Appstore direct revenue to surpass US$14B in 2012

Optimist revenue forecast indicates opportunity for mobile network operators to compete with vendor appstores and win consumers over for a share of the pie, says analyst firm Canalys.
Written by Jamie Yap, Contributor

Appstores' direct revenue from app sales, subscriptions and in-app purchases across both smartphones and slates will hit US$14.1 billion in 2012, a 92 percent surge from an expected US$7.1 billion by the end of this year.

According to a report Wednesday by Canalys, by 2015, the revenue figure will swell to US$36.7 billion. This equates to a compound annual growth rate (CAGR) of just below 50 percent between 2011 and 2015.

The optimistic forecast points to an excellent opportunity for mobile network operators (MNOs) to give vendor appstores "a run for their money".

Canalys analyst Tim Shepherd explained in the report that operators find it hard to compete with appstores which already boost hundreds of thousands of apps in their inventory. However, having too much choice also means "serious problems" when it comes to app discovery, which can plague both users and developers, Shepherd said.

MNOs can turn this challenge to their advantage, he added.

Consumers are inundated with an "overwhelming" choice of apps, especially in popular categories such as weather, many of which may not have any user ratings or reviews.

Shepherd said operators can fill this gap by leveraging their detailed subscriber data to offer an improved customer experience and bolster customer loyalty. For instance, MNOs can provide a narrower but fully vetted list of apps that can be tailored by user preference.

He highlighted that today's consumer behavior is causing major shifts in the mobile space. As consumers typically bring their mobile devices everywhere, end-user appreciation for the convenience of connected mobile apps and Web services is growing. New market opportunities for time- and location-specific services are being created and can be tapped, he pointed out.

"When it comes to detailed subscriber data, operators certainly have the competitive advantage," the analyst said. "While they must clearly be careful to respect their customers' privacy, the data they hold leaves them well-positioned to propose targeted marketing services such as promotions and recommendations, as well as richer editorial guidance, better localization, improved security and simpler billing processes."

Create telco-branded appstores
Shepherd reiterated that the market opportunity for mobile apps is still growing rapidly, with shipments of some 419 million smartphones and 43.3 million tablets expected for this year alone. He added that mobile apps are a "disruptive technology force" that will impact the customer lifecycle, from acquisition and retention, to lifetime value and profitability.

Therefore, operators have more to gain by developing their own branded appstores and should not fear that doing so is akin to "walled gardens of the past", Shepherd advised, referring to how telcos previously had control over apps, content and media pushed to mobile devices.

A "vibrant" app ecosystem can lure new customers and make it easier to "upsell" existing customers to higher-end handsets and larger data contracts, he added. Another potential benefit is that pre-paid subscribers may feel encouraged to sign up for post-paid contracts.

Even if consumers do object to operators installing their own appstores in place of vendor marketplaces, Shepherd said this should not stop operators from pre-installing their appstores on the device, alongside vendor appstores, and competing on user experience.

"Consumers continue to value mobile device design and functionality, but the quality and availability of certain apps will progressively influence their buying decisions," he said. "By building on their strengths, operators can capture more of the market while delivering a better customer experience."

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