[Diagnosing 2013 Apps] A Preview of the 2013 App Ecosystem (Part 1)

[Diagnosing 2013 Apps] A Preview of the 2013 App Ecosystem (Part 1)

2012-12-24 10:38:04.0

This year, the application (app) market achieved a certain economy of scale and entered an era of oversupply. The app market, which had been sprouting like bamboo shoots after rain, went through a period of fierce competition that hardened it. In particular, the domestic Korean app market saw downloads stagnate or decline in the first half, before being reinvigorated by new distribution platforms such as “Play Games on KakaoTalk” and “Line.” These platforms succeeded in generating revenue and rapidly rose as new powers threatening incumbents like the Apple App Store, Google Play, and T Store.

However, individual developers are increasingly finding it hard to get a foothold in app markets. Globally, mobile app revenue is growing significantly, but the developers who actually turn a profit are limited to large game studios or companies with a certain level of capital and networking, accelerating the rich-get-richer, poor-get-poorer dynamic.

Through the advice of industry experts and relevant practitioners, this magazine looks at trends in the 2012 and 2013 open (app) market and tries to propose the direction it should head in.

▲ Users using apps on their smartphones.

◇ 2013 Global App Market Outlook 
For a successful app business, entering the global market — as well as the domestic one — has now become essential. The Global App Support Center at the Korea Productivity Center summarized the “Top 10 Outlooks for the 2013 Global Mobile Market” to help app developers succeed overseas. 

The first is the “Any Screen & Any Device & Any Platform” strategy. Lee Kyung-sang, head of the Korea Productivity Center’s Global App Support Center, explained: “As penetration of tablet PCs rises alongside smartphones, consumer usage patterns are changing rapidly… You need an app strategy that is unconstrained by platforms like iOS or Android and can move freely between PCs, smartphones, and tablet PCs.”

The “mobile payments” market is another area to watch. If 2012 was the year mobile SNSes attracted attention, 2013 is expected to be the year developers flock to the commerce market in earnest to generate revenue. According to Forrest Research, the mobile commerce market is forecast to grow to $310 billion by 2016. As mobile commerce grows rapidly, financial institutions and IT companies worldwide are jumping actively into mobile payment systems.

Google, which previously suspended services over personal-data leaks, is once again stepping up to capture the mobile payment market. In November, Google acquired “Incentive Targeting,” a coupon marketing company, to bolster its online e-commerce marketing through mobile coupons. Domestically, SK Telecom has jumped into the payment market with its mobile payment system “Paypin” and mobile wallet “Smart Wallet,” and KT with its mobile wallet “Moca.”

With smartphone users surging, more NFC-capable devices, and the introduction of simple mobile payment systems, the mobile payments market is highly likely to take off rapidly from 2013 onward.

For overseas expansion, “China” is expected to emerge as one of the top priority markets. Director Lee Kyung-sang said, “The Chinese market already has well-developed Internet and app services; the ARPU (average revenue per user) for content consumption is low, so it’s easy to overlook, but in terms of sheer market size it’s a market you absolutely must enter.”

Although only about 10% of its total population uses smartphones, China ranks among the world’s top countries in app download volume, and the potential for future growth is seen as immense.

▲ The home page of KTH’s enterprise app store “App Splant.”

In particular, enterprise app stores are expected to grow quickly. Market research firm Gartner, in its October release of “The Top 10 Strategic Technologies for 2013,” pointed out that the emergence of enterprise app stores deserves close attention.

Accordingly, on the 4th, Google opened its enterprise app market “Google Play Private Channel” within Google Play. With individuals increasingly wanting to work on their mobile devices, and companies seeking efficiency gains, the enterprise app market is expected to expand rapidly.

Other global app market trends to watch in 2013 include ▾ the evolution of games with enhanced social features, ▾ the expansion of Context-aware Services that combine location with a “life log,” ▾ the fragmentation challenge of supporting diverse OSes and devices, ▾ an app market built on augmented reality, ▾ the full-scale growth of the smart TV app market, and ▾ the arrival of an app market that accounts for tablet-PC characteristics.

◇ What are the top 3 markets developers should watch? 
Next year’s domestic app market won’t differ greatly from global trends. Domestic app developers spoke with one voice: the influence of the app-market platform through which apps are distributed has grown much stronger than last year, and competition will intensify as the number of app markets increases. Under these conditions, they predict that many types of mobile app services aimed at real monetization will be tried.

In particular, experts point to three domestic app market features worth watching in 2013: ▾ the emergence of commerce-related mobile app services where the line between online and offline blurs, ▾ the growth of enterprise (web) app markets, and ▾ Context-aware Services that deliver tailored information based on situation and context.

