Digitree Digital

App-o-calypse – The app bubble

Technology companies are cropping up everywhere. Initially there were a few of these & now you see one starting up almost every day. Millions and even billions of dollars are being poured into these companies by venture capitalists who hope to make a killing out of these companies in the near future. These startups are seeing their valuations soar by several multiples. In fact, the word startup has become synonymous with technology companies.

No, you haven’t accidentally come across an old article from the 1990s (and neither is this a scene from Terminator – Salvation). This is very much an article from the present & the scenario you just read is happening – again! Only difference being is that the 90s was all about the web, this time it’s about mobile. It’s about the smartphone industry & the app revolution that it’s brought along with itself.

 

 

What you see around yourself is what you essentially would’ve seen in the 90s. There are mobile app startups all over the place. Every third person with a background in programming believes that he or she can make the next Instagram or the next angry birds & has set up shop to produce such mobile apps. Investors have ensured that such startups are flush with funds & the money pays for business expansion, whether it be capex or opex. There is a moderate or even lenient eye on profitability due to the belief that since mobile is the future, everything will fall into place very soon.

But how many of these new companies are really going to strike gold? Not too many apparently! If you look at the numbers, you’ll realize that not more than top 5% (or let’s say top 10% just to be liberal) of the businesses are likely to succeed. The success rate of new companies never has gone beyond this figure (or most of us would be millionaires by now!). The remaining startups are going to become shutdowns. And in a spectacular way as happened in the 90s. Remember names like Geocities, AltaVista, WebCrawler or even some big ones like AOL or Netscape? They all went bust!

Let’s look at some of the factors which go against app startups

Plentiful Apps
Ever since Apple introduced the concept of App store, mobile apps have been developed at a brisk pace & now there are literally millions of apps available across iOS, Android & Windows phone platforms. If you make an app, it will compete against at least a few thousand apps (or games) in its category for eyeballs, downloads & payments.

Lack of differentiation 
There are many apps which essentially do the same thing, albeit with minor differences in user experiences. To give you an example, my smartphone is filled with a whole folder of camera apps which offer similar effects,filters & editing tools. I couldn’t care less if I used one app over the other. Similarly, there are numerous PDF readers & even games which are too similar to one another. Users usually want & will pay for one or two of such apps. The rest stay at the bottom of the barrel.

No focus on user experience
There are many apps which are just designed to achieve functionality without attention to aesthetics. Instead of using these apps, one might as well have a console terminal & type in the commands. Sadly, many developers pay little or no attention to creating the wow factor that pulls in users & keeps them coming back for more.

Competition from developing world
Mobile app development started off predominantly as a forte of the developed world & now countries like India have caught on. More countries will follow suit as smartphones become more accessible in Asia & Africa. And since it’s easy to setup a development company, the domain of mobile app development will be rife with competition (not to say that it already isn’t). As an app developer, you will be competing with legions of developers from other countries!

Sounds like apocalypse? That’s because it is! As a developer you should be smart enough to work around the pitfalls mentioned here. As an investor, you should spread out your eggs over tech startups & old, established companies to hedge the risk. You never know when the bubble will burst. It’s the 1990s all over again!

What do you think of the global mobile app scenario? Is it already too saturated or is there plenty of room for more? Let us know through your questions & comments.

 

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