No, apps won’t save the iPad from niche status

October 30, 2013

(Photo by Aaron Parecki)

My Tuesday post arguing that the iPad was doomed to a dwindling share of the market attracted some thoughtful criticism. One common response was that looking at hardware sales numbers ignores significant differences in the way that iOS and Android users use their devices. Specifically, iPad partisans point out that not only are there more apps available for Apple's tablets than for those based on Android, but iOS users spend significantly more money on apps than Android users do.

For example, one analysis found that iOS captured a whopping 74 percent of all mobile app revenue, despite the fact that the number of apps downloaded to the two platforms is similar.

Apple fans argue that this isn't a coincidence. Apple's mobile platform attracts a relatively affluent audience that's more willing to open their pocketbooks for apps. In addition, Apple boosters say, the tech giant's legendary knack for design has carried over to its interfaces for developers. That makes development for iOS devices simpler and less expensive than Android development. As a result, the argument goes, iOS has a disproportionate share of new and high-quality apps, which in turn will make discriminating users willing to pay a premium for iPads.

There's obviously something to this argument. High-quality software is important for any digital platform, and Apple has done an admirable job of nurturing its app ecosystem. But there are good reasons to think Apple's current app advantage will erode over time.

First, Apple users' higher propensity to spend money on apps can only do so much to offset declining market share. If the market share of iOS winds up in the single digits, as the Mac's market share did two decades ago, Apple's spendthrift users might not be enough to entice app developers to focus on the platform.

Moreover, users' propensity to spend isn't necessarily a good indicator for the health of the app ecosystem. Think about the desktop software market. Two decades ago, desktop users spent a lot of time using expensive proprietary applications like Office, Access and Photoshop. But by the late 1990s, the most important application most people were running was their Web browser, which Microsoft and Netscape were giving away for free. And as the Web matured, users started spending less time using expensive desktop software and more time using free, ad-supported Web sites like Google Docs and Facebook. Today, many desktop users never buy any desktop software at all, because Web-based apps like Facebook and Google Docs meet their needs just fine.

The same pattern is likely to repeat itself in the mobile market. The kind of affluent gadget enthusiasts that are willing to pay a premium for iPhones and iPads are also willing to spend a lot of money on iOS apps. But these are not typical users. And in the long run, much of the profit opportunity for app makers may come not from charging users directly, but rather from building free mobile apps like Instagram and Yelp that can generate revenue from advertising or other indirect monetization schemes.

A company that is trying to reach the broadest possible audience will care more about the raw number of users on a platform than about how much the average customer is willing to pay for an app. And if Android hardware continues to gain market share, then these firms will focus their energy on making their Android apps as good as possible.

In other words, the story of iOS hardware — with Apple earning the largest share of the profits even as its market share diminishes — may repeat itself with iOS software. Apple's ecosystem may continue to capture a disproportionate amount of mobile app revenue. But if I'm right, users will spend the most time, and get the most value, from free apps that run on their Android devices.

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Brian Fung · October 30, 2013