Market Size & Opportunity
The world is a big place, and the number of people on it is staggering! According to the latest global count, the world is home to approximately 7.81 billion people. Of course, you aren’t likely going to get that many people to be your customer, each one of those people is a customer of something. And that is really quite remarkable!
In this section we are going to dig into what portion of that global population is your target customer base. We’ll cover how big that total group is, and then we’ll go a little deeper to see how big your target demographic is. Your target demographic will be a sub-set of the total addressable market for your product.
We’ll use the following outline to cover your addressable market size and your total market opportunity.
- How big is the Pie
- Target a new or Existing Market Segment?
- Selecting the Best Sales Model
- Sales Model + Market Opportunity > Are we Rich Yet?
- Expanding the Pie or a Starting a new Pie
How Big is the Pie
The Global Market
With the global population reaching 7.81 billion people in the year 2020, there is still a sizable population without a smart phone. Currently, 45% of the global population owns a smartphone. Another 16% owns a mobile phone that is not a smart phone, and the remaining 39% has neither a smartphone or a feature phone.
The Global Smartphone Market
Our focus is on the 45% that do have a smartphone. The data shows a clear trend toward smartphone ubiquity, as the share of feature phones continues to give-way to smartphones. And the group that has neither, is also projected to dwindle over time.
The countries that have the highest percentage of smartphone penetration have adoption at around 80% of the population.
- United Kingdom: 82.9%
- United Arab Emirates: 82.1%
- Germany: 79.9%
- United State 79.1%
These countries have near 100% adoption of some type of mobile phone. The portion of the populate without a smartphone owns a feature phone, non-smartphone.
For the highest number of smartphones per population, we need to look east to Asia. The countries with the most smartphone users are:
- China: 851M
- India: 346M
- United States: 260M
- Brazil: 96.9M
These numbers are staggering to think about. When you look at the number of smartphone owners in India, and compare it to the total population of the United States, you start to get an idea of just how big the smartphone market really is. And for our purposes, these enormous numbers should give us hope, and a little bit of excitement about the number of people we can serve. Even with customer base equaling a sub-1% portion of the global smartphone is large enough to generate millions for the app developer. And scaling? Well, scaling above 1% makes things even more ridiculous!
For now, we’ll run with the 45% portion that represents smartphones-owners. This percentage of the global population represent the Total Addressable Market (TAM) for mobile apps. This number doesn’t represent what we will be targeting, but it represents the total population that the App Economy can service and reach.
Other considerations dramatically reduce that number. For example, if your app doesn’t support Chinese, then you can reduce your target market. If your app is expressly banned by a government like India, you’ll again need to recuse the size of your target market.
The US Market for Smartphones
We are focusing on the United States as the target distribution geography. This is the case for a couple of reasons.First, not having a global team means it’ll be difficult or impossible to have a meaninful global reach. Second, localization of languages. Poor language delivery is worse than delayed but good langauge deliver. Third, Most countries outside of the United States and Japan have an Android-user majority. This means you’ll need to start charting out all your cross-platform app compromises OR you’ll need a lot of money to develop two native mobile apps for iOS and Android.
Because of the reasons listed above, which are mostly negative, and all the positive reasons you’re thinking in your head right now, we will be focusing on the United States as the target geography for launching our App. (Some of the benefits of going US first include: 1. Your familiarity, 2. Infrastructure support, 3. Market of Spenders, and 4. The U.S. is nearly always the fist to receive and adopt new technology from the platform giants Apple & Google)
Narrowing your TAM to a Single Mobile Platform
The mobile platform that we will be narrowing down to is iOS. Specifically, iOS in the United States.
The United States has a total smartphone user base of 260M. Of those 260M, 56% own iPhones. It might seem like the decision to select iOS as the target platform is guided by it having a larger user-base. It’s actually more complex than that. But, don’t worry, I’ll walk you through it.
You might assume that if iOS represents 56% of the US market, that Android represents 44% of the market. And, that selecting Android as our target platform is the same as targeting half of all US smartphone owners. The reality is, making that assumption is also so simplistic. More detail helps us understand why.
Apple commands 56% of the US Smartphone market. Apple provides iOS as the operating system that runs on the iPhone. 95% of all iPhones in circulation globally (and you can assume closer to 100% of iPhones in the US) are running the latest version of iOS. Currently iOS 15.
Android shows up on 44% of smartphones in the US, however, nearly 60% of android phones are not running the latest version of Android. In fact, 60% of android phones are running an operating system that is 2 or more years old, with no plan or method available for them to upgrade.
