Mobile app downloads: hype to slow, growth to continue

Application downloads to mobile devices have been the subject of a great deal of hype since Apple launched its App Store in 2008. Many of its competitors in the devices market are following hot on its heels, and not a month goes by without an application store launch. There have been some impressive announcements from Apple – most recently that two billion applications had been downloaded to the iPhone and iPod Touch.

 

Between year-end 2008 and year-end 2014, the total number of application downloads (including both free and paid-for applications) will grow from 491 million to 18.7 billion worldwide. This represents a CAGR of 83% across the forecast period.

 

Apple has driven much of this growth between 2008 and 2009, and has fueled market demand for applications. We estimate that in 2009, Apple’s App Store will constitute around 70% of the total application download market, but that Apple’s share will decline to less than 20% by the end of the forecast period. Growth in mobile application downloads will accelerate over the next two to three years. Ovum estimates that the global market will grow by a CAGR of 153% between 2008 and 2011, but will drop to around 33% between 2011 and 2014. In brief, we believe that a number of substitutes will emerge for application downloads, including browser-based services.

 

There is significant potential in this market but there is also a great deal of hype. Not all players will succeed in taking a significant share of the market, and we expect to see a period of consolidation following greater fragmentation in the early years. Consumer willingness to pay will be a key factor in determining the overall size of the market. The industry is already seeing a great deal of pressure on application pricing, eventhough some high-end applications are successful. Overall, we expect to see fast growth in the early years followed by a period of slowing growth and commoditization.

 

There will be strong growth in the number of downloads that are paid for by the end-user, achieving a CAGR of 68% over the forecast period. Paid-for applications will reach 3.3 billion, up from just under 147 million in 2008. However, this is lower than the growth in free downloads, which are set to grow at a CAGR of 88% over the period.

 

End-user revenues generated through non-operator-controlled application stores, including those operated by device vendors and independent stores, will grow from $367 million in 2008 to almost $5.7 billion in 2014. Lack of operator billing will be a barrier in some markets for paid-for applications, particularly emerging markets where there is low penetration of credit cards and bank account holders in general.