Developer Economics 2013 - Key Insights
[We’ve just published Developer Economics 2013: the tools report. This report [vm_form_download link_text='(free download)’ product_id=’3789′]! is based on a large scale survey across 95 countries and 3,460 developers. This is the definitive guide on the app economy packed with facts and figures about the platforms, screens and revenue models that developers are using. In this edition we take a close look into the tools and services that developers use to create, monetise and market their apps, including Ad networks & exchanges, Cross-platform tools and Backend-as-a-Service.]
In this article, you’ll find all key insights from the report – please give us your feedback and leave a comment below. Also – keep an eye out for more Developer Economics articles, and don’t forget to visit our newly launched Developer Economics portal!
Mobile market duopolies
Mobile handset Industry growing at 23% CAGR. Despite the doom and gloom circling many mobile handset makers, the industry has been on a steady growth trajectory achieving a 23% CAGR in revenues since 2009. Underlying this growth are the increasing smartphone sales that now account for over 40% of all handset sales, fuelled by low cost Android devices that are rapidly eating away feature phone market share.
A game of duopolies. The 700 million smartphones shipped in 2012 are underpinned by the Google / Apple duopoly in mobile platforms which jointly commands 80% in mobile developer mindshare. This is underscored by the Samsung and Apple handset maker duopoly, which combines a smartphone market share of 46%, and accounts for 98% of handset industry profits across the top-8 handset OEMs. Excluding Apple, total handset industry profits are at 2009 levels, implying that Apple is reaping all of the added value out of the apps-based mobile computing paradigm which it introduced. In this same period, Samsung captured the remaining value by quickly transforming from a feature phone incumbent to a smartphone leader, eating away the profits of the old guard Nokia who was slow to react to the changing basis of competition – from the best phones, to the best apps.
Samsung’s profit recipe. As the top-selling handset OEM in 2012, Samsung’s stellar success with Android smartphones is down to three differentiating elements: firstly in-house ownership of the most expensive hardware components, ensuring both earliest availability and lowest bill of materials. Secondly, fastest time to market in launching a new smartphone based on the latest Android software release. Thirdly, a strong Galaxy brand and marketing campaigns that differentiate Samsung from the crowd of tens of Android handset makers.
Tablets are still outsold 3 to 1 by PCs, but they are expected to reach parity in the next 1-2 years. This will be a critical inflection point for the PC duopoly of Microsoft and Intel, who are seeing their once-dominant position in computing being severely disrupted by mobility, where Android dominates platforms and ARM licensees Qualcomm and Mediatek dominate chipsets.
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Platform haves and have nots
Developers swarm around iOS/Android but keep looking for viable alternatives. Having established a dominant position in consumer markets, Android continues to lead mobile developer mindshare, with 72% of developers now developing for the platform, a 4 percentage point increase compared to our 2012 survey. iOS shows a 5 percentage point drop in Mindshare, which we attribute mostly to the influx of Asian developers showing a clear preference towards Android. Developer mindshare varies widely by region, with Android leading in Asia and Europe, while North America shows platform parity. The considerable share of mobile developers intending to adopt Windows Phone (47%) and BB10 (15%) indicate that there is still developer interest in a viable third app ecosystem.
HTML is the main technology competitor to the Android-iOS duopoly. HTML is the third most popular choice among mobile developers, 50% of whom use the HTML-based set of technologies as a deployment platform (to create mobile web apps) or as a development platform (to create hybrid apps or HTML code translated into native apps). Overall, HTML is much more successful as a technology, not a platform, with Firefox OS (and WebOS before that) being the main web-centric attempts at creating a complete alternative to iOS and Android, including native platform APIs, and a means to distribute and monetise apps. HTML should therefore be seen not as competition, but rather as a complement to native platforms, and one that reduces externalities by lowering barriers to entry and exit from these platforms.
Windows Phone: buy it and they will come. Windows Phone remains unchanged in developer mindshare at 21% of developers despite the very high intention to adopt in our previous 2012 survey. Developers seem to be waiting for the right market signals – a critical mass of handsets – before investing in the platform. Despite Windows Phone challenges, Microsoft has positioned Windows 8 as a tablet-too platform, and thanks to strong Windows license renewals, the company is able to reposition mobile market share figures to their advantage.
BlackBerry mobile mindshare remains stable at 16%, with developers being on standby mode in anticipation of BB10 sales. Moreover, Intentshare, i.e. developer plans to adopt BlackBerry, has not subsided since our 2012 survey, indicating that the major outreach effort undertaken by RIM during the build-up to BB10 release is having some positive impact. Symbian mindshare, on the other hand, is rapidly and predictably disappearing, as is, Samsung’s Bada, despite outperforming Windows Phone sales in Q3 2012.
