Who's winning the App Game?

Ever since smartphones took off, hordes of bedroom hopefuls have been trying to make a fortune developing games and gimmicks. Now the big corporates are moving in...

by John Morrish
Last Updated: 09 Oct 2013

How many apps do you have on your smartphone? The average is 23.

How many did you pay for? Possibly a couple; probably none.

Apps are the gold rush that happened for only a few. Like so many new web developments, the initial frenzy of excitement and promise of making untold riches have dribbled away. Unless you're a games developer, the apps biz isn't a lucrative one.

Useful if you want to know the weather or what time your train is arriving, or want to place an order with Amazon. But apps have grown up and the future now lies in the hands of marketers who want to push business services and products and with corporates that want to help employees do their jobs better.

Dave Addey, managing director of developers Agant, was there at the start. He placed a little game on the App Store the day it opened, in July 2008. Eight months later, he published his first real app, UK Train Times.

It sold more than 300,000 copies at £4.99 each. Even allowing for Apple's 30% rake-off and VAT, and paying National Rail Enquiries for the use of its data, that was not a bad payday.

Things were easier in those days. There were only 25,000 apps in Apple's store and £4.99 was a good price for something you'd never been able to do before: finding out, on your phone, whether your train was going to be late or cancelled.

Today, UK Train Times is one of 800,000 apps on the App Store (with the same number on the Android store, Google Play). And you can get apps that do a similar job for nothing.

Since the App Store opened, Apple has paid out $8bn to developers; it paid out $1bn in January alone. (Google does not divulge how much it pays to Android developers; it is thought to be about a quarter of the Apple figure.)

There is still big money to be made, but it helps if you are publishing games. NaturalMotion of Oxford announced last year that one of its games, CSR Racing, was grossing $12m a month.

Most games, though, make nothing, and that goes for apps generally. Analysts Canalys reported last year that two-thirds of apps receive fewer than 1,000 downloads in their first year and many get none at all. There are said to be 400,000 'zombie apps' on Apple's site, existing but effectively dead.

Some people are making a lot of money out of apps, however: Apple and, to a lesser extent, Google.

Both firms take a 30% cut out of the purchase price of an app. They also take 30% out of what are called 'in-app' purchases, which are key to the economics of the games business: developers give away the games, then charge players to enter extra levels.

So painless has this one-click process been that Apple has just had to refund $100m to US parents whose children blundered into it. Still, Apple can afford it. It has earned $3bn from the App Store over the past five years. And then there are the hardware sales that the App Store encourages.

Few app developers have balked at this monopolistic regime, but many magazine and newspaper publishers, which have high hopes of Apple's tablets, were enraged when it started a new subscription service in 2011.

It gave users of magazine and newspaper apps the option of buying subscriptions through a one-click button inside the app. In return, Apple would take its 30% and, as is its wont, retain readers' credit card data. Apps would not, however, be allowed to link to subscription sites outside the app and thus avoid Apple's rake-off.

Most bit the bullet: the Guardian, for instance, was happy to earn £1.4m from subscriptions bought through its iPad app last year.

The FT, however, pulled its successful iOS app from the App Store and replaced it with what is called a 'webapp', a kind of mobile-optimised website that runs in the iPad's Safari browser. From that site, the FT is free to sell subscriptions or anything else, and Apple doesn't get a penny. (The FT still has an Android app, but you leave the app to pay for your subscription.)

With so many obstacles to making money from apps, it's no wonder some people seem to be edging away from them. Book publishers, for example, have invested heavily in book-based Agant's Malcolm Tucker app has been nominated for a Baftaapps, but a survey of US industry executives last year found that the number considering apps 'a significant revenue opportunity' had dropped from 34% to 15% in a year.

Nevertheless, many continue to find selling apps on the app stores a worthwhile model. Addey established Agant, which employs seven, upstairs from a beauty salon in Leamington Spa, on the back of his train app success.

He has done well producing elegant, content-rich apps, many of them with and for book publishers. One very clever example for Faber and Faber turns your mobile into the imagined iPhone of the foul-mouthed Malcolm Tucker from The Thick of It. The first app nominated for a Bafta award, it is on the App Store at £3.99.

