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The App Economy in the Canadian Market Essay

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Introduction

In the recent decade, smartphones made a dramatic shift from being an expensive enterprise device to becoming an essential product of social life through merging both personal and corporate functions in one portable device. With the advancements in smartphone production, customers demand more new options available on their smartphones for either business or entertainment; thus, the market responded with the creation of applications that users can install on their devices. Mobile applications or “apps” are relatively lightweight programs (Mandel 2012) that were designed to be used on mobile devices such as smartphones or digital personal assistants. Some of the most popular apps include games, various services, social media extensions, and instant messaging. Apps usually differ from the conventional distribution of software by price points, size, as well as the convenience of their distribution. This gave software developers more freedom: previously, they were limited by the barriers associated with traditional sales channels; however, such barriers have decreased or disappeared altogether.

When examining the Canadian context, the disappearance of barriers, and the increase in customers’ demand, businesses are presented with tremendous opportunities. The development of applications is associated with the usage of digital media as well as information and communications technology skills, thus the creation of popular apps aids in generating significant activity on the labor market (ICTC 2012). According to the article written by Nieborg (2016), the financial indicators of mobile marketing indicate its growth. To be more precise, in 2013, the revenue of the smartphone and tablet market segment made up US$17.6 billion compared to the US$7.6 billion generated by web-based and US$4.4 console-based games (Newzoo 2014). Therefore, this study will focus on the positive and the negative aspects of the application economy in the context of the Canadian market in order to predict what developments will surround the country’s app market in the future as well as determine in what way disadvantages could be minimized by stakeholders for expanding the sector.

Canada’s Mobile App Economy

Despite the fact that the mobile app market in Canada is not as developed compared to the U.S. and does not receive any funding from the government, the industry has blossomed in recent years and continues gaining momentum. The steady demand for the smartphones and cellular contributed to the growth; thus, application developers are trying to ‘up their game’ and create innovative service-related applications or develop hose that present original intellectual property (ICTC 2012). What is important to mention that the processes of developing these two types of mobile applications are different. Apps related to services are much easier to create since they do not require a lot of creativity – service providers usually dictate how their apps should look. On the other hand, developers are rewarded much more when they create original applications.

According to the ICTC report (2012), in Canada, all smartphone users have downloaded at least one application to their devices. Users usually spend their