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How big is the App Economy? Number-crunchers arrive at $15 billion

Posted By TelecomTV One , 10 February 2012 | 0 Comments | (0)
Tags: apps Apple iOS Economy

When Apple launched its App Store in 2008, it provided opportunities for a whole new area of ICT jobs. But just how large is this ‘app economy’, and who is benefiting? Guy Daniels reports.

A report from consultants South Mountain Economics on behalf of TechNet (described as a bipartisan political network of CEOs and senior executives in technology firms) has sought to quantify the so-called ‘app economy’ in the US. Although the Apple App Store is less than four years old, it has already led to the creation of hundreds of thousands of software applications for its own platform and the likes of Android and BlackBerry. In fact, the latest estimates put the total at just short of one million.


According to Dr Michael Mandel and his team at South Mountain Economics, this new economy has created 466,000 jobs in the US alone. These include programmers, user interface designers, marketers, managers and support staff, and range from sole traders to start-up companies and the already established software giants.


They arrived at their total by studying data from the Conference Board Help-Wanted OnLine (HWOL) database, which they say is a comprehensive and up-to-the-minute compilation of classified ‘want ads’ in the US. There’s a huge amount of number crunching and complex methodology involved, all of which can be studying in the free PDF report.


By analysing the want ads in the technology sector, and studying associated patterns of jobs-per-ad, repeat ads and duplications, the team came to the conclusion that there are roughly 311,000 jobs in ‘app economy’ firms, not accounting for spill-over effects into the rest of the economy (i.e. tech jobs that require app-related skills and corresponding non-tech jobs). Applying a conservative multiplier of 1.5 to this number (in other words, every app economy job generates another 0.5 jobs in the rest of the economy), they get to 466,000. It’s conservative because past studies of tech job creation relating to broadband adoption in the US have used multipliers of 2.4 to 3.4.


This figure might appear large, but it’s actually about 4.7 per cent of the total number of tech jobs in the US. However, it’s already a larger sector than the software publishing industry and over twice as big as the mobile operator job sector.

These jobs are also spread throughout the country, as the report concludes:


“The top metro area for App Economy jobs, according to our research, is New York City and its surrounding suburban counties (9.2 per cent), although San Francisco and San Jose together substantially exceed New York. And while California tops the list of App Economy states, states such as Georgia, Florida, and Illinois get their share as well. In fact, more than two-thirds of App Economy employment is outside of California and New York. Our results also suggest that the App Economy is still growing at a rapid clip, which shouldn’t be a surprise to anyone.”


Probably one reason for New York’s prominence is the concentration of media, advertising, and finance in the region. Silicon Valley needs no explanation. However, given the amount of hype and fanfare surrounding the Texan town of Austin (home of the uber-trendy SXSW event) and its support for internet developers, it only ranks 17th in the report with a share of just 1.1 per cent of app economy jobs. Time for a re-think before you relocate?


However, it should be noted that these aren’t solely ‘jobs created’, but will also include a significant number of ‘jobs saved’, where companies reallocate resources to a new and profitable sector. But however you look at it, mobile app development is certainly playing its part in helping to stabilise and grow what is a very depressed economy.


In terms of what this new economy is actually worth, a report by Appnation and Rubinson Partners last November suggested it generated almost $20 billion in revenue in 2011. This includes app downloads, in-app revenues, sales of virtual goods, and sales of physical goods and services.


A study by Gartner released last year suggests that worldwide mobile application store downloads would reach 17.7 billion in 2011, which will be a 117 per cent increase from an estimated 8.2 billion downloads in 2010 (no updated data yet available from the firm). By the end of 2014, Gartner forecast over 185 billion applications will have been downloaded from mobile app stores, since Apple created the new sector in July 2008.


In terms of revenue, Gartner forecast it to exceed $15 billion in 2011, both from end users buying applications and applications themselves generating advertising revenue for their developers. Stephanie Baghdassarian, research director at Gartner, believes there is a sizable opportunity for application stores in the future:


“However, applications will have to grow up and deliver a superior experience to the one that a Web-based app will be able to deliver. Native apps will survive the Web enhancements only when they will provide a more-personal and richer experience to the ‘vanilla’ experience that a Web-based app will deliver.”


Apple recently announced that it had paid developers over $4 billion since the launch of the App Store, with iOS developers making a reported $700,000 during the last quarter alone.

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