The Mobile Application Market

Executive summary

Software especially developed for mobile phones has been around for well over a decade and before the term application (app) store was popularized, distribution of mobile content and applications was often realized through portals which were managed by network operators. Operator portals had some success in selling mobile content but the ecosystem was at first unclear and did not attract enough developers and users to really take off. The Apple App Store – an on device centralized store – with easy to find applications and with a simplified business model for developers, was later the disruptive force that kick-started the market for mobile applications. The success was immediate and within its first week of operation, the App Store accounted for 10 million app downloads. Today all leading operating system providers and handset vendors have followed and launched their own application stores.

The ecosystem around devices consisting of services and applications has today become an important influencing factor for users when choosing handsets. Therefore, it is important for mobile platform vendors to achieve a prosperous mobile app ecosystem that creates revenues for publishers and value for end users in order to increase customer loyalty and sell more devices. Even though the directly generated revenues in mobile app stores still are comparably small, the importance of mobile apps is self evidential when observing the consumer interest in apps as well as the fact that apps attract and generate revenues for a growing mobile community of software developers, publishers, media owners and mobile ad companies. In 2010, there were approximately 10 billion app downloads made on all mobile platforms. Consumers are getting used to expanding the functionality of their devices through apps and Berg Insight anticipates the number of app downloads to almost threefold year-on-year in 2011.

Even if featurephones are able to run apps, the increased sales of smartphones and the rising popularity of apps are closely tied together. In 2015, over 70 percent of all handset shipments will be smartphones, building a large user base that will spur the number of app downloads to reach almost 100 billion during 2015. The number of app downloads per platform will gradually mimic the market share for each mobile platform. However, some of the newer platforms, such as iOS and Android, are much more app centric than older platforms such as Symbian. Also, network effects in the symbiosis between users and developers, reinforces the most popular platforms and attracts both more developers and users. Berg Insight forecasts that iOS and Android combined will serve over 62 percent of the total app downloads in 2015. The Windows Phone operating system is projected to be the third most popular application platform in 2015. Berg Insight estimates that revenues from paid applications, in-app purchases and subscription services – so called direct revenues – reached € 1.6 billion in 2010.

Berg Insight forecasts direct app store revenues to grow at a compound annual growth rate of 40.7 percent to reach € 8.8 billion in 2015. Apple’s iOS is the current leader in direct monetisation of mobile applications and will keep the number one position during the forecast period. In 2010, the Apple App Store generated revenues of € 1.33 billion. In 2015 the company’s app store is predicted to generate € 4.4 billion in direct revenues. The Android platform is the second largest platform in terms of direct revenues and generated € 80 million during 2010 which will grow to almost € 1.5 billion in 2015. The market for in-app advertising took off during 2010 as a means to capitalize on free apps. In-app advertising generated € 300 million representing 16 percent of the total app revenues during the year. In 2011, app advertising revenues will more than double to reach € 750 million. The in-app advertising revenues will increase throughout the forecast period and in 2015, in-app advertising is forecasted to generate € 3.5 billion corresponding to 29 percent of the total app revenues. In-app advertising is more of a volume game and Android will surpass iOS in 2012 as the platform that generates most in-app ad revenues. Berg Insight predicts Android to generate over € 1.2 billion in in-app ad revenues in 2015, up from € 39 million in 2010. The iOS platform generated € 230 million in 2010 and is forecasted to reach almost € 1.0 billion in 2015.

Global Wireless Technology Industry

Table of Contents

Table of Contents. i
List of Figures. vi
Executive summary.1

1 Introduction to mobile applications .3

1.1 Background .3
1.1.1 App stores simplify distribution for developers.4
1.1.2 Explosion in the number of apps and app stores.4
1.1.3 Mobile Internet and the rise of the mobile app market .5
1.2 Mobile application platforms .6
1.3 Mobile application categories .7
1.3.1 Gaming9
1.3.2 Entertainment 10
1.3.3 Books 10
1.3.4 Communication.11
1.3.5 Utility and productivity.11
1.3.6 Mobile enterprise.12
1.3.7 Other categories12
1.4 App usage .13
1.5 App discovery14
1.5.1 Third party app directories 15
1.6 App store network effects16

