India’s app economy contributes to growth

Prabir Dey’s day starts in the morning and often ends at mid-night. He can’t afford leisure but he values his job as a courier boy for a food delivery start-up. He is one among millions of young Indians who, armed with their smart-phones and motor cycles, deliver nearly anything and everything to online customers. India’s app-based economy is expanding rapidly.

A surge in the popularity of apps to procure a whole lot of things – from food, transport, retail goods to services including insurance, health and medicines – provides a welcome avenue of employment for many as India’s unemployment rate touches at a record 45-year high.

But first what is an app-based economy? It refers to the range of economic activity surrounding mobile applications. Mobile apps created new fortunes for entrepreneurs and changed the way business is done. The app economy encompasses the businesses transacted through apps, sale of apps themselves, ad revenues or public relations generated by free apps, and the hardware devices on which apps are designed to run. Apps are now affecting a shift for online businesses, from laptop to smartphone customers.

The present digital environment is extremely app-focused – roughly 90% of mobile time is spent using apps for meeting everyday needs from booking movie tickets to calling a carpenter. Regardless of the existence of 3.8 million apps on Google Play Store and two million apps on Apple App Store, one wonders what applications people may still miss.

The world is witnessing a spectacular rise in usage of apps and the amount of revenue generated through them. According to Statista, a German online portal of statistics, the global mobile app revenue amounted to $69.7 billion in 2015 via app stores and in-app advertising. It went up to $88.3 billion in 2016 and is projected to rise to $188.9 billion by 2020. For India, the revenue in the apps segment amounts to $195 million in 2019. Revenue is expected to show an annual growth rate (CAGR 2019-2023) of 11.9%, resulting in a market volume of $ 305 million by 2023. User penetration is 9.3% in 2019 and is expected to hit 11.1% by 2023.The average revenue per user (ARPU) currently amounts to $1.52. In global comparison, the amount is low, but is growing steadily.

For India, the ability to generate employment is the most important aspect of this app-based digital business, which is attracting attention from both our policy makers and the masses. No reliable data is available on the number of jobs created in this gig economy in India so far. Nevertheless, 70% of companies surveyed by a human resources consultancy, Noble House, said they had used gig workers at least once for major organisational issues in 2018. This would mean a huge number of workers during this period served these corporations. The NITI Aayog, a government think tank, reportedly, claimed last January that app-based cab companies such as Ola and Uber alone had created more than two million jobs.

Understandably, these jobs offer none of the benefits that regular jobs entails like regular leaves, limit on working hours, overtime, job security, and health benefits. For India’s many job seekers getting work is more important than its quality. Approximately 61 million jobs were created in India after the economic liberalisation in 1991. Of this, 92% were informal, as per an IndiaSpend analysis based on NSSO data for 2011-12.

The app economy in India surged into life with the confluence of two factors – the subsidising of 4G data and a wave of cheap smartphones from China. The 4G revolution was started in 2016 by Jio. Offering free 4G data, Reliance Jio reportedly, acquired a mind-boggling 177 million users in less than 18 months. In doing so, Jio changed the mobile telecom landscape and compelled other mobile companies like Airtel and Vodaphone to undercut prices drastically. The result is more than 200 million users, mostly in India’s cities, are now reaping the benefits of 4G. Citing a report by Open Signal, Dazeinfo showed that as of April 2018, the 20 largest cities in India had more than 80% 4G coverage. The spread must have gone up further since then.

One sign of the market’s rapid maturation is the rise of non-organic installs. Unlike the early days in the US when there were so few apps that discovery took place in app stores, users in India are inundated with a huge number of apps from which to choose. As a result the need for paid installs is rapidly increasing, with non-organic installs more than doubling. eMarketer predicts that mobile ad spend will increase from over $800 million now to $1.7 billion in 2021. This represents a huge opportunity for apps that gain traction as the vast majority of impressions – 86% according to eMarketer – are in-app as opposed to mobile web.

For the first time, India installed more mobile apps than any other country in the world. Latest data from app intelligence firm Sensor Tower reveals that India installed 4.5 billion apps in the first quarter of 2019, ahead of the US, which was ranked second with three billion installs.

Overall growth of apps in the country was driven by increasing smartphone penetration and dropping mobile internet rates, allowing Indians from across towns and villages to become a part of the internet ecosystem for the first time. India has close to 400 million smartphone users today, and is expected to more than double that number by 2022, according to a Cisco study. More than 60% of the population is expected to own smartphones by then.

India’s app economy is witnessing exponential growth. A study published inn 2015 by Indian Council for Research on International Economic Relations (ICRIER) and Internet and Mobile Association of India (IAMAI), titled “An Inquiry Into The Impact Of India’s App Economy” estimated direct employment in this industry to range between 1,51,230 and 1,59, 010 till 2016. But the app economy has grown exponentially since the time the study was done and the actual employment must be much larger right now.

The creation of new jobs had positive impact on the country’s economic growth as well. A 10% increase in India’s mobile internet traffic leads to a 1.3% rise in GDP, says a study, ‘Estimating the value of new generation internet based applications in India’, by the Indian Council for Research on International Economic Relations (ICRIER) and Broadband India Forum in 2016. The study noted that “An equivalent (10%) increase in India’s mobile internet traffic during the period 2015-16 would result in an absolute increase of $41.4 billion in India’s GDP during the year.” The apps contributed a minimum of $20.4 billion to GDP in the same year, the study claimed.

But if the sector has to maintain its high growth trajectory in the coming years, a lot has to be done by both the government and the players of the app industry. Absence of skilled manpower, high cost of development, limited or no access to finance are major impediments to growth. Work will be increasingly skill-intensive and the need for functional digital literacy will increase with the introduction of newer and more sophisticated apps. Delivery workers will need to use apps to navigate their way around the city, floor workers will need to understand and respond to the output of precision control systems.

High cost of user acquisition, hyper competition driven by independent and freelance developers and the high cost of marketing are impeding its growth. Industry stakeholders are concerned by the clutter in the developer market, although this could sort itself as the industry evolves and underperforming and uncompetitive developers gradually weed out. In terms of monetisation, the challenge is related to the preference for free apps and a user base that is limited in terms of their familiarity with the mobile and internet ecosystem. On the flipside, there are the gig workers, who will take the app economy to newer heights but will remain outsiders. These jobs offer none of the benefits that regular jobs. For a successful functioning of the industry, a socially acceptable job framework needs to be in place.