The App Dev economy
Every now and then, the outsourcing market throws up an aberration around which course-changing events happen.
We recently published our annual app development economy report and one stat caught our attention: the cost of app development in Indonesia is 25x cheaper than than in the US. It’s actually bad news for the app development studios in the US.
Source: ContractIQ App Development Economy Report 2015
Back in the last quarter of 2014, we approached the third-largest mobile platform company for their recommendations for app developers in two different markets. We got credible introductions, but with one problem: the best development studios introduced by the same platform company were priced apart by 15 times. We are talking about skills and pedigree that can be compared apples to apples.
We decided to focus on the price disparity in this year’s report – and Indonesia is a great case to drive home a few points for the app developers in the US.
Indonesia is a good representative case because:
- they have about 100 million smartphone users, they are all using internet for the first time and it’s through their phones. They are mobile first.
- their neighbouring markets all are mobile first. Be it Singapore, Korea, Japan or China – all of them are unique mobile markets that are at the leading edge when it comes to mobile business models.
Take another more familiar market – India.
- Early stage VCs dominate venture investments – 82% of over $1.3B worth of investments in the last four quarters are from early stage investors.
- 71 unique VC firms have made active investments in 2014.
- For the first time, India has a robust demand-side market for cutting-edge technology
- The design deficit we usually associate India with, is becoming a boring and outdated conversation topic. Indian startups are designing world-class experience and there is an outsourcing ecosystem that serves this need.
What do Indonesia’s growing mobile market and India’s buoyant domestic tech scene mean to US based mobile development studios?
- Asia is mobile first and has an early mover advantage in some horizontals within mobile (like messengers that work like platforms). Market potential, knowhow and cost will make many US-based enterprises look at these markets to make mobile investments.
- 15x to 25x price difference is hard to sustain. We see app development prices increase in Asia and we predict a downward momentum on app development pricing at the top end, in the US. The price differential will settle down to 5x.
We spotted another interesting trend.
Over 200+ app development studios we spoke to, expect a 25% – 50% increase in SDK usage in apps.
Price economics and the growth of SDK economy are not in favor of high-priced app developers. So what should they be doing?
- Full service is the way forward. App development studios should move upstream to help define mobile strategy and downstream to help with app marketing. Both these markets lack quality supply.
- Geographic spread. Traditionally the US set the tone for technology innovation. With mobile though, it’s China and Japan that come up with new business models. Asia, as a whole would have more smartphone users than the west. To hedge against pricing pressures and to capture the growth momentum, we recommend US app development companies to look east and set up bases in the Asian market.
Download the detailed app development economy report here.
About the Author
Ashwin Ramasamy is the founder of ContractIQ, a fast-growing marketplace that matches enterprises and startups with reliable app development companies, founded in 2012, and trusted by Fortune 500 companies and A-list VC-funded startups.