But the vast majority of the apps being produced today by Britain's development houses cost the consumer nothing. They exist to pursue a client's business objectives: selling goods and services in most cases. 'Businesses are going with mobile phones because of the results they've seen from the channel,' says Adam Levene, chief strategy officer of Soho developer Grapple.

Smartphone penetration in Britain now exceeds 50%, with tablets, an increasingly common shopping medium, on top of that. Apps help consumers research products, compare prices and buy.

Grapple and Bristol-based Mubaloo are two developers with a strongly corporate outlook, having dabbled in apps for sale in the past. Grapple did an app for TV personality Gok Wan. Mubaloo had a Fuel Prices app ('We thought it was going to make us millions,' says CEO Mark Mason). Today they emphasise their work for heavyweight clients.

Grapple, which started in January 2010, now employs 70 people in offices in London's Soho, where its clients include McDonald's, BT and P&G. Producing apps for major brands is not without risk.

A report by Deloitte in July 2011 found that brands' apps were failing: 80% were downloaded fewer than 1,000 times. It recommended that they make full use of mobile hardware - GPS, camera, accelerometer, microphone - in order to do something useful.

Grapple's Home Finder app for Halifax Building Society tries to do just that. As well as the usual 'for sale' listings, floorplans and maps, it includes what is called 'augmented reality': point your camera down a street and it will show you houses for sale, local schools, transport links, and so on.

It aims to integrate Halifax into the home-buying process, as long as that lasts. 'It really helped position Halifax as a challenger brand,' says Levene, 'which was its major business objective of last year and this year.'

For Notonthehighstreet.com, an online retailer, Grapple tried to do something beyond a simple shopping catalogue. The Thoughtful Gift Finder generates gift suggestions when you tell it the kind of person you are buying for. It also links into Facebook, so it reminds you of your friends' birthdays.

The idea of the Notonthehighstreet app is for customers to get 'delightfully lost'The idea is for customers to get 'delightfully lost', says Dave Thomson, head of product management. It took three months to create and went live just before Christmas, appearing in Apple's top 25.

'It has outperformed its year-one business case after three months,' says Thomson. The app is available only on iPhone: Android users, who are notoriously reluctant to spend money, are not considered part of Notonthehighstreet's demographic.

Mubaloo, which started in April 2009 and now employs 45 people in offices in Bristol and London, has created apps for the likes of the Met Office (apparently on one smartphone in four), BP and Experian. 'It's been an interesting journey,' says Mason. 'We've moved from what I call the frippery app, a little bit of fun, into companies really taking it seriously.'

One of Mubaloo's clients is the financial services company Hargreaves Lansdown. Its HL Live app allows people to trade funds and shares, manage their portfolios and receive masses of live financial information on their phones.

Like notonthehighstreet.com, Hargreaves Lansdown went for an app after observing the sheer volume of mobile traffic reaching its website.

'We wanted it to be an all-singing, all-dancing app and do what our clients would want and expect it to do,' says Chris Worle, head of online marketing at the company. Development, in both iOS and Android, took the best part of a year. But HL has had 80,000 downloads and the app has been well received.

'Some of the feedback is saying that it's pretty much through the app that I chose to do business with you,' says Worle.

Some, though, think the wave of e-commerce and marketing apps may be at its peak.

Agant's Addey, whose background is in business intranet development, sees the future for the development industry in 'the app equivalents of the intranets and the extranets': apps as tools for use within businesses.

These 'enterprise apps' either run on company-supplied phones and tablets or on employees' own hardware. Designed to give employees the slick experience they expect from consumer apps and hardware, they connect with, for instance, CRM platforms and backend systems. They also require lots of management, which makes them good for the development industry.Angus Clacher, CEO of TheAppStudio.com, says enterprise apps are becoming much bigger

'Enterprise apps in our experience seem to be getting much bigger,' says Angus Clacher, CEO of TheAppStudio.com, a subsidiary of Ariel Systems Group. His eight-strong studio in Hemel Hempstead built an app for Nespresso, using the iPad to manage the 120-strong mobile team selling its coffee machines around the UK and Ireland.