74% of developers use 2+ platforms concurrently, but money is concentrated in iOS/Android. At the same time, developer platform choices are now narrowing. On average mobile developers use 2.6 mobile platforms in our latest survey, compared to 2.7 in 2012 and 3.2 in our 2011 survey. 80% of respondents in our sample develop for Android, iOS or both, making them the baseline in any platform mix. Developers that do not develop for one of these two platforms generate, on average, half the revenue of those developers that do, leaving little doubt as to the concentration of power within these two major ecosystems.
Most developers are iOS-first. iOS is a clear winner in the shoot-out against Android, with 42% of Apple/Google developers prioritising iOS, against 31% for Android. Several other factors come into play when making a decision on the “lead platform”, such as prior experience or local handset sales patterns, but iOS comes out as a clear winner across all platform competitive points except cost and learning curve.
iOS, Android and BlackBerry are lead platforms. In our survey of 3,460 developers, iOS emerged as the highest priority platform, with 48% of iOS developers using it as the lead platform among all others. iOS, Android and BlackBerry constitute lead platforms, which are most often used as a main platform among their developers. Windows Phone and HTML are extension platforms, as they are typically used by developers to extend their app footprint into customer segments or regions not adequately covered by their lead platform. At the tail end of developer preference are Symbian, Qt, Flash and JavaME ,the “gap fillers”, now used to address all remaining market niches.
HTML5 needs better native platform APIs, and development environment. HTML5 is becoming a viable alternative to native for developers working on app categories such as Business & Productivity (used by 42% of HTML developers), Enterprise (32%) and Media apps (28%). To compete with native, HTML5 needs better native API access (35% of HTML developers), a better development environment (34%), better debugging support (22%). More importantly, optimised HTML5 devices were not seen as important as the native API access or dev environment. This leads us to conclude that HTML proponents such as Facebook, Mozilla and Google should focus on cross-platform tools and development environments on at least equal measures as they focus on full platform efforts like Facebook Platform, Firefox OS and Chrome OS.
Tablets reaching developer mindshare parity with smartphones, but TVs remain niche. The majority (86%) of 3,460 developers in our survey target smartphones, while a large share of them also develop on tablets, led by iOS developers (76%) indicating the attractiveness of the iPad as a development and monetisation platform. TV development remains niche (6% of Android developers), as the hype cycle around the “Smart TV” experience is yet at a very early stage.
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The revenue haves and have nots
The steep learning curve of app entrepreneurship. Developers have a lot to improve in planning their app business. 49% of developers in our sample build apps they want to use themselves, but end up generating the least revenue. The most revenue-generating app planning strategies are those that extend an app either into verticals or different geographies. To some extent, these strategies rely on an already established and successful business: apps that have been tried and proven in at least one market and are generally less risky options or “low hanging fruit” for developers.
Advertising is now the most popular revenue model for apps, used by 38% of developers in our global sample. At the same time, it is the monetisation model with the least revenue per app. In-app purchases and Freemium are on the rise, having grown by 50% compared to our 2012 survey and are now used by more than a quarter of the developers in our survey. In-app purchase is now the second most popular revenue model on iOS, with 37% of developers using it, falling slightly behind Pay per download.
Lack of customer understanding in lean app development. We find it remarkable that only 24% of developers in our sample plan their apps based on discussions with users, a figure which does not change with development experience or proficiency. This indicates that the bottleneck of the build-measure-learn cycle of lean development is the “measuring”, or understanding customers. This highlights the need for a frictionless two-way feedback channel between developers and users, much like what GetSatisfaction pioneered for web apps, and which now HelpShift is pioneering for mobile apps.
The Developer Tools Landscape
Over 500 tools for today’s app developers, designers and entrepreneurs. In the last 3 years, developers have moved from being coders, to innovators, designers and makers – and a prized customer for the 100s of firms making up the SDK economy, part of the bigger B2D (business to app developer) market. Developer expectations for tools and services have changed in the recent years due to the flurry of startups, from Appcelerator to Zong, which emerged. App developers today have over 500 third party tools (APIs, SDKs, components) to choose from, catering to every stage along the developer journey. Developer tools, from ad networks to user analytics SDKs are a core part of the Android and iOS platform economics, and a major platform differentiator.
Ad services mainstream, other tools use is fragmented. 90% of the nearly 3,460 developers we surveyed use at least one third-party tool or service, with an average of 1.47 tools used concurrently. Among those developer services that we benchmarked the most popular is ad networks and exchanges (34% of developers), reflecting the widespread popularity of advertising as a revenue model. Advertising is the most popular revenue model, while ads can also act as a promotion channel that facilitates app discovery. User analytics (28%) and cross platform tools (27%) follow in popularity with a longer tail formed by developers of crash analytics, BaaS, cross promotion networks and voice services.
