Have we reached the point of 'peak app'?

Is the app economy now faltering?

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The smartphone app has been a phenomenon like no other in the digital economy, but are its days of runaway growth finally on the wane?

One hundred billion apps had been downloaded by July 2013 and by now there are well over two million apps available – big numbers indeed – but barely 10% of smartphone users in the UK actually pay to download apps. That's according to research from Deloitte earlier this year, which also revealed that almost a third of UK-based smartphone users no longer download new apps in a typical month – a figure that's up from 20% in 2013.

Deloitte's report, entitled 'The rise of App-athy', also revealed that 14% of smartphone users have never downloaded an app. The concept of an app might not be dead, but are app developers now operating in a market that's past its peak?

Netflix app
Do we already have all the apps we need?

How we use apps is changing

The number of apps we download continues to fall. This is partly to do with demographics – people now getting their first smartphone tend to be older, with 31% of over 55s never downloading apps. Meanwhile, those of us who've had smartphones for years generally have the apps we need, and are happy to use mobile websites for occasionally-used services.

However, there are new apps appearing all the time for completing tasks that previously weren't possible. Checking bank balances with a smartphone has seen a sharp increase in usage according to Deloitte – 40% of respondents did this in 2014, 10% more than in 2013.

"Like our underwear we're going to rotate our apps," says Marcos Sanchez, VP of Global Corporate Communications at app analytics firm App Annie, which tracks the performance of 4.2 million apps for clients including Facebook, Yahoo and Google. "Apps can only do so much, but that doesn't limit the apps market – there are plenty of ways that app developers will continue to innovate."

Most used apps
Many of the most-used apps are free

Are paid apps dead?

The demand for paid apps in the UK is even lower than for free apps, with a miserly 5% of smartphone users spending more than £5 per month on apps and games. While once it dominated, the concept of paying money to download an app to a smartphone or tablet is now a niche market, at best. The freemium model is the dominant business model by a long way, and it's not going away anytime soon.

"Paid apps are a small margin of the money being made, so it's not that important to think about them," observes Sanchez.

There are four types of apps: paid, free, paid-ium (you pay for the app and have paid-for upgrades within the app) and freemium (free app, paid-for upgrades). The huge majority of apps are games, almost all of which follow the freemium model – together they account for well over 90% of revenue in the Google Play store, with similar dominance in Apple's App Store.

Apple App Store
Games dominate both Apple's App Store and Google Play

Can non-games apps ever be a real business again?

Despite the dominance of games apps, Sanchez thinks that paid-for, non-games apps will mature and stage a comeback. It's largely about the step-up in smartphone hardware. "I now use now my smartphone to make modifications to documents, largely because it has a bigger, HD quality screen and the processor is faster, and the network plans are faster and cheaper," he says. "You can now do a lot more interesting things with non-games apps, and I suspect over time that non-games apps will start to monetise."

At the high-end, better cameras, microphones and high-resolution screens mean new apps are possible, but by far the more lucrative end of the market is in emerging economies, and new smartphone users.