But, really, how big is it?

The Financial Times has a copy of a Google report showing how Britain is powering ahead in the App economy.  It appears to come from a research outfit called Vision Mobile, whose research is so good it is mostly worth paying for. Apparently.

Figures are confusing. A publicly available VM report says “the global app economy was worth $68 billion in 2013 and is projected to grow to $143 billion in 2016.”  Apple alone sold $10bn in 2013.  But “sales from making smartphone applications” will exceed £4bn this year, according to the FT story.  About eight thousand companies are involved, “employing close to 400,000 people”.  But this last fact looks highly misleading, as it probably includes all sorts of people not sitting around on bean bags banging out code.  It would be like saying “restaurants that sold ice cream employed half a million staff”.  I bet somewhere an Ice Cream Industry lobbyist is pondering just that.

The VM report has more of interest, particularly this: 60% of developers are “below the app poverty line” = less than $500 per app per month.   This is clearly a distribution with a long tail.

What should we make of this?  First, here is some killer context: no matter which number you pick, these revenue figures are tiny in the context of global IT.  Consider this Economist story (from Gartner research): Financial services spent $500bn on IT – a fifth of all spending.  So total spending is $2.5 trillion.  Even the biggest offered number suggests the App economy is barely 2% of this.

And that figure is a cost.  IT spending is administrative spending.  It is a deadweight on its users.  It isn’t all good news.

Finally, the figure for “poverty” and the frequently seen stories about improbably young people breaking through in this sector say one thing to your misery-guts blogger: this is a cottage industry with low entry barriers.  Practically by definition this means it is not cutting edge in the sense of pushing back the boundaries of technological innovation.  The people who invented coding and connectivity did that: this industry is using those innovations.  Good for them, and good for us as consumers.  But the language of “high tech cluster” that is used around the creation of code-products can give a misleading impression.  This is a growth industry, but I am not sure it is a technological frontier.

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6 thoughts on “Appy news?

  1. That sounds quite like Alan Kay’s distinction between invention and innovation. Xerox Parc was inventive, Apple was innovative. However, it’s also true that Apple makes a lot more money than Xerox Parc ever did, and if you’re going to measure impact by “how much money does it make” then merely innovative stuff is always going to look more impressive than inventive stuff.

    A key point is that the rate of invention is a limiting factor for the rate of innovation. You can only innovate by applying (generally someone else’s) inventions to problems. If we don’t have enough inventions, we can’t have innovations either (or the innovations end up being rather degenerate ones of the “Facebook for dogs” variety).

  2. I quite agree – innovation is the thing. But innovation should be defined very widely – it is every time anyone uses existing materials differently. It can be re arranging the way sales people work. Far too often it is conflated with “cutting edge”. Italians running their motorway service stations better is innovation.

    Apps are clearly a tool that help people innovate. So was email, text messages, all of the clobber of modern communication. Message boards. All other things being equal it is good for the UK to be able to deploy them, programme them and use them. Much of this doesn’t require the physical presence in London of lots of app writers, however.

    1. I’m not sure. I think it’s a mistake to think of “apps” at all, because whilst apps are the novel factor and most visible component in many new businesses, they’re not necessarily the main thing that those businesses do (which you allude to). If you’re creating fairly simple apps which are largely self-contained (for example, games) then proximity to other app developers is only really important once you start to grow and might need to hire those other app developers. Such clusters could probably be sustained by any decent-sized city – several top mobile games developers are based in Scandinavian cities, and in the UK we could easily have clusters of games developers in cities like Liverpool or Leeds. In fact, such a cluster has existed since the 80s in Guildford (and Liverpool used to have one around Rage/Psygnosis/Sony Europe).