Google’s AdMob, is clearly the dominant mobile ad platform, adopted by 65% of developers that use ad services. AdMob has recently expanded to ad exchange services, a move that aims to counter the threat that ad exchanges pose for Google. Second runners, each used by 12% of developers in our sample, are Inneractive, an ad-exchange/mediation service and InMobi, an ad network growing out of India to become a major player in emerging markets. Apple’s iAd service comes fourth overall with 11%, and despite being quite popular among iOS developers, AdMob is the leading ad service on iOS, used by 66% of iOS developers that we surveyed.
PhoneGap and Appcelerator lead developer mindshare across 100+ cross platform tools. PhoneGap tops CPT rankings, used by 34% of developers, followed by Appcelerator and Adobe Air with 21% and 19% developer mindshare respectively. With over 100+ cross platform tools available, the choice for developers can be a challenge. Amidst differentiating features for CPTs are access to native APIs, performance optimisation and the ability to reproduce native UI elements on each platform.
The user analytics duopoly: Google (69%) and Flurry (49%) are well ahead of competition. User analytics services are becoming increasingly important as a tool to optimise app engagement and reach, and act as a proxy for user feedback. User analytics services are significantly more important for iOS developers – used by 39% of iOS developers in our survey vs. 28% for Android, 25% for WP and 15% for BlackBerry. Usage of analytics serves as an indicator of the level of competition among developers on different platforms.
Parse leads with 28% mindshare in Backend-as-a-Service tools but competition for second spot is heating up as BaaS rises in popularity. As mobile apps become more sophisticated, so the need increases for back-end features like managing users, introducing social features, or synchronizing cloud data. Mindshare leader Parse is followed by enterprise-focused CloudMine (11%). Sencha.io and ACS, both commanding a 10% share among developers using BaaS, are solutions that are well integrated with their corresponding development frameworks (Sencha and Appcelerator) and therefore do not directly compete with services such as Parse or StackMob. The Backend-as-a-service market is in early stages, crowded with over 30 vendors that strive to differentiate by constant innovation and additions to their feature sets – we have yet to see any service dominating the sector to the extent observed in other developer tools sectors, such as ad services or user analytics tools.
TapJoy (53%) is the leader in cross-promotion network mindshare, according to our survey of 3,460 developers, with Flurry AppCircle (20%) and Chartboost (18%) following behind. Cross-promotion networks (CPNs) are used by developers both as a means for promoting their apps by means of free traffic exchange across apps, ads paid by cost-per-app-install or in some cases incentivised installs. CPNs are also used as a revenue model, for developer acting as inventory publishers.
Voice APIs have not made the transition from web to mobile. While voice services cater to diverse use cases, their mobile developer mindshare is limited to single digits, as voice APIs are still tied to the developer perception of telephony, a long way from the future voice-enabled apps. Voice-enablement leaders Twilio and Voxeo have been much popular within web developer circles, with Twilio rising once in late 2011 to a top-10 API provider ahead of Facebook, as tracked by ProgrammableWeb. Yet these voice services are yet to make a major impact in mobile apps. Skype (telephony URIs) and Microsoft (speech recognition and transcription) are often used, followed by Twilio and Tropo API users who focus on conference calls, inbound/outbound calling and voice portal services. Telcos like AT&T, Verizon, Telefonica and Deutsche Telekom have also released voice APIs in 2012 in a move to extend telephony assets into new revenue-generating voice use cases.
The Developer tools universe expands and consolidates. The Business to Developer (B2D) market, has seen a continual expansion in the last three years, with a flurry of B2D startups emerging to address the ever increasing developer needs. For every 1,000 app startups, there is a developer tools startup. In parallel, there is consolidation taking place via organic expansion (e.g. Flurry, Papaya expanding services organically) and via mergers and acquisitions (e.g. Appcelerator acquired Aptana, Cocoafish, Particle Code and Nodeable, Apigee acquired Usergrid and Instaops, Burstly acquired TestFlight and Flurry acquired Trestle).
Consolidation to continue to 2015, led by mobile marketing and enterprise. We expect the trend of consolidation of the tools landscape to continue unabated until 2015, six years after the B2D market for apps was born, while expansion will focus only on unaddressed developer tools sectors in the post-launch phase of the developer journey. We expect two main clusters of developer tools to lead the consolidation: firstly, marketing tools, as the discovery bottleneck will only worsen as we go from 1.5M to 10M apps, and while the Apple and Google stores continue to dominate app distribution. Secondly, Enterprise Mobile Services, which are creating revenue demand for vendors to mobilise their intranets, and to allow employees to bring their own device (BYOD) to work. Unlike the consumer apps space, enterprises have a substantial IT budget per employee, and very stringent requirements for data security, identity management, backend systems integration, and support-level agreements.
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