At the close of each year, one of the most common topics to consider is what the next 12 months will hold in store. Reflecting on the world of mobile apps in the year 2016, we saw a continued proliferation of the total number of apps available, as well as big changes in strategy from both Apple and Google. In reflecting on what will be a big (or not) in mobile for 2017, here are six predictions.
Game Devs Will Choose Brands
The number of games based on brands is poised to expand, with the twin impetuses being recent and impending successes in this vein and exploding acquisition costs. Until this year, creating and marketing games with new brands was profitable enough; but the intersection of the trend in rising acquisition costs (acquiring a paying user have surpassed $65 in 2016, per a Liftoff Study) and the hard fact that app user retention rates are inherently low for games (27% of users retained after one month for the average game and 32% for high performers, per Localytics) will push developers to hedge their investments by building games for brands with an existing awareness and thus enjoying lower acquisition costs and better retention rates. The success of the slew of games coming from the brands like the Kardashians (Kimoji took the #1 paid app rank on day one), YouTube legend PewDiePie and Mean Girls, as well as MZ investing in a Final Fantasy title with Square Enix, Pokemon’s Go’s smashing success (the fastest game to hit $500 million in revenue ever) and Nintendo’s upcoming entry into the world of apps herald this explosion of branded games.
Messaging Continues Growing
Many more apps will begin leveraging chatbots and iMessage extensions as major components of their product strategy, as users have begun spending more time in messaging apps vs. social apps, and not just for communication, but even to manage other aspects of their daily lives. Asia and Latin America will drive this trend and serve as a model for the western world, given the massive reliance on mobile devices vs computers (e.g. Brazil and China) and the trend of Asian/Latin American users already relying on chat apps WhatsApp and WeChat for far more than just chatting. The rising investment in machine learning and artificial intelligence will find an outlet through messaging apps, as developers will need to leverage AI to build the most helpful chatbots. Additionally, get ready for contemporary communication via images such as emojis, stickers, Memes and GIFs to become a threat to the now old-fashioned, word-based communication method.
Also, not to be left behind, social apps such as Snapchat, Facebook, Instagram and Twitter have already begun to fight back by betting big on live video as a way to regain the spotlight. It’s likely that social apps will also try to incorporate some form of instant messaging to stay relevant with users, such as Snapchat’s messaging feature (Perhaps Twitter will get desperate enough to try a radical, messaging-based overhaul). Facebook read the writing on the wall of this coming trend in communication early-on in 2011 and again in 2014.
The Internet of Things – Not in 2017
2017 will not be the year the Internet of Things finally hits critical mass. While many of the big hitters needed to bring the IoT to fruition are lining up, including Apple, Alphabet and Samsung, multiple large obstacles, such as standards and security, must be solved before the IoT can succeed commercially. For example, consider how hackers have penetrated IoT vulnerabilities in pacemakers, Jeeps and recently succeeded in conscripting thousands of IoT devices into an army of bots made to perpetrate DDOS attacks. These issues must be worked to satisfaction before consumers can feel truly comfortable using IoT devices, which is the impetus for developers to create IoT-enabled apps. Furthermore, developers must figure out how to use the IoT to build innovative apps, beyond simply turning lights on or off (while Apple’s Homekit has been out since 2014, there are few, if any truly innovative apps to show for it). If Apple can pave the way by turning its new Home app into a role model for IoT development, that could help in this endeavor.
Virtual Reality / Augmented Reality – Still Not in 2017
When compared to the Internet of Things, it’s clear that 2017 is much more primed to be the year of VR apps. That said, VR apps will probably still not achieve critical mass during the year 2017. This is because VR apps require new hardware beyond a smartphone to operate, and buying new hardware is expensive and annoying. Per IDC Research, by the end of 2016, 9.6 million VR headsets will have been shipped globally, rising to just under 18 million in 2017. While IDC cites a spectacular growth rate of 183.8%, the total units shipped by the end of 2017 will still equate to less than 1% of the global population. Even assuming all shipments were to unique customers and all occurred in the US, the market penetration from 2016/2017 shipments would still equate to only ~8% of the US population; in other words, not yet popular enough to push the technology mainstream. Google cardboard is making headway against this hardware requirement challenge, but even the low-cost Cardboard VR unit has only shipped 5 million units thus far (we’ll see how Google’s next VR attempt, the Daydream fares into 2017). Until the user demand exists for VR apps, most developers won’t shift their focus away from phone OS apps (similar to how mobile developers by and large don’t choose to develop for wearables, which currently equate to < 1% of all iOS apps or Windows phone apps, which equate to 33% of iOS apps).
AR, on the other hand, is farther off in reaching its time than VR is. While rumors are swirling that Apple is working on an AR device, and Google will surely make a return to AR at some point, the world proved that it simply was not ready for mainstream AR when it ridiculed Google Glass to near-death (though millennial-oriented Snapchat may stand a better chance at making AR cool, if they take a stab at it). While the advent of automated cars will be a massive boon to VR/AR trends as well as the IoT (i.e. cars becoming a connected thing and providing a new medium through which to push VR/AR technology), even rosy-glass, biased forecasts place self-driving cars yet another 5 years out.
Apple’s Top Focus for 2017: Tapping the App Store for More Money to Offset Hardware Declines
Apple is in for a rough year ahead. Not only is it facing a Trump presidency bent on repatriating corporate profits and bringing manufacturing back to the US, but Apple is also facing mounting pressure caused by declining hardware sales, revenues and profit across its Macs, iPads, iPhones, iWatches and everything else; Apple even recorded its first revenue decline since 2001, per The Verge. To salve its hardware wounds, Apple is revamping its App Store to generate more revenue from apps. Adding search ads creates a brand-new revenue stream for Apple, and reducing its cut of subscription revenues encourages developers to push more users into recurring revenue, as well as incentivize developers to create better products that users will pay to subscribe for. By pushing its limit ad tracking technology, Apple can also disrupt advertising revenues from ad networks and publishers like Google and Facebook, who currently tap advertising revenues from the app discovery process, which Apple has previously missed out on. By filling in declining hardware revenues short-term with digital revenues, Apple frees itself from Wall Street’s quarterly earnings pressure and can focus on scoring an innovation win in one or more of the huge aforementioned opportunities of the IoT, VR/AR and self-driving cars. To succeed in the short-term, though, in addition to search ads and subscription changes, Apple should really focus on revamping the App Store to encourage users to download more apps, which otherwise risks becoming a glass ceiling for rising App Store revenues.
Google’s Top Focus for 2017: Finally Breaking into Hardware in time for VR
Apple taking its lumps in the hardware space is all gravy for Google. Given Apple’s app-based revenue dominance over Google and Google’s struggle to overcome Apple’s OS strength, despite owning 88% of smartphone sales, many smart people, including Ben Thompson of Stratechery, see Google’s return to smartphone hardware with Pixel as a respectable move. Morgan Stanley forecasts Google to make nearly $4 billion from the Pixel in 2017, as well as boost Google’s advertising revenues. By trying the Apple model of software + high-end phone hardware, Pixel also gives Google the best chance for its chances to dominate the VR market. Google is attacking the VR market from multiple angles, from the $15 Cardboard to the $79.99 Daydream; perhaps a high-end model will be coming soon, too.
That said, Google will be tested to its strategic partnership limits with this move, as its Android manufacturers look for larger profits in the high-end smartphone market that Google’s new Pixel competes in. It’s not easy to make the move to hardware for an OEM-partnered software company; Microsoft attempted the same with the surface and has seen surface sales flatten.
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