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The $86 Billion Opportunity In Apps

Feb 13 2014, 7:21am CST | by

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The $86 Billion Opportunity In Apps

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The $86 Billion Opportunity In Apps

In the global battle to achieve parity in smartphones, Europe’s achievements are diminishing. Nokia is gone as a handset maker. Consumer electronics makers like Philips left the sector years ago. Ericsson is out too.

But we know the modern economy is about software and services, so perhaps the Europeans are making it up on the software side? So it seems.

Even though the major apps platforms (Google Apple) are American, the European apps industry earns about the same as the US. Each has 42% in the major markets according to GigaOm research.

In conjunction with DERI, University of Galway, Ireland, GigaOm has just published a new report “Sizing the European App Economy”.

The European apps market, they say, will  grow from Euro 17.5 billion ($23.5 billion) in 2013 to Euro 63 billion ($86 billion) in 2018. That’s nearly a four-fold increase in five years. Most of the growth will be in contract development work – only Euro 17 billion in revenues by 2018 will come from app sales, in-app spending and advertising.

Launched today in Brussels the report also points out that while the picture looks rosy there are problems beneath the surface. Not least of the issues is that whatever success the majority of developers enjoy, 30% of the revenues on sales flow to Google and Apple.

The big opportunities out there for start-ups are actually in contract work which is not dependent on global platforms like the Apps Store, but, currently, of the 50 top grossing apps in Europe over is generated by just five games apps. Right now it’s a hits business.

That’s apparent in the recent growth of Finnish high growth game creator Supercell. The Wall St Journal reported last week:

Three-year-old Finnish mobile-game maker Supercell Oy notched a more than eightfold increase in profit and revenue for 2013, all on the backs of “Hay Day” and “ Clash of Clans,” both of which are free apps. On Wednesday the company said earnings leapt to $464 million in 2013, on revenue of $892 million, up from profit of $51 million on $101 million in revenue in 2012.

In Europe money flows out to the US apps stores (30% of revenues) and into outsourced app development. Even EU companies that secure work from US companies, tend to outsource outside of the EU. They also tend to be funded by US investors, and on exit are expected to see a flow of funds back to the US for that reason. In fact Finnish Supercell is majority owned by Japan’s Softbank

Mark Mulligan a co-author of the report urged EU funders to be bolder in investing in EU apps companies.

The superstars currently are Nordic companies with German and Italian developers lagging the market.

But the authors point out also that the app economy will support 5 million EU jobs by 2018. It’s a big issue, not just for Europe’s risk averse funders but for politicians too. In a low employment recovery the app economy is a jobs economy.

Connect on Twitter? I am @haydn1701. Join me on Facebook or Google

Source: Forbes


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