Mobile Applications

App economy research shows how poorer countries are losing again

This is a contributed piece by Mark Surman, Executive Director of the Mozilla Foundation and Bryan Pon, Director of Research at UK Think Tank, Caribou Digital


Since its birth, the open, decentralised nature of the internet has led to unprecedented innovation and economic opportunity. A wide range of companies — including titans such as Google, Facebook, Apple and Amazon — have grown from modest beginnings into global platforms by harnessing the power of the open internet and World Wide Web. As a result, they have created a seemingly limitless array of products, services and success stories, and billions of dollars in economic opportunity.

But the internet is evolving in ways that are worrying — its openness is under threat. The transition to the era of the smartphone and mobile internet has allowed two companies — Apple and Google — to establish market dominance with their own proprietary ecosystems, including their respective app stores. As the new distribution model for software and digital content, the app stores have centralised the vast majority of mobile revenue streams within Apple’s and Google’s platforms. 

This change from the open web to privately managed walled gardens is amplifying global power imbalances, resulting in lower rates of participation and value capture by producers from marginalised geographies and socio economic backgrounds. The result: polarised opportunity between high- and low-income countries, with lower-income countries only earning an estimated 1% of global app economy revenues.

 Recently, Mozilla and UK think tank Caribou Digital published research findings — “Winners & Losers in the Global App Economy” [PDF] — that explore just how polarising this app economy is.


What we learned from the research

Released in February 2016, Mozilla and Caribou Digital identified and explored developers with a top-ranked app in Apple and Google’s app stores, finding where the developer was located and then making an estimate for the amount of value they are capturing. We learned that 81% of the top-ranked developers in our sample are located in high-income countries, with 95% of the estimated value in the app economy captured by just 10 countries, with the lower-income countries earning very minimal amounts of revenue.

In Europe, the UK fares particularly well in terms of number of developers, ranking 3rd globally after the US and China, while in terms of estimated value capture, the UK ranked 5th. Germany (7th), Spain (10th), and France (11th) also had significant numbers of developers, though France earned the most value out of that group. The real standout in the European countries was Finland, which ranked 20th in number of developers but 5th in value capture, due in large part to the phenomenal success of Supercell.

For lower income countries, the outlook is relatively bleak. Most have very few developers. And those who house significant numbers of developers, like India, earned very little revenue. Even the much-hyped “Silicon Savannah” of East Africa was mostly absent from the data.


The deeper causes of this inequality

Why has this happened, and why is it important? Clearly the app stores provide benefits: they offer technical platform standardisation, captive audiences and an easier way to monetise. But to meaningfully reach a massive scale of users, providers of internet content and services must now agree to Apple or Google taking a standard 30% cut of revenues on app and in-app purchases. And Apple or Google can freely reject submissions to their app stores, providing an effective veto on any product or service that innovates in ways unfavourable to technology incumbents.

But the design and structure of the stores also impose key constraints. The winner-take-all nature of the industry is reinforced by how the stores implement app discovery, which favours the top global developers in positive feedback loops that keep them in the top positions. Developers from low income countries have to compete with sponsored apps or apps from high income countries that can afford to pay for advertising on the app store, in turn driving high rankings and reviews. As a result, apps that occupy prime virtual real estate, typically because they are popular and thus highly ranked, are the most likely to be seen and selected for download or purchase, creating a cycle that reinforces the popularity of the top apps.

These problems are further aggravated by Google and Apple’s decisions to prohibit developers in some countries, including about half of Sub-Saharan Africa and some in Latin America, from monetising through the app store, likely causing a dampening effect on participation and value capture. Because localised apps and content can drive adoption, the exclusion of local developers may in theory slow adoption of the platform by end-users in a recursive cycle. This is a clear example not of market failure, but a strategic decision by the firm to exclude some of the poorest producers from participating. 

Market and infrastructural challenges in low-income countries also play a role. Lower penetration of online payment methods and a smaller middle-class population that can spend discretionary income on digital content mean that these markets have much less revenue available for developers. So while developers in countries such as India, Brazil or Vietnam have a relatively large share of the domestic market, there’s not a very big pie to share, and only the very top developers will be able to make sustainable incomes. Compounding the issue, these developers struggle to export to the most lucrative markets — our data showed 69% of developers from low-income countries were limited to their domestic market (the rate for developers from high-income countries was 29%).


Ways the situation can change

Fortunately, there is hope. Countries like India, Turkey, Thailand and Brazil have large numbers of developers — and while the majority of them are only present in their own domestic markets, their success will grow in direct correlation to their markets’ potential. Additionally, significantly lower-cost devices enable usage in virtually all markets, driving the adoption of data services at increasing rates, especially in the emerging economies of Brazil, India and Indonesia. While these markets are still in their infancy in terms of revenue generation, the volume or scale they offer positions them as the most important markets for growth.

Now more than ever, it’s critical that we level the playing field on the mobile internet and in the app economy, and build a web that is fair and inclusive. It’s estimated that in the next 10 years, two billion more people will come online for the first time, many exclusively through their smartphones. Working together, the internet technology community and the development community can ensure all developers and economies benefit from the mobile internet’s vibrancy and potency. Let’s ensure the internet’s benefits are equitably distributed among connected and newly-connected societies alike.


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