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E. Dans (various sources)

The app economy: it’s all about critical mass

Enrique Dans
Feb 14, 2016 · 3 min read

When certain patterns repeat themselves a sufficient number of times, we tend to start seeing this as a trend, as has happened with health apps and sports equipment: between the end of 2013 and the beginning of 2016, six health monitoring apps were bought by sports equipment brands.

Under Armour, the US sportswear manufacturer, was the first to see where things were going: between November 2013 and February 2015 it announced the acquisition of three sports monitoring apps, MapMyFitness, Endomondo and MyFitnessPal, all of which continue to function as independent companies. In March 2015, Fitbit bought Fitstar, a personal trainer app with many celebrities’ endorsement, and that has also continued operating independently. A few months later, in August 2015, the German giant Adidas bought Runtastic, and then, last February 10, the Japanese footwear manufacturer Asics purchased Runkeeper for an undisclosed sum. In short, the trend is clear: big sports brands want your health data as well as a new channel to continue placing their logo in front of your eyes precisely when you are using their products.

Developing apps is an extreme sport. In most cases we’re talking about small companies that are sometimes able to place a product in a highly volatile market that wins over a certain number of users, leveraged on the growing capacities of a device that we all now carry around with us and use at all times (it’s only a matter of time before I start taking my smartphone with me when scuba diving). Success or failure tends to depend on external factors: interest in the media, talk on the social media; while revenue comes from the freemium model and a large user base that doesn’t pay for the app and this is financed by a small percentage (less than 10 percent) who pay for some extra functions.

It’s extremely difficult to convert an app into a profitable business, and few companies manage to do so. Most of what we hear about the app economy are exceptions to the rule or just plain myth. That said, many apps have become a part of our daily lives.

Like many people, I tend to think of Instagram when I want upload a photo, in the same way that I now associate going out for a run with Endomondo, or making a video with Facebook Mentions, or naming a song with Shazam, etc. These types of associations are what sports manufacturers are looking to make: Under Armour is a US brand that I tend not to see much in Spain, but it now comes to mind when I turn on my Endomondo and up pops its distinctive logotype. The app continues to work as usual, and it may even have more options, but the sportswear manufacturer that bought it now has a bigger global presence than ever.

Sportswear makers’ search for the right place to show off their logo is sometimes part of a strategy to find out more about how consumers use their products. For Asics, buying Runkeeper is a highly efficient way of finding out what people use its products for, as well as creating cross promotion opportunities.

For sportswear manufacturers, buying an app can also be a way to incorporate talent with new skills that will be essential for the company’s future.

For app developers, sportswear manufacturers’ acquisitions show that making money from an app often means selling it, which means being able to build up the necessary critical mass, something few developers are able to do. For the big sportswear brands, buying these apps means access to invaluable consumer data, as well as a new way of promoting themselves. This is a trend that we will very likely see repeated in other sectors.

(En español, aquí)

Enrique Dans

On the effects of technology innovation on people…

Enrique Dans

Written by

Professor of Innovation at IE Business School and blogger at enriquedans.com

Enrique Dans

On the effects of technology innovation on people, companies and society (writing in Spanish at enriquedans.com since 2003)

Enrique Dans

Written by

Professor of Innovation at IE Business School and blogger at enriquedans.com

Enrique Dans

On the effects of technology innovation on people, companies and society (writing in Spanish at enriquedans.com since 2003)

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