So what does this really mean when comparing market Opportunity in the US between Android and iOS? It simply means that Apple has a true 56% market that YOU as a developer can target as a potential customer. Your App can include the latest and grates technology, and you still can proceed with confidence that 56% of all smartphone owners in the US can download and use your App. Effective, 56% of use smartphone owners are in a position to give you money.
On the Android side, the picture is a lot more bleak. If 60% of Android users are running something 2+ years old, that means targeting the latest Android platform for your mobile app reduces your TAM to 17.6% of the us market. Not 44%.
Let’s take a step back and look objectively at this, because it’s important.
A true 56% of smartphone owners in the US can download, use, buy, and subscribe. This 56% target also allows you to build an iOS App that only targets the latest version of the operating system (side note: not providing backward capability is a dream of every developer – iOS actually lets you do that with nearly zero repercussions). That means 1 app, no backward compatibility, latest features, 56% of US Smartphone Owners. 145M Customer TAM.
Or, 17% of the US Smartphone market is running an Android operating system that is between 1 & 2 years old. The newest software having a sub 20% adoption rate even after a full year in the wild. This requires you to support 2 version of the operating system, and separate your code between the haves and have-nots for your greatest features. Or, you are stuck developing to the lowest common denominator. You can target the 1+ year old Android phones, ignoring the new features. That means, 1 or 2 apps, fragmented user base, fragmented feature set, ~17% of US Smartphone Owners. 44M Customer TAM
One final thought. What is an automatic 100M customer reduction to your TAM worth? And do you have the time and resources to give 50% of your time (or more because of the OS and feature fragmentation) to 17% of the market?
Maybe someday. Maybe you can focus on that smaller user base. But, unless you’re already crushing it, you’ll want to focus ALL of your energy where the money is. And with the data I just provided, it should be very easy for you to make the decision now, and never look back!
At this point you might think I’m an Apple Fab-boy. But, that isn’t the case. You’ll need to label me with something a little more intense. That’s because my attachment to Apple is based in an appreciation for what their true market value and opportunity is. And every time they tackle a new industry or new problem, they execute with unmatched strategic precision. While the entire tech market was predicting the fall of Apple once it hit a $1 trillion market capitalization, I predicted they would double to $2 trillion. And the more the tech industry and tech journalists learn about Apple, the more they realize
Target a New or Existing Market
The next narrowing we will do isn’t a narrowing of the TAM, but a narrowing to a demographic and offering-category within the TAM. We are going to survey and target a specific App Category. The iOS App Store has the following Categories, with the percentage of total apps listed next to the name:
- Games: 22%
- Business: 10%
- Education: 9%
- Lifestyle: 9%
- Utilities: 6%
- Entertainment: 6%
- Travel: 4%
- Food & Drink: The remaining Categories (35%)
- Health & Fitness
- Productivity
- Finance
- Shopping
- Book
- Music
- Social Networking
- Sports
- Photo & Video
- Reference
- Medical
- News
With over 4.3 million apps on the iOS App Store, it’s clear that there isn’t a shortage of options for consumers. If you only looked at total app volume, we might feel like we could pack up and go home. All with the assurance that somebody somewhere has already built and deployed your app idea; them becoming rich while you stay not-rich…
This is the point where I pull you from the edge of a cliff and explain how there is still a massive opportunity for your App! Even though the least crowded category on the App Store has something close to 43,000 options to chose from…
We still have a ton more material to review before you feel confident that you can win, despite the seemingly insurmountable odds stacked against you. For now, I’ll say this much to put you at ease for now (so you can continue to focus). The only value in looking at the numbers I’ve listed is knowing the size of your opportunity. These numbers don’t have any bearing on your success, only on the potential size of your success.
The number you should focus on, is the number 1. That being your first customer, your first App Download, your first customer support call/text/tweet.
Going forward, we’ll be focusing on raw numbers, and that’s because the raw numbers are what we can look to when we want to know how WE are doing with our App. The market data is good for measuring industry health, and that helps us pick our playing field. But those numbers don’t dictate your success. Your strategy, capability, and execution – all things you control – will determine how big your success can become!
Select the Best Sales Model
Things become so much easier to outline when they are all on the same path. So, i feel lucky to be your guide as we Launch That App! On the iOS platform!
So, how do people sell things in the App Store? The App Store is a managed platform that enforces rules for content type, as well as sales models allowed. You can kick and scream about the rules, say they aren’t fair, or that you deserve a bigger piece of the pie (because Apple takes 30% of your app sales profits). But, all this kicking and screaming is costing you time and resources. Likily more time and resources than the value of the 30% that Apple takes as a commission from your earnings.