2 The mobile application ecosystem19

2.1 Mobile handset market overview.20
2.2 The smartphone market 22
2.2.1 Focus shift from devices to mobile app ecosystems24
2.2.2 Touch input and advanced sensor technologies drives app innovation26
2.2.3 Apps and improved hardware enables smartphones to challenge PCs 27
2.3 Mobile application platforms .28
2.3.1 Android29
2.3.2 BlackBerry OS.30
2.3.3 iOS.30
2.3.4 Symbian 31
2.3.5 WebOS32
2.3.6 Windows Phone 7 .33
2.3.7 Brew MP 34
2.3.8 Samsung’s Bada platform.34
2.3.9 Java for Mobile Devices 35
2.4 Mobile network operators and the app market .35
2.4.1 App markets reduce operators to broadband providers 36
2.4.2 Operators launch their own app stores to reclaim control .36
2.4.3 The Wholesale Application Community37
2.4.4 Operator opportunities in the mobile app market.37
2.5 Mobile app developers and publishers .38
2.5.1 Gaming is the most popular app category for developers .39
2.5.2 iOS and Android are the most popular platforms for developers.41
2.6 In-app ad solution providers and ad networks43
2.6.1 Digital ad networks and in-app ad solutions.44
2.6.2 Apple – iAd 46
2.6.3 RIM – BlackBerry Advertising Service .47
2.6.4 Microsoft – Windows Phone 7/Microsoft Advertising47
2.6.5 Nokia – Ovi Store in-app advertising add-on 47
2.6.6 Google – Admob.48

3 Mobile application stores.49

3.1 OS developer application stores .52
3.1.1 Android Market52
3.1.2 Windows Phone Marketplace53
3.2 Device vendor application stores 53
3.2.1 Apple App Store 53
3.2.2 BlackBerry App World.54
3.2.3 HP App Catalog.55
3.2.4 Nokia Ovi Store .55
3.2.5 Samsung Apps56
3.2.6 LG World .57
3.3 Operator application stores.57
3.3.1 AT&T AppCenter .57
3.3.2 Bharti Airtel App Central.57
3.3.3 China Mobile Mmarket 58
3.3.4 Orange App Shop .59
3.3.5 Verizon V CAST Apps59
3.3.6 Vodafone 360 Shop.59
3.4 Third party application stores60
3.4.1 GetJar60
3.4.2 Amazon Appstore for Android.61
3.4.3 Appitalism62
3.5 White label application stores .63
3.5.1 Appia .64
3.5.2 Huawei’s WAC enabled Digital Shopping Mall Solution.64
3.5.3 Ericsson eStore .65

4 Mobile app store economics .67

4.1 Application store revenues 67
4.1.1 Revenue share models .68
4.1.2 Mobile app marketing .69
4.2 App store billing solutions .69
4.3 Mobile app pricing.71
4.4 Mobile application monetisation strategies and business models .72
4.4.1 Paid apps 74
4.4.2 Freemium – one free limited version combined with one premium version74
4.4.3 In-app payments .75
4.4.4 Subscriptions 76
4.4.5 Ad-funded77
4.4.6 Marketing and brand apps79
4.4.7 New channel to market .80
4.4.8 Bundle component80
4.4.9 Attract a large user base and building communities 80
4.4.10 Free apps 81
4.4.11 Mobile app business model trends.81
4.4.12 Choosing monetisation strategy .82
4.4.13 Cross platform development and multi monetisation strategies reduce risks83

5 Market forecasts and conclusions.85

5.1 Market forecasts by mobile platform.87
5.1.1 Application download forecast by mobile operating system87
5.1.2 Direct revenues forecast by mobile operating system88
5.1.3 In-app advertising revenues forecast by mobile operating system90
5.2 Market forecasts by region 91
5.2.1 Application download forecast by region .91
5.2.2 Direct revenues forecast by region .92
5.2.3 In-app advertising revenues forecast by region93
5.3 Conclusions and strategic advice .94
5.3.1 App stores is about successful ecosystems.94
5.3.2 E-commerce, content and subscriptions – opportunities with impediments .95
5.3.3 Business models and monetisation 96
5.3.4 Mobile platforms and cross platform development 96
5.3.5 The mobile web, HTML5 web apps and native apps98

6 Industry players .101

6.1 Device vendors 101
6.1.1 Apple .101
6.1.2 Nokia .102
6.1.3 Research In Motion .103
6.1.4 Samsung Electronics 104
6.2 Mobile operating system vendors .105
6.2.1 Google.105
6.2.2 Microsoft106
6.3 Mobile operators107
6.3.1 AT&T107
6.3.2 Verizon Wireless107
6.3.3 Vodafone .108
6.3.4 China Mobile .108
6.4 Developers and publishers109
6.4.1 Electronic Arts - EA Mobile and Chillingo .109
6.4.2 Gameloft 110
6.4.3 Rovio .110
6.5 Third party in-app advertising solution providers110
6.5.1 Smaato 110
6.5.2 Amobee.111
6.5.3 Tapjoy112
Glossary 113


