The paradigm of usage for mobile phones is shifting. From being devices used for voice and text communication, mobile phones have become pocket personal computers (PCs). This shift began in 2007/2008 when Apple launched the iPhone and the App Store, which heralded the beginning of what is known as the ‘App Economy.’ Apps for phones are akin to what software packages are for PCs. Apps increase the functionality of mobile phones by performing specialist functions that can fall within the ambit of networking, business, navigation, gaming, education, finance etc. While in developed countries, smart phones are generally complementary goods to the PC; in developing countries, they are primarily substitutes, given that the majority of the population cannot afford PCs. In India, the household penetration of the PC is a paltry 11 percent indicating that smart phones and the apps they carry, can have a decisive impact on delivering services to previously excluded groups.
In the era of hyper-mobility, ‘pocket PCs’ such as tablets and smart phones, can drive productivity and mitigate informational asymmetries. In India, the last quarter of 2013 saw a 166 percent increase in the shipment of smart phones. This makes India the fastest growing smart phone market in the world. By virtue of this and the fact that each Indian smart phone hosts an average of 17 apps, it is not surprising that the market for apps is being referred to as an ‘economy’ in itself. In the USA and EU28, the app economy has thus far created 519,000 and 520,000 direct jobs respectively. In terms of revenue, EU28 countries get one-fourth of the total global revenue which amounts 13.85 billion USD per annum. This is especially significant given that the app economy is one of the few sectors that is growing despite the recession. The emergence of open-source software tools and platforms also multiplies the potential impact of this sector by allowing anyone from the public domain to take part in app development and distribution.
This is an opportunity for India which, if not captured soon, will represent a sunk cost. India is the third largest region in terms of app downloads for Google Play. However, it does not fall into the top ten revenue generating app economies. The monetisation challenge is particularly acute in India’s case because the Indian customer is highly price sensitive, credit/debit card penetration is low and the mobile-payments regulation is not favourable. In addition, the take-off of the app economy may be tempered by weak network infrastructure and spectrum constraints which will impede the deployment of newer generation technologies. The primary challenge for India is therefore two-fold, first, it must find innovative strategies to monetise its large base of downloads and second, it must ensure that its supporting ecosystem is conducive.
Business model innovation that takes into account India’s unique constraints is occurring. Given the difficulty of mobile-payments, physical retail outlets which permit cash payments for apps have been established (AppsDaily). Furthermore, telecom operators who earlier offered highly unfavourable revenue shares to developers have realised that this strategy is unsustainable in the face of global competition. Therefore, telecom operators such as Vodafone, have launched new app stores in India which adhere to the global norm of giving 70 percent of the total revenue to the app developer.
These changes represent steps in the right direction but much more remains to be done, especially on the policy front. While the app economy must certainly be left to operate on its own, the government still has a role to play in terms of ensuring robust network infrastructure. The RBI can also evaluate its mobile-payments regulation to ensure that online payments become easier such that the app economy and India’s digital economy, at large, take-off.
According to Microsoft estimates, currently 10 percent of all the apps in the global market are being created in India. Given India’s phenomenal growth rates in terms of 3G SIMS, smart phone shipments and app downloads, there is huge beckoning opportunity for job creation. However, if the network and financial infrastructure do not keep pace, the app market will become yet another missed opportunity for the Indian economy.