Yes, Apple has a commission structure where it takes 30% of your app revenue. If you have a customer subscribed for a cumulative year, all subsequent commission fees collected by from that user drops to 15% going forward.
For some perspective, the 30% is on the low end of commissions for the sale of digital goods. 50-75% commissions is not uncommon for software, books, and music. And 30% on Apps that make money through sales on the App Store – and zero commissions taken by Apple for apps that are offered for free – doesn’t look so bad.
Apple has attempted to public explain the rationale behind the 30%. Their calm and even-handed explanations have been received poorly by larger developers – while smaller developers only wish for better development tools, the smaller devs being completely ok with the 30% commissions. The smaller devs know how difficult it would be for them to get their Apps in front of over 1 Billion people – something provided through the App Store for FREE (if you are providing a free app).
Apple is taking 30% commission on your sales. Plan on it.
Now, how do you make sales on the App Store? What sales models and methods are available to Entrepreneurs and developers?
Let’s walk through them now.
App Purchase
The App Purchase has been around as long as the App Store. A developer can list an App on the App Store for Free, or they can list it for a price. Once the user downloads and installs that App, the App Store grants that user perpetual rights to that App and all upgrades the app receives forever.
When the App Store first launched, the only way to make money was to either A. Sell your app for a price, or B. Run ads while people use your app.
Both options seem bad – but that’s because we’ve become accustomed to a newer sales model that provides the best of both worlds!
In-App Purchases
Apple has enabled in-app purchases as an additional method for developers to sell their apps and additional content and features that might not ship with their apps.
The concept of in-app purchases came from Apple’s desire to help developers find new and additional ways to make money with their existing apps. Prior to in-app purchases, if a developer sold a version 1.0 of their app for $4.99, they were prevented by Apple from charging users for upgrades to their apps.
And that’s when we started to see apps that were labeled Version 2. App developers creatively found a work-around. They weren’t able to charge for upgrades to the existing apps they released, but they could charge for a new app. So, upgrades became new apps for a fee.
This made the App Store cluttered, and confusing… it also artificially inflated the total number of Apps on the store. Essentially doubling the total number of paid Apps.
In comes In-App Purchases. With the announcement of in-app purchases, developers didn’t need to create identical Version 2 apps. They could publish an update to the App Store and include new functionality that users could access for a fee. The original app would continue to function as before, but new features wouldn’t be unlocked unless the user paid for them.
Problem solved – sort of.
The next item that needed addressing was allowing users to pay for something on a recurring basis. Something the users knew they wanted to pay for access to. Subscriptions. Movies, Books, Magazines. Subscriptions allow you to agree with a publisher that you will pay them a set price periodically for content they periodically provide to you.
Subscriptions are part of the App Store today, and developers, publishers, and consumers are all happy.
So, to round out the list of potential in-app purchase options, here are the details provided by Apple:
- Consumables – Like gems or coins in a game. Can be purchased repeatedly.
- Non-Consumables – Purchased once, and access is perpetual. Often used for feature upgrades inside Apps. You’ll often see Restore Purchase inside of Apps that offer non-consumables.
- Auto-Renewable Subscriptions – Recurring payments for access to content or features. Users can cancel at any time, but access is permitted until the end of the current paid-up term.
- Non-Renewing Subscriptions – Used far less often, these subscriptions are good for seasonal access to something that ends at a known future date. The developer can automatically turn off access and stop charging you at the end of the term.
This list of in-App purchases is the realty that all app developers and App Entrepreneurs have at their disposal when monetizing on the App Store. However, these are the only monetization strategies that are available to you. There are always additional ways to monetize your work. More advanced monetization strategies will be covered later as part of the section specifically devoted to app monetization.
Sales Model + Market Opportunity = Are we Rich Yet?
Are we rich yet? Are you rich yet? Did you app make you filthy rich? Don’t get ahead of yourself. There is still much more to do before you can knock your first app out of the park! — even if you aren’t working on your first app, let’s agree that this app that you are working on, That App that we’re launching with the Launch That App! Program… That App is the one that you will knock out of the park!
When you consider how big the app economy is, and how active the consumer base is, it seems like a when, not if, you will make your big break!
However, you shouldn’t rely on the numbers. They are deceiving, and they will make you complacent and lazy. Remember, building software is not easy – at least not for you and me. There are people who find building software easy – these people are the type that we will be connecting with to do the actual building. As they start building the vision, we will begin the hard work of driving traffic to our websites and increasing awareness of the awesome work we are doing with our App.
The marketing, sales, business operations, and vision are the secret weapon that YOU bring to the table. App Developers will bring the App Building Magic, but YOU the App Entrepreneur will need to step up to the plate and be the visionary that drives the entire process!