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Annette Ehrhardt, director with Simon-Kucher & Partners, on the world of apps.
Many apps that cost money are not downloaded very often. This indicates that the ‘everything for free’ culture of the stationary internet is spreading to the emerging mobile internet market.
The strategy and marketing consultancy, Simon-Kucher & Partners, asked 200 smartphone users with an interest in smartphone apps about their visit and purchase habits. Most of the respondents said they do not leave the app stores empty handed and do download something, but mostly if it is free apps.
That might sound disappointing for app providers, but sales are expected to rise since the number of smartphone users is set to grow strongly, particularly in view of the iPad launch in Europe.
Apple leads the race
How this emerging market will develop lies largely in the hands of the providers. According to the study results, annual expenditure on Apple apps in Germany alone would total roughly Euro 25 million. Given the current trend, this figure is set to rise dramatically across Europe.
iPhone and BlackBerry top the list of smartphone providers. Together they account for over 80% of the Simon-Kucher & Partners’ survey respondents’ smartphones. Apple can benefit considerably from the popularity and market power of its app store, which is the most effective at converting visitors to users. In total, 90% of iPhone or iPod touch owners have heard of the app store and 80% have visited the app store.
All of the survey respondents who had visited the Apple app store in the previous three months also downloaded something. The situation for Apple’s main competitor is quite different. Although BlackBerry is widespread in the business sector, only about 30% of BlackBerry users are familiar with their app store.
Majority of app downloads are free
It doesn’t matter if it’s Apple or Blackberry; more than 80% of downloaded apps are free of charge. However, about 75% of apps available in the Apple store cost money. This shows that users are less choosy about free apps, and also download free apps that are less important to them, while paid apps have to offer a real benefit.
People who visit an app store once usually return. According to the study, a user of the Apple app store downloads ten apps per quarter on average; two of those 10 apps are paid for, at an average fee of Euro 3.50 each.
In comparison, at BlackBerry’s app store visitors downloaded around five apps per quarter, and they only buy one app for Euro 5 each. Extrapolating the figures from the study, a typical Apple customer would spend about Euro 30 per year on apps, whereas a BlackBerry customer would spend only Euro 20.
Assuming that there are one million iPhone’s and iPod touch devices in Germany and that 77% of their owners visit app stores (as in the survey), annual expenditure on Apple apps would total roughly Euro 25 million. Given the flood of apps and the expected surge in demand following the launch of the iPad on 28 May, this figure is set to rise dramatically.
Price is the most important criterion when buying an app, closely followed by recommendations from friends and reviews from other customers. The typical social media behaviour (use of comments, recommendations) is applied in the app store; an app that has something to offer and is recommended by others can certainly have a price tag attached.
Still profits to be made
The hype surrounding smartphone apps is expected to continue for a while, especially when users start downloading many more apps than they do today. Considering that the average number of app downloads is ten per quarter, even the industry giant Apple still has considerable potential left to exploit.
Whereas almost every visitor to Apple’s app store downloads something, the other players need to make their stores better known, more user friendly, and more comprehensive. Although about three quarters of apps available from Apple’s store cost money, the participants in this Simon-Kucher study choose free apps in 80% of their downloads. In other words, nobody is making a fortune from apps at the moment.
To make the mobile internet really lucrative for app providers, the range of paid apps needs to be extended, instead of giving away most content for free. How this emerging market will develop therefore lies largely in the hands of the providers.
Annette Ehrhardt is director with Simon-Kucher & Partners in Zurich and focuses on media, telecommunications and the internet. Simon-Kucher and Partners (SKP) is a global consulting firm specialising in product pricing and marketing strategy. www.simon-kucher.com