Ten years ago, the job title ‘mobile app developer’ didn’t even exist.
Then in 2007 Steve Jobs launched the Apple iPhone. A smartphone that captured the public imagination like no product since the PC.
It was the start of a new normal. A normal where your life revolves around a mini-computer in your pocket.
And in turn it spawned an exponential rise in a brand new industry.
The app economy had begun.
An industry today that is worth billions of dollars.
In 2017, according to App Annie, Australian consumers spent a whopping $1.8 billion through phone apps. This was the eighth highest amount globally.
But that’s nothing compared to the ‘big five.’
Check out the chart below:
Source: App Annie
[Click to enlarge]
As you can see Chinese in-app spending is the stand out. It has increased by 270% over the last two years. The growing pace in all five countries is astounding.
Like all transformative trends, no company or industry can now afford to ignore the app economy.
The app is the business
2017 saw continued app disruption in all consumer businesses.
Industries such as finance, travel and video streaming are all going through major restructuring as apps come to the fore of their services and operations.
Some businesses are receiving more than half of their sales via mobile channels. Within which, app users are 3x more likely to spend than mobile web users.
That’s a big difference.
In finance and retail industries, the convenience and immediacy of apps have rendered traditional person-to-person services less relevant for consumers.
Apps aren’t just a part of business now.
They are the business.
Younger generations have created completely new ways of interacting socially. The rules of dating, friendship, communication and entertainment have changed radically.
All thanks to apps.
Would the Tinder dating business exist without an app? Would Facebook have continued its rapid growth in an app-less economy?
I’d argue no.
Smart investors that spotted this trend early have made mouth-watering returns.
And while Silicon Valley gets the headlines, it’s China that is providing the profits for investors.
Facebook and Amazon are up around 50% and 40% this year. But check out these Chinese tech giants.
Shares in e-commerce company Alibaba have almost doubled in the last 12 months, while Tencent has rocketed over 80 per cent. Other Chinese names like Baidu and JD.com have enjoyed 50 per cent share price bumps.
When you have an internal market of 1 billion people, success in an emerging technological trend can create rapid share price growth.
And then when you couple that with a steady 6% rate of economic growth per year, that’s why the market can get so excited. And you see such rises.
According to Platinum Asset Management, Facebook and Google generate between $US40 to $US50 per user from their user bases. Alibaba and Tencent — which have access to a rapidly growing Chinese middle class and emerging economies — are only cashing in around $US5 from each user.
You can see the opportunity here as China’s growth continues.
The lessons are clear…
The phenomenal transformation wrought by the growth of the app economy was actually a perfect collision of several trends all at the same time.
First, you had Apple’s innovation in the iPhone creating a completely new distribution channel.
This coincided with better internet technologies like Wi-Fi around the world.
Chip and battery technology also improved, enabling mobile phones to do more.
And then to top it all off, you had the China boom creating a growing middle-class keen to enter the 21st century with all its trappings of technological luxury.
Like I said, a perfect storm for the app economy to grow.
However, are apps really that much better than mobile websites?
But there are marginal convenience benefits. With clear user stickiness that businesses like to see, it meant the new market had deep and wide support driving it along.
Right now, a similar group of trends is colliding.
And the ramifications will be just as huge over the next decade.
Investors should be looking towards sectors like virtual reality, blockchain technology, artificial intelligence, microchips and MEMS to understand more.
It’s all part of a data revolution that will have huge economic and social repercussions. No market will be spared by the disruption that’s coming.
And demographically the next big opportunity is in India. A country with 65% of its population under the age of 35.
The intersections of these trends will be far greater than the sum of their parts. Especially if you can join the dots and spot the collision points.
Editor, Money Morning