List of Figures

Figure 1.1: Share of downloads by app category (May 2011) .8
Figure 1.2: Application usage by category.13
Figure 1.3: Top app discovery methods.14
Figure 1.4: Examples of app directories, search and discovery services (June 2011)15
Figure 1.5: Network effects between users and developers 16
Figure 2.1: The mobile application ecosystem.19
Figure 2.2: Mobile subscriptions and handset sales by region (2010) 20
Figure 2.3: Smartphone and featurephone shipments (World 2005–2010).21
Figure 2.4: Unit shipments and market share by vendor and OS (World Q2-2011) 23
Figure 2.5: Active smartphone user base by OS (World 2007–2011) 24
Figure 2.6: Smartphone shipments by primary input mechanism (World 2006–2010) .26
Figure 2.7: Overview of key smartphone operating systems (Q2-2011) 28
Figure 2.8: Mobile application developer origin .38
Figure 2.9: Examples of mobile application developers (May 2011) .39
Figure 2.10: Number of available apps by mobile app stores (January 2010–July 2011).42
Figure 2.11: Examples of mobile ad networks .45
Figure 3.1: Leading mobile app stores (July 2011)50
Figure 3.2: Leading app stores by number of downloads per day (May–June 2011) .51
Figure 3.3: Examples of operator application stores (July 2011).58
Figure 3.4: White label mobile app store providers63
Figure 4.1: Direct revenues by mobile operating system (World 2010) .67
Figure 4.2: Mobile app revenue streams 68
Figure 4.3: Billing solution characteristics 70
Figure 4.4: Payment methods supported by mobile application stores 71
Figure 4.5: Mobile app price development.72
Figure 4.6: Mobile application monetisation strategies73
Figure 4.7: Free versus paid apps available for iOS and Android devices (May 2011) .74
Figure 4.8: Ad-funded app category ranking77
Figure 4.9: Top 3 app business models ranked by generated revenues (May 2011) .81
Figure 4.10: Free versus paid business models for different application types.83
Figure 5.1: Mobile application downloads and revenues (World 2009–2015) .85
Figure 5.2: Handset shipments by segment and price range (World 2009–2015) 86
Figure 5.3: Application downloads by mobile operating system (World 2009–2015)87
Figure 5.4: Direct revenues by mobile operating system (World 2009–2015) .89
Figure 5.5: In-app ad revenues by mobile operating system (World 2009–2015) .91
Figure 5.6: Mobile application downloads by region (2009–2015) 92
Figure 5.7: Direct revenues by region (2009–2015) .93
Figure 5.8: In-app ad revenues by region (2009–2015) .93

Wireless Technology in World

Bermuda Number Of Cellular Mobile Phone Subscribers (`000)

• $ 250
• Industry data
• February 2013

Yearly, From 1990 To 2017
By Business Monitor International
Source: World Bank (International Telecommunications Union - ITU), BMI research

• Industries : Mobile Telephony, Wireless Technology
• Countries : World

Iran Number Of Cellular Mobile Phone Subscribers (`000)

• $ 250
• Industry data
• February 2013

Yearly, From 2002 To 2017
By Business Monitor International
Source: World Bank (International Telecommunications Union - ITU), operators, BMI

• Industries : Mobile Telephony, Wireless Technology
• Countries : Iran, World

Laos Number Of Cellular Mobile Phone Subscribers (`000)

• $ 250
• Industry data
• February 2013

Yearly, From 2003 To 2017
By Business Monitor International
Source: World Bank (International Telecommunications Union (ITU)), BMI research, Operators

• Industries : Mobile Telephony, Wireless Technology
• Countries : Laos, World

Peru Number Of Cellular Mobile Phone Subscribers (`000)

• $ 250
• Industry data
• February 2013

Yearly, From 2003 To 2017
By Business Monitor International
Source: Osiptel, Operators, World Bank (International Telecommunications Union - ITU), BMI research

• Industries : Mobile Telephony, Wireless Technology
• Countries : Peru, World

Saint Vincent Number Of Cellular Mobile Phone Subscribers (`000)

• $ 250
• Industry data
• February 2013

Yearly, From 1992 To 2017
By Business Monitor International
Source: World Bank (International Telecommunications Union - ITU), BMI research

• Industries : Mobile Telephony, Wireless Technology
• Countries : World