      However, something on the scale of Twitter or WhatsApp is different. Much larger teams are needed, along with other skills in operations, marketing, legal and business development. Just being around people who have operated at that scale before is incredibly useful, which is why Silicon Valley retains such a privileged position (even if this has been taken a bit too far, in my view). London does have some of that kind of expertise, much of it coming from the financial services sector, where handling thousands of realtime messages looks pretty straightforward when you’re used to handling millions of realtime trades. The “app” – the thing that runs on your phone that you can tap on – is the tip of the iceberg, and the actual “app developers” are going to be a minority of your total software development team, never mind the company as a whole.

      Beyond that, “apps” like Square or Uber are really not about the “app”. They might include hardware integration or substantial real-world logistics which are much more complex than the app itself. This requires a few things: firstly, the confluence of several different skills in a single team (or, in a startup, a single individual or two); secondly, investment. Investors in software companies are a pretty conservative bunch in that they pattern-match a lot. They like to hire people like themselves, or people with good credentials, or people who kinda look like Mark Zuckerberg. This has received attention because of the obvious risks of racism and sexism, but it also works against the guy trying to get investment in Hull or Carlisle. Hell, it even works against people trying to get investment in London. Part of the government’s plan seems to be based on the notion that London has just enough cachet (and good hotels and direct flights from the US) to attract investors to the UK’s tech scene. I find this regrettable but I can’t say that it’s wrong.

      I totally agree that we might be underrating the importance of less sexy innovations in Italian motorway service stations. The current productivity figures suggest that we probably are. But IT is generally one of the most reliable sources of productivity improvements at the moment, and mobile computing is still a fairly new thing, and we’ll have a reliable stream of innovations for the next decade merely from taking stuff we used to do on desktop computers and doing it on mobile ones, and taking advantage of ubiquitous GPS, cameras and computation. Having lots of people creating crappy apps is cargo-cult nonsense, but having a genuine community of innovative technology/logistics/operations firms operating in the UK would be great. I’d rather it wasn’t in London (even as a tech person who lives in London), but if that’s our best shot then so be it. I suspect we’d need a much bigger overhaul of our attitudes to innovation and industry in the UK to do it any differently.

  3. “we could easily have clusters of games developers”

    Sheffield/Leeds does have such a cluster already too. Small cluster. But those non-London (or at least non-South of England) IT clusters tend to be small in large part because that $500bn flowing into finserv translates into high IT sector wages in the London/SE clusters, ergo that’s where a lot of the skilled labour wants to be. So why fight it?

    I would also emphasize the difference between intermediate consumption of IT – that $500bn Giles dismisses as “deadweight” (which seems inappropriate) – and final consumption. It is certainly hard to see any (UK) productivity boom within wider industry from the “app economy” but it is even harder to *not* see the huge boost to living standards from the smartphone/app revolution. It’s the latter which really matters.

  4. JustAnotherTechie – I think these are good points, and it was my own brevity that allowed too casual an implication that it is all deadweight.

    There is a general point: something is not necessarily adding more value if it costs more. If we had to spend 10% of GDP on our electricity needs, that would not signify a triumph of the electricity industry. But it wouldn’t mean all 10% was wasted.

    And you are right that it is the consumer surplus/living standards that count for this sort of revolution. I would just say that at a time like this when the needs for rising incomes/tax revenues etc are very clear, the longer aim of happy consumers doesn’t immediately serve – it doesn’t pay the bills. In that sense more of the standard IT serving massive corporations probably helps us more

    G

    1. Right – the real point is about the consumer surplus. “it doesn’t pay the bills” is not enough – my view is that the consumer surplus from modern smartphones is so massive it genuinely does make a lot of bills “go away”. I think of those buzzfeed-style picture comparisons, smartphone vs “things we used in the 1980s to do all the things smartphones are used for now”.

      Today I don’t own a stop watch, I don’t have a kitchen timer, I don’t have a metronome, a guitar tuner, a dictaphone, etc etc, because “there’s an app for that”. The bills for all those things have “gone away” and that’s part of the consumer surplus from the smartphone, and it’s impossible to capture all that in the real income statistics.

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