This year, the emergence of Online-to-Offline Commerce BMs — mobile commerce business models that blur the line between offline and online commerce — was striking. When users with smartphones approach a store, they can receive daily deals, coupons, and discount information, while offline stores benefit from the promotional effect of drawing customers in.

A well-known overseas example is Shopkick. By granting users Kicks (points) for visiting partner stores, and extra Kicks for paying with a Shopkick-linked credit card, Shopkick generates user loyalty while drawing customers into offline stores. Shopkick recently added a feature combined with Couch Commerce, and this pattern of combining commerce into a service is spreading to many other players.

Domestically too, commerce experiments connecting online and offline are being tried. SK M&C combined location information with social commerce through OK Map, and food-delivery businesses connecting mobile and offline stores, like Baedal Minjok and Yogiyo, have grown visibly. Social-commerce companies such as Ticket Monster and WeMakePrice plan to enter the delivery market next year.

▲ The enterprise space accounts for 25% of the entire gamification market. By 2015, more than 50% of organizations are expected to apply gamification to innovation. (Source: ROA Consulting)

The growth trajectory of mobile commerce was also prominent. 11st, an open market that entered mobile commerce, continued high growth as it topped a cumulative transaction total of 200 billion won in November. Kim Jin-young, CEO of ROA Consulting, said, “If 2012 was the year that interest-based and acquaintance-based vertical SNSes drew attention, 2013 will likely be the year developers flock to the commerce market to find more lucrative revenue sources.”

The enterprise app market, too, is expected to expand in earnest. The domestic enterprise mobility market is forecast to grow at a CAGR of 15%, reaching 5.9 trillion won by 2014. The enterprise app market enabling various work tasks in a mobile environment is developing alongside it. In enterprise app markets, developer margins also tend to be better than in public app markets.

If Apple&rsquo>s revenue split is 70 (developer) : 30 (platform), then SAP, which is building out an enterprise app-store ecosystem, offers a split of 85 (developer) : 15 (platform). In Salesforce’s case, it is said to have 400 partner app developers who have built more than 1,600 apps, with total partner revenue around $10 billion.

Of course, enterprise mobile apps grow more slowly than the B2C app market because of security and process-development issues and the need to integrate with back-end CRM, SCM, HCM, and so on. However, unlike the B2C market led by Apple and Google, the B2B market has no clear dominant player.

Overseas, major global companies including GE, IBM, and IMRIS have already adopted enterprise app stores. Domestically, KTH was the first to enter the enterprise app market with “App Splant.” Telecoms and traditional enterprise solution providers are now entering the market one after another.

As mobile devices multiply, interest in how to leverage the flood of data they generate is also rising. Accordingly, with advances in natural language processing and sentiment analysis, services built on various forms of Context-aware Service are emerging.

Context-awareness technology means delivering tailored information to customers by combining various kinds of sensing or user data. Representative examples include Apple’s Siri and Google’s Google Now. By recognizing natural human language, analyzing behavior logs from mobile usage, and predicting or recommending the next step.

Kim Jin-young, CEO of ROA Consulting, said, “A mobile device has the character of a Local Tool that reflects the real world, so services that let you get recommendations or search for restaurants and movies based on location from your acquaintances will also draw attention. If you layer on the lifelog that records users’ daily lives via mobile, much more precise marketing becomes possible.” From a corporate perspective, too, individual lifelog data can be actively used for targeted marketing. 

▲ This year’s KakaoTalk Games blockbusters, Anipang (right) and Dragon Flight (left), which shook up the mobile game industry.

Mobile games generated revenue through in-app purchases; apps like Anipang and Dragon Flight, riding the halo of the KakaoTalk platform, earned hundreds of millions of won through item purchases. Utility apps such as Awesome Note and Woowa Brothers’ Baedal Minjok earned user love through brand-building.

Kim Jin-young said, “In Korea, the paid-app download rate is in the lowest tier worldwide. User resistance to paid-app pricing is severe. In light of that, developers need to expand in-app payment ratios to guide users toward purchases — that’s effective.”

Because the mindset for paid services is not yet well established domestically, the point is that, at this point, diversifying the in-app payment systems is a good way to improve profitability.

Kim Jin-young also advised app developers not to get buried in the single piece of the puzzle called “ideas” when hunting for business models, and to look at the “bigger forest” that emerges during business-model execution.

He stressed, “With over 700,000 apps each in Google Play and the Apple App Store, the era of winning amid countless apps purely on a new ‘idea’ is over. Discovering a new business model matters, but for an app to succeed, various factors — marketing, teamwork, fundraising, and so on — have to work organically together to create synergy.”