Every day, the app gives them their schedule: using GPS, it reports back on whether they have arrived and what time they started.

It nudges them at various times to ensure that they are observing their health and safety obligations, and sets them training quizzes. It lets them manage their expenses and, most importantly, log their sales, syncing that information with head office and the department stores where they are operating. Then it reports where they are at the end of the day and what time they log off.

The app also includes colour pictures of the product. Tablets make good sales tools, especially for people like drug reps who have to carry large amounts of information needing regular updating. 'There's still a little bit of magic about turning up for a presentation with an iPad as opposed to pieces of paper,' says Clacher.

An app need not be much more expensive than those pieces of paper either. A simple stand-alone 'brochure app', running on iPad or iPhone, could cost as little as £5,000. But serious apps start at about £30,000 to £50,000. A complex project might cost between £100,000 and £250,000, and beyond that the sky is the limit.

Grapple says that it has corporate clients spending seven-figure sums every year on application development, particularly in the mobile banking and retail sectors. 'If you spoke to a three or four-man developer in a shed, prices are going to be much less,' says Levene.

Developers are busily going cross-platform: businesses naturally want to be on both iOS and Android devices (less so BlackBerry and Windows Phone). But true 'native apps', which give the best functionality and use all the possibilities of the hardware, have to be coded separately for each operating system.

Specify Android as well as iOS and you can expect to add up to 90% to your bill. Android devices now far outnumber iPads and iPhones. And yet mobile purchasing, both of digital and physical product, is still overwhelmingly an iOS phenomenon.

A cheaper alternative to the native app is the 'hybrid' app, which is written once for all platforms, using the web languages HTML5 and CSS, and then wrapped in native code for each device. The result is not as elegant or slick as a native app, but it is cheap and quick. Developers, not altogether surprisingly, tend to discourage hybrid apps. 'You end up with a very unsatisfactory experience that doesn't feel right on any platform,' says Addey.

And a good user experience is the essence of a successful app, whether you are firing cartoon birds at pigs, manipulating photographs, buying groceries, or managing a company. British app developers have done the fun stuff, but they are increasingly applying their expertise to the task of making apps into an essential business tool. 'We are enterprise-ready,' says Mark Mason, talking of Mubaloo. But he could be speaking for the whole app industry.

APP MYTHS

1) Any app is better than no app

No. They have to do something useful. It's a waste of money to produce an app that consumers download and then uninstall: on average, they keep only 23 on their phones. Worse, if your app doesn't work properly, it will damage your reputation: app users are vociferous critics on the app stores and elsewhere.

2) One app will fit all devices

Apps have to be coded separately for each operating system, though 'hybrid' apps can share some elements. Apps should also be optimised for iPad or iPhone. Apps for Android may not perform properly on all Android devices, because there are so many different types of hardware, often running different versions of the operating system.

3) Once you have placed the app on the stores, your job is done

No. You need to promote it, monitor its reception, study the 'metrics' to see how it is used, and ensure it is updated: many developers produce a 'minimum viable product', improving it when they get feedback. You normally keep the IP of the app, and your IT people may be able to take on these jobs, but it's more likely you will need a continuing relationship with your developer.

4)  All the best app ideas have been done

No one needs more apps for email, browsing, music, maps, etc. Every retailer has a mobile shopping trolley, and they all do the same thing. But there is still potential in using hardware - GPS, camera, accelerometer, sound, microphone - to assist in life and business tasks. British Gas's meter-reading app uses the phone's flash as a little torch, so you can read the numbers in the dark. Simple, but clever.

5)  Apps require the services of an expensive developer

If your needs are basic, there are online tools that will let you build some sort of app without coding. App Press uses a Photoshop-style interface to let graphic designers move on to apps. MobileRoadie lets you assemble stylish and functional modules to 'build an app in minutes'. Andromo generates simple native apps for Android. Other sites, for instance AppBreeder and MyAppBuilder, offer template-based apps for small businesses. The App Studio offers its own DIY system as an alternative to its bespoke development services. Beware, though, these sites tend to use a subscription model: if your payments stop, your app does too.

 

 


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