach. Within a few months, or six months after the entry into force of the new laws, it will be possible to draw some preliminary conclusions about the exact prospects these changes promise. In particular, we do not plan to change the monetization model either, until it becomes completely clear that it is becoming mainstream. But one thing is for certain – a new era is looming for the mobile market, and so far, it seems much friendlier to small companies than its predecessor.

Stepan Sergeev

Business development expert and founder of Motiday

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