In the App Economy Germany is not an Island anymore

The global app economy disrupts the local digital economies: Digital content companies, digital investors/startups, brand agencies and brands with digital strategies.

Back in May I did a presentation about that called “Free Your Apps or Starve in Your Walled Garden” at the Next conference in Berlin, Germany. The target audience for the presentation was everybody in the non-US tech scene, particularly in the app economy. In the presentation, for the first time, I shared some of the observations we have from our unique Xyologic data set. Xyologic, amongst others, estimates the local downloads for all the + 750,000 apps on iOS, Android and WP7.

The Next conference has probably the best mix of agency folks, brands, startups, media people among all the conferences in Germany. If you join 3,4 conference sessions you get a good idea what German digital folks dream about and aspire to in their day jobs. DLD in Munich has much more and a different clout of decision makers, but the overall conversations are very fluffy. To DLD you go for high-powered 1 on 1 networking.

Below are some of my comments on the feedback I have gotten on some of the key theses. You can find my presentation and the video of the presentation below.

In The App Economy Germany Is Not A Technology Adoption Island Anymore

1. Local publishers argue and local media report that local apps are “successful”


Slide

A slide with typical download numbers from some of the leading internet brands. The media are full of with releases of how successful local players are - while in fact they aren’t as I later say on slide 12. There are apps out there like “World Newspapers” by Abhishek Kumar which have up to 10x more downloads each month than these guys.  “World Newspapers” is by far the most popular app which Germans consumers use to read their news. Yet, my bet going into my presentation was that none of the RTL Interactive, Bild or TV Spielfilm guys has ever heard about this app.

Feedback
Yup, my hunch was right as I saw in my later conversations. None of these guys is aware of all the international or indie apps which are disrupting them in their local markets. These local internet brand folks only look at the the other local internet folks as competition.

2.  Millions of Europeans download apps each month. The trend is already here.


Slide

This slide was about how many users actually do download apps in all the European markets already. This trend is not about niche - millions of people are part of the app economy and the behavior of these millions is disruptive.


Feedback
This slide worked. People were surprised how large this trend already is. However, the disruptive part was more tricky.


3. The Silicon Valley view - the wild west race to grow a global audience is on

Slide


So here is the disruptive part. This slide is from a Mobile World Congress 2011 presentation by Rob Coneybeer, Shasta Ventures (eg investor in Gowalla). After Rob’s MWC presentation we had lunch and he told me “Matthaus, nobody here understands why I invest in mobile.”

I share Rob’s observation. 95% of all the European industry folks do not get his theses, including the startup crowd and most of the investment community. Also 95% of all the telco folks worldwide (including the US) do not get his theses or the theses of many of his peers for that matter.

Rob’s slide shows a series of leading apps in specific industries. Shopkick in shopping, AirBNB in lodging, etc. As these apps get downloaded by millions of users, these millions of users represent a significant number of new types of customers and users which interact in new ways within these industries. Their behavior is disruptive.  

There’s only one way how to reach this scale of millions of users - make the app usage free.

As the Xyologic data on slide seven shows - app usage is mostly about free apps.

To the Silicon Valley today this is the Wild West of app user acquisition. Just like in the early days of the Facebook platforms this is the time where the new Zyngas get created. As you see here (link to appdata.com). As the Apple App Store and the Android Market will mature, this window opportunity to create businesses on these platforms will close. But this time the race is not for one single Zynga, but many Zynga’s across a variety of industry segments.

There are only very few European companies and no Telcos participating in this race.

Feedback
The conference was about lip service to innovation in the space. Digital agencies, brands, researchers, selected startups were all displaying examples of how they supposedly are innovative or support innovation.

While that may be true, in their perspective, their responses are not adequate to what happens. They should be getting and spending millions on acquiring users and experimenting with business models.

Most of the Euro players look to get their ROI BEFORE usage. A European telco I am familiar with only commit to deals when these apps make them +50k profit. Most of key European app publishers, their advertising agencies make their apps “paid” as they focus to recoup the production costs quickly. Shortsighted thinking at its best. A friend, the CEO of a leading German app startup, had his sales rep approach the leading 25 German digital agencies about the possibility of striking a deal with the startup. The result: one 50% lead, 24 “no”s. European publishers and advertising agencies are letting their local hope startups starve. I am pretty sure the same folks will be lobbying the EU very hard two years from now to “break  the Google/Apple monopoly” in this space.

