Mobile Apps Are No Longer a Good Idea for Startups
From something cool a 9-year old could code, mobile apps have become a knowledge and capital intensive game tangled up in global politics.
In February 2009, media across the world carried reports of a “whiz-kid” — a 9-year old boy called Lim Ding Wen from Singapore who became the world’s youngest iPhone app developer.
He had created an app called Doodle Kids, which allowed users to draw with their fingers on the iPhone’s screen. It was downloaded over 4,000 times within two weeks.
Of course, it helped that his father was the CTO of a local tech firm and that the boy had been playing with computers since the age of two. By seven, he already knew six different programming languages.
Eight years later and having published more than 20 free smartphone apps, this prodigy was still in the game. He was doing a diploma in Information Technology and nurturing an ambition to become a game developer.
However, he admitted that “the market for mobile phone apps has become saturated”, and that he was trying his hand at other projects involving new languages and programming circuit chips.
COVID saved mobile apps… for now
The boy wonder was spot on. When that article was published in January 2017, the mobile app market was indeed already trending down.
Starting from Q4 2016, the quarterly growth rate of apps in the Apple app store begun to turn negative for the first time.
A similar trend could be seen in the Google Play store, although the increasing popularity of Android phones and developers releasing Android versions of their iOS apps tempered the decline somewhat after an initial sharp drop.
This trend was vindication for me. At the end of 2016, I published an article on LinkedIn titled “Mobile Apps will Disappear Soon”, alluding to the fact that the market was becoming saturated and that many apps would fade out or consolidate over the coming years.
In October 2018 I updated and republished the article in Medium. The editors picked it up and featured it under a new title “The End is Near for Mobile Apps”. The article went viral, spawning many copycats and outright piracy. One reader even challenged me to a $1,000 bet that I would be wrong.
As fate would have it, he might have won that bet due to sheer luck. The numbers were proving me right until COVID-19 came along in 2020 and gave mobile apps a sharp boost — thanks to its impact on physical activities and interactions.
With this renewed uptick in new apps and download rates, many in the app industry are once again making highly optimistic projections for the future.
But does this make it a good time to try a mobile app startup idea?
I would argue not. Most of the folks enthusiastically suggesting this in online blogs and industry reports are those who make money off providing services like analytics or digital marketing to app publishers.
If you are thinking about creating an app, I would suggest that you consider the following...
Numbers can be deceptive
First of all, one must distinguish between rising interest in an economic activity versus the economic viability of that activity as a business — especially if it is a startup!
Although one could argue that the total number of apps in the world is rising, the reality is — like websites and blogs — a lot of mobile apps get published, flop and are then abandoned online for a long time before it ever gets deleted. App stores are filled with ‘zombie apps’, low quality apps and copycat game apps that are choked with ads, making the cumulative total not an accurate reflection of the economic vitality of the app business.
Proponents of the app industry also point to rising smartphone users and app download numbers. But this statistic is also skewed by the fact that it is the existing and highly popular social, utility and game apps that make up the majority of these downloads. Even when free, new apps often struggle to get any attention. Paid apps do even worse.
“Sizeable audiences and their growth potential make for impressive stats, but… Consumers are spoiled by choice, now expecting experiences that are highly relevant and genuinely valuable. Anything else is noise.”
— App Trends 2020, Adjust
Even if an app gets downloaded, retention rates for users are terrible. In 2020 the average user retention rate for apps on day one was only 25.2%. This means that three out of four users who downloaded your app will never use it again after just one day. After 30 days it plunged to 3.5%.*
Cost has gone up significantly
The app market has also matured tremendously in a short time. To compete and scale an app properly for a significant user base today requires serious capital. Deep pockets are needed to build and sustain an enterprise grade I.T. infrastructure, as well as continuously invest in marketing to acquire, activate and engage users.
In terms of infrastructure, just ask any techie that has worked in a mature startup running apps catering to millions of users. The tech stack and knowledge needed goes way beyond the capabilities of a few coders with basic programming experience.
A 2015 survey of “12 leading mobile application development companies” by Clutch found that to develop an iPhone app, “the median cost range is between $37,913 and $171,450, but could climb up to $500,000 or higher”.
What is more interesting though, is that the largest component was consistently the “infrastructure” cost (not features or testing or design), which accounted for more than one third of the total cost. Keep in mind, that infrastructure is often an ongoing and not one-time cost.
In terms of marketing, let’s just take the 2020 average Cost Per Install (CPI) worldwide as a simple gauge. For iPhone apps that’s US$0.86; for Android apps it’s US$0.44. Now take that multiplied by the number of users you hope to get, and you have an idea of what it might cost you (assuming you didn’t need to spend anything else to do marketing).
Keep in mind too, that the CPI is much higher for developed markets like the U.S. (iOS US$2.07, Android US$1.72) and that popular platforms cost more (Facebook — US$1.80, Twitter — US$2.53, Instagram — US$2.23).
At this stage, some aspiring founders might be thinking: I have a great idea, I can start small and then raise the venture capital needed to fund the startup once the app has shown traction. Well, the fact is: most app ideas aren’t novel these days. Investing in apps is no longer attractive for most VC’s.
And in case you haven’t yet heard about how VC’s really operate, do read my article “The Truth Behind How Venture Capital Chooses Startups”.
But if despite all that, you still managed to become the one in a billion to build the next unicorn app, you are still potentially going to face an obstacle greater than statistics or money.
The mobile app game has indeed, changed permanently.
Apps as economic and political weapons
The success of mobile apps as a global product and social tool in itself has also led to an emerging problem for the industry — apps are becoming a target in economic and political disputes.
It all started with the Trump administration seeking sanctions against Chinese tech companies and their products — including mobile apps — citing national security concerns. However, efforts to ban Chinese apps in the U.S. are still subjected to bureaucratic checks and balances before coming into effect.
India does not have that problem though.
Over three separate announcements in 2020, India has already banned at least 220 Chinese apps — including hugely popular ones like Tik Tok, WeChat and AliExpress — also citing national security concerns.
Most observers believe that the bans, which begun in July 2020, resulted from bilateral tensions after a border skirmish in the Himalayas the month before killed 20 Indian soldiers.
Meanwhile, the Chinese government announced in December 2020 the removal of 105 apps from its app stores — largely domestic ones with illegal or unsavory content. Strangely though, most observers could not figure out why US owned TripAdvisor was also in the list.
Is this just the beginning of more geopolitical barriers to come for tech businesses and apps?
Only time will tell…
Beyond the past
What we can be sure of is this: mobile apps will continue to grow as a business in the overall sense until smartphone ownership stagnates. But the playing field just isn’t the same anymore for startups. Would you think that a couple of geeks in a garage making personal computers today have the same odds of growing it into a global company worth billions, like in the 70's?
The fact is, you can still make some decent money if you knew how to code or bootstrap with a few techie co-founders. But long gone are the days when one can publish an app and it goes viral, allowing you to raise huge amounts of venture capital soon after; or sell it for a retirement worthy sum.
It comes down to three words — time and tide.
Technology and the modern innovations it brings move fast. Once a sector matures it becomes a game for big and powerful companies. Niche players can still emerge, but the odds are heavily stacked against you now.