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Summary:

The mobile app economy is growing faster than earlier predictions, now expected to account for 98 billion downloads by 2015. Consumers want their smartphones to have numerous functions and apps, which drive downloads. Meanwhile, music services could be slowing digital music sales. Developers should take note.

App Store

App StoreThe mobile app economy is growing faster than earlier predictions; it’s now expected to account for 98 billion downloads by 2015. Berg Insight shared the data point on Friday, suggesting that developers consider targeting the Asia-Pacific region; the research firm anticipates that this area will account for 40 percent of all app downloads in less than four years. Even with such growth, the rise of free apps will make it challenging for developers to monetize their software efforts.

Berg Insight’s expectations are more than double a prediction from earlier this year. In April, ABI Research estimated 44 billion mobile app downloads by 2016. The pace of smartphone adoption is on the rise — 75 percent of the phones T-Mobile will sell this year will be smartphones, for example — and with phone sales come application downloads. As a result, I’m more inclined to buy into Berg’s higher estimates.

While both estimates look at the overall mobile application market, this dramatic growth is particularly evident in Apple’s business: App downloads from iTunes are growing far faster than sales of digital music. Horace Dediu’s Asymco blog examined the historical sales and revenue from both earlier this week, and the charts show a staggering difference in the growth rates:

Based on this data, it took less than two years from the introduction of the App Store for mobile apps to outsell digital music on iTunes on a daily basis. And since then, mobile application downloads have skyrocketed as Apple has continued to grow iPhone sales, which now account for five percent of all phone sales worldwide, according to the company. Sales of Apple’s iPad and iPod touch will also increase mobile app sales in iTunes and will also help this trend continue.

While it’s clear that mobile apps have dethroned digital music downloads because people want a wide range of functionality on their smartphones, there may be another reason for the slow rate of music downloads: subscription services. There’s a wider range of music services available now than there was a few years ago; think Spotify, MOG, Pandora, Rdio and others. Instead of purchasing an album for $10, smartphone owners can rent a month of music for the same price, giving them access to millions of songs.

This change in digital music distribution could eventually affect mobile apps. Earlier this week, references to application rentals were found in the code for the latest iTunes beta, for example. And we’ve seen plans for mobile game rentals on Google Android devices as well. If rentals and subscriptions begin to permeate the mobile app market like they have for digital music, developers will need to consider the effects and figure out how to best make money from new models.

  1. Music as an experience is problematic. With the CD and the rise of high-quality, low-cost music reproduction, sales of packaged CDs took off. The problem with music, as Mick Jagger has noted, is that nothing is replacing CD sales. The music publishers have grown and are accustomed to the sales!

    Subscription and streaming does not equate to the same business in sales(.) I believe the issue is product, and experience. We tried to develop iPhone based music experiences as apps, making the export of large catalogs to apps a simple process of selecting templates. That didn’t get anywhere because Apple would not allow embedded music in apps. A simple export to iTunes may have accomplished the problem, but Apple was not game.

    The labels need new products and experiences to sell. The experience of sitting on the train, listening to music and looking at the liner notes and other experiences seemed to us at the time (early 2009) to be a good first step. Apple very shortly came out with LP, but that didn’t go anywhere. Again, something to replace Billions in sales, rather than millions, is required.

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  2. I don’t see how the apps market are related to the music market. Is like saying “sorry video producers, people are buying music” :-)

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  3. This sort of seems like more of an observation than any sort of revelation. Apps have been skyrocketing exponentially with the introduction of the App Store and more and more people getting iPhones…nothing surprising about that. Sort of Apples to Oranges to compare apps to music sales.

    The real story I guess is the last part about looking at the evolution of listening to music. iTunes has been around for over a decade so its pretty well saturated and more or less maximized its reach IMO. Throw in Amazon and other places that now sell mp3s, with the Pandoras and Spotify type services and there is more competition as well.

    The music companies are all getting paid in some form or fashion from all the services so I’m not really sure it makes much of difference to them. Not sure how much Apple gets off each dollar of mp3 sold, but I think they’ll be ok. The music match service will be an additional source of revenue as well.

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  4. Not sure this is an apples 2 apples comparison…are we talking paid for and free apps? Music on itunes is 99.9% paid for. Im curious if these stats include free apps. If so, the analysis isnt as relevant.

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  5. Vladislav Rakov Monday, December 26, 2011

    It’s not so expensive and hard to create apps since there are web services like snappii.com They do their utmost to help customers without programming skills make complex apps for business.

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