There won’t be many German app champions on iOS and Android. I do not expect a Rob Coneybeer to showcase German apps in his presentations anytime, soon.

4. Disruptive - the majority of downloaded apps are free apps

Slide

 
Pretty self-explanatory, I guess. But there’s an important truth behind it. In the app space your job is to get your app to the users - for free. If you want any ROI, you have to figure it out after people start to use it.

Feedback
To SV folks this is such an obvious truth, that it does not even get debated.  But at this conference it appeared it was news to most people. Most of the people also drew the wrong conclusions out of it. The commentary was still focused on “hey, people don’t pay for apps, that’s a bad thing.” Hardly anyone wanted to discuss how to succeed in this situation and I am not aware of a discussion on how this impacts the European mobile landscape. I don’t know if this is because people don’t care, or they don’t consider it their sphere of influence, or whatever. I am pretty dumbfounded.
 
5. Disruptive - Your local app economy is not the digital island you know from the web

Slide

If you look into how the digital space plays out, then one way to look at it is as a series of local islands. People in the different countries use their local languages when they use Google search. Hence they get local language results. International properties show up if they have a local presence or a very strong international reach which extends into the particular country.

So if you look into what the competitors in a particular industry segment are, then this is usually more or less a copy of what is happening in the offline world in that particular country. For example, the big publishing house in Germany have all significant reach and traffic in the digital space, too, and mostly compete against each other.

Technology or trend adoption curves are also local. For example, there aren’t any meaningful independent blogs in Germany.  You have local champions, sometimes teasingly called “copy cats” (eg Zalando, a Zappos copy cat)  in most markets. And that’s not the case of “trends lagging behind” - digital markets often play our very differently if you look closely at them.

As we see from our Xyologic data the app economy can not be seen as a local island, at all. The app animal is very different.

The main way how users currently search for apps is via the Top 25 of the Apple App Store. There they find and pick mostly English-language apps. On average, in the Top 150 most downloaded apps in a particular country we find 120 international apps.

Hence, the competition in the app stores is mostly among international brands. The app economy, the way it is structured today, is international. 

And as noted earlier it’s either the independent developers like Abhishek or the SV-globally-financed startups competing with a few local apps.

Feedback

The local content industry get disrupted. Hello local Bild Zeitung, hello Le Monde or El Pais. Hello telco deals. The times where you were important in mobile and made deals with each other in the “closed mobile” world have passed by.

The local VC/startup models get disrupted. If you are a local copy cat based on an app and you target a local market, then goodbye to you, too.

Marketing campaigns assuming different tech trend adoption in local markets are not getting it.  As I said, across all countries the majority of the top downloaded apps is the same and is in English. If you are a local marketer or brand agency, then you can’t hide behind your old excuse “this is (insert your country name), this is different than the US”. Trends which you read about on tech blogs get adopted within 2 to 3 months according to our Xyologic data.

I continue to be perplexed that hardly anyone, be it the media or the industry is talking about this.

Many cynics in our industry consider “disruption” a buzzword. My observation is that even though this “disruption” has already reached millions of European consumers, then the disrupted still do not like to face it that it’s even there or talk about it what it means to them.

Bottom Line

As early as December 2009 my friend Raj Singh discussed the notion if the US has a geo-monopoly on Web 2.0 ? In the cases of Nokia and SonyEricsson he wondered “If you are an OEM and you do not have significant marketshare in the US, how do you convince the Web 2.0 folks in the US to build to your platform first?” 

Our Xyologic data suggests that there is one global app economy and a US dominance in mobile apps exists. There are only very few European companies and no Telcos participating in this race. European apps - UK’s Shazaam or Sweden’s Spotify - only succeed if they go global and have the necessary funding to do so.

Traditional publishers worldwide regularly complain how digital destroys disrupts their business. They haven’t seen what is coming at them in the mobile app space.