1. The App Frenzy —
Just a Short-Lived Fad?
HTML5 is poised to shake up the smartphone apps market
2. Authors
Laurent Viviez, partner, London
laurent.viviez@atkearney.com
Maria Molina, consultant, London
maria.molina@atkearney.com
Ulrich Loewer, consultant, London
ulrich.loewer@atkearney.com
3. T
he staggering growth of the smartphone applications (apps)
market in the past four years has fundamentally changed the way
in which people access and consume content, and caused
a paradigm shift in competitive dynamics for telcos, OS/app stores and
handset manufacturers. But native apps might be a short-lived fad.
They may be fundamentally challenged by the advent of HTML5 —
a platform that addresses several significant drawbacks in the native
app customer experience.
native smartphone apps took off four years ago across various apps stores. The apps market is now
after Apple launched the first iphone. initially, worth approximately $12 billion in revenues and
Apple’s intention was to create Web apps for the is projected to surpass $38 billion by 2014 —
iphone, which could be accessed via widgets, but that’s larger than the global music publishing
the fragmented Web app environment prompted industry (see figure 1 on page 2).1,2
Apple to release instead a tool that would allow native apps’ extraordinary success is under-
developers to create native apps for the handset. pinned by the slick experience they deliver to con-
Apple then created the App Store and the app sumers, which addresses most of the limitations
craze began. of Java, wireless application protocol (WAp), and
in a very short time, native apps have become browser-based digital services. in so doing, apps
a mainstream media means for delivering content have opened up and vastly expanded the market
to mobile devices and are driving significant for digital services for mobile phones.
changes in consumer usage behavior. rather than
surfing the Web, people are increasingly using native Too Many Apps, Not Enough Time
apps to read news, watch videos or play games. Moving beyond the hype, we see two structural
Smartphone users globally have made 10.9 limitations with the native apps boom—both
billion downloads of the 600,000 apps available from a demand and supply perspective. First,
1
IDC, Silicon Alley Insider, March 2011
2
Global Entertainment and Media Outlook 2011-2015 estimates that global recorded music revenues will reach $22.1 billion by 2015, taking into account
that revenues in this industry have been declining since 2006.
The App Frenzy — JuST A ShorT-Lived FAd? | A.T. Kearney 1
4. HTML5 isn’t just another technology standard. Its impact could
fundamentally alter the balance of power on the mobile Internet.
from a consumer perspective, accessing content Second, native apps effectively re-create the
and services through apps is rather limiting in walled gardens from the early days of the internet.
comparison to the relative freedom enjoyed while Today, apps are platform-specific and, to some
browsing the internet. As smartphone usage extent, device-specific. That means apps have to
grows, we do not believe consumers will be happy be written for each different operating system
downloading an app every time they want to (oS) platform and type of device, which increases
access a new service. development costs and erects a significant barrier
Smartphone owners already have an average to entry for apps developers. The popularity of
of 18 apps downloaded, though industry experts native apps artificially strengthens the negotiating
predict that most of them will use no more than five hand of the leading app stores — as illustrated by
mobile applications at a time.3 Moreover, people the high commissions (up to 30 percent) charged
will grow increasingly weary over time of regularly by some stores to developers.
updating or reloading (or even repurchasing) apps developing apps for more than one platform
when they change their smartphone or tablet. only makes sense for apps that will sell in high
Figure 1
Mobile app revenues are expected to grow by 66% in the next four years
Mobile applications revenues $38
(US$ billion)
$30
CAGR +90%
$21
$12
$5
$2
2009 2010 2011 2012 2013 2014
Note: CAGR is compound annual growth rate Sources: IDC 2010; A.T. Kearney analysis
3
Pew Research Center’s Internet American Life Project, April 29-30, 2010 Tracking Survey; The Nielsen App Playbook, December 2009
2 The App Frenzy — JuST A ShorT-Lived FAd? | A.T. Kearney
5. volumes. From our research, we know that a As the average native app sells 30,000 copies,
simple app (average price $1) needs approximately most are loss making.4
200,000 downloads to break even on the ioS
platform (see figure 2). To support both ioS and A New App Paradigm
Android, a simple app needs about 1,450,000 The ecosystem might be prepared to put up
downloads to be as financially attractive as sup- with native apps’ drawbacks if there were no
porting only ioS. For complex apps (average viable alternative. hTML5, the collective name
price $5), the volumes required follow a similar for a set of emerging Web standards, is a devel-
pattern to those of single apps, although the oper platform that enables apps to run directly
gross profits are more attractive. For hTML5, from the Web browser.5 it can support many
the economics will be different and once the features, such as video, graphics and multi-
break even point is met, it will become signifi- media content, without having to resort to pro-
cantly more financially attractive than any other prietary plugins and application programming
platform or combination of platforms. interfaces (Apis).
Figure 2
“Apponomics” comparison: Gross profit of apps versus apps sold
Simple $1 apps Complex $5 apps
(such as small tools and simple games) (such as business software and complex games)
$1.5 $5
All platforms profitable:
~0.6 million downloads
$4
(US$ millions, after store commission)
$1.0 Number of copies an
HTML5 app $3 average app sells ~30,000
profitable:
~0.2 million
downloads
Gross profit
$2
$0.5
$1
Adding Android more Adding Android more
profitable than iOS after profitable than iOS after
~1.4 million downloads $0 1.0 million downloads
$0.0
0 500,000 1,000,000 1,500,000 0 500,000 1,000,000 1,500,000
Apps sold -$1 Apps sold
(in thousands, (in thousands,
across all platforms) across all platforms)
-$0.5 -$2
HTML5 only iOS only iOS + Android All five platforms
Assumptions: Simple app: $130,000 development cost, price per app $1; complex app: $540,000 development cost, price per app $5
Effort for additional platform: 80% for programming and project management, 20% for design
Store sales commissions: 30% for iOS, 10% for Android, 5% for other stores and HTML5 (payment commission). Platforms considered include: RIM, Android, iOS, Windows 7 & Symbian.
Source: A.T. Kearney analysis
4
Apple website
5
HTML5, the fifth revision of the hypertext markup language (and file extension), is still under development as of September 2011.
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6. We might be prepared to put up with smartphone apps’ draw-
backs if there weren’t a viable alternative. HTML5 promises
to be a game changer.
hTML5 enables developers and content leading stores, they will face the same challenge
providers to deliver a consistent experience across selling their hTML5 apps through the Web.
different devices, while emulating native apps’ Moreover, fragmentation (and some incom-
ability to download and cache data for use when patibility) might also be an issue for hTML5,
not connected to the Web, which reduces the particularly if different browsers implement the
need to be constantly online. standard in slightly different ways. in addition,
From the developers’ perspective, using the need to accommodate different device screen
hTML5 could dramatically reduce the time spent sizes and computing power could be a limiting
coding, as one app will run across different plat- factor for some high-performance apps, such as
forms. hTML5 works with any online payment games. The Java programming environment, which
technology, enabling developers or content com- was also designed to enable apps to be written
panies to provide customers with a choice of pay- once and run anywhere, was undermined by
ment methods. Finally, hTML5 allows developers inconsistent implementations and differing
to embed links to specific Web pages into specific device capabilities.
parts of an app, a technique that can be particu- Still, overall, hTML5 is a significant step
larly useful for promotions and advertising. To forward. it has the same strengths that made
date, this “deep linking” has not been easy to do the Web (which is built on previous hTML
in native apps. versions) so successful, but it also supports the
hTML5 also opens up the range of distribu- seamless integration of flash-style media and
tion channels and loosens the grip on the closed interactivity, coupled with off-line capabilities.
oS-centric stores (see figure 3). These attributes make hTML5 apps more
of course, hTML5 won’t be a silver bullet robust in areas with bad mobile coverage or no
that eliminates all of the downsides to native apps connectivity.
in a single stroke. Although hTML5 will reduce
developers’ dependence on app stores, which typi- Growing Support for HTML5
cally take a commission of between 10 percent Although hTML5 is still under development and
and 30 percent, they will still incur some market- pending final standardization (targeted for 2014),
ing, distribution and transaction costs. some companies have already launched hTML5
Although many developers complain about apps. For example, the Financial Times’ hTML5
the difficulties of standing out from the hundreds app for the ipad can be downloaded through the
of thousands of native apps now available in the Web browser, rather than through the App Store,
4 The App Frenzy — JuST A ShorT-Lived FAd? | A.T. Kearney
7. Figure 3
Range of distribution channels for apps
Four distribution channels
Key functions OS-centric Operator-led Third-party store Open web
Application
Operator portal Online shop Web search
Search store
(Example: Vodafone’s (Example: Amazon engine
(Example: Apple
apps and downloads) appstore for Android) (Example: Google)
App Store)
Payment Mobile
Credit card Credit card
platform phone billing
Payment (Example: Amazon or online payment
(Example: Apple’s (Example: monthly bill
credit card payment) (Example: Paypal)
iTunes) or prepaid credit)
App testing App testing App testing Reputation of app
Security (Example: Apple’s and monitoring (Example: Amazon developer and
app approval process) via network appstore review) third-party tools
Source: A.T. Kearney analysis
enabling the newspaper to bypass Apple’s approval The Future of Apps
process and commission charges. Widespread support for the new standard suggests
The FT believes the hTML5 app will save that most digital services and content for mobile
it money. “The advent of new Web technologies phones will eventually be delivered via hTML5
is changing the economics of the apps market by browser-based apps. however, the hTML5 chan-
enabling us to use the same software across plat- nel will likely be complemented by platform-
forms and allowing us to maintain a direct rela- specific super-apps focused on particular topics
tionship with our customer,” says rob Grimshaw, (see figure 4 on page 6). For example, there might
Managing director of FT.com. be a travel super app for each oS, aggregating
Although hTML5 has some detractors, it also a host of travel-related services (tourist guides,
has many supporters, including Apple itself, which reservation services and local weather, for example).
is contributing to its development and lending There will also still be a market for platform-
weight to its reliability, security, performance, specific graphics-intensive apps, such as 3d games,
support for touchscreens, and other capabilities. written to take advantage of the full multimedia
in addition, the hTML5 platform has strong capabilities of each device.
support from the mobile industry, with the mobile As it shakes up the apps market, hTML5
operator-led wholesale applications community is likely to have a significant impact on the mobile
(WAC) backing this emerging standard. industry’s structure and competitive dynamics.
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8. Figure 4
The app evolution by platform
TODAY TOMORROW
“Planet of the Apps” “Mobile Web”
iOS Android Blackberry Windows 7 Symbian iOS Android Blackberry Windows 7 Symbian
Browser-based content
(based on HTML4 and plug-ins)
Browser-based content and platform-
independent web apps
(based on HTML5)
Web Web Web Web Web
apps apps apps apps apps
Apps Apps Apps Apps Apps Apps Apps Apps Apps Apps
Super Super Super Super Super
apps apps apps apps apps
Native Platform independent Source: A.T. Kearney analysis
To some extent, a parallel can be drawn with the however, the impact on oS platforms is likely
development of the Web, with the shift from the to be gradual. The positive brand vibes, created
early walled gardens, such as AoL, to a more over the past few years, are likely to stay in con-
open, interoperable environment. Similarly, the sumers’ minds and continue to influence their
mobile internet is likely to evolve toward a less choice of handset. Moreover, the major apps
proprietary environment, reducing the oS stores (for example, Apple’s App Store and
owners’ control over the overall value chain. Google’s Android Market) are likely to survive
Already, the boundaries of apps (both native and the shift, but perhaps evolve into more of a dis-
hTML5) are going beyond the smartphone eco- covery tool, rather than the primary channel
system to move into the pC environment exem- through which to download apps. While sup-
plified by Apple’s use of its Mac Appstore to sell porting hTML5, Apple is likely to look for ways
native apps to Mac users. to maintain a competitive advantage and the
Today, people tend to upgrade from an revenue stream that its market-leading Apps
Android device to another Android device, or an Store provides.
iphone to another iphone, because they don’t
want to lose the investment they have made in A Game Changer
native apps. By enabling purchased apps to run hTML5 isn’t just another technology standard;
across platforms, hTML5 reduces that kind it is potentially a game changer. its impact could
of lock-in. be profound enough to fundamentally alter the
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9. balance of power on the mobile internet. it is apps that could be used to produce a distinctive
likely to continue to enjoy broad support from user interface.
across the telecoms, media and technology sec- in time, some content providers and devel-
tors — mobile operators, for example, could use opers may come to regard hTML5 as a mixed
hTML5 to open up a new revenue stream blessing. Although hTML5 will reduce their
by offering a secure payment environment for reliance on current oS platforms, it may intensify
the purchase of Web apps; more broadly, the competition even further, by lowering barriers
standard could help these operators regain influ- to entry. it may be difficult to charge for apps, just
ence over their customers if the power of the oS as it is tough to charge for access to websites today.
platforms wanes. hTML5 may also help reduce At the very least, however, hTML5 is going
the commoditization risks for device manu- to significantly change the way many apps are
facturers by enabling them to create a great distributed — a shift that will have ramifications
customer experience by using hTML5-enabled across the entire mobile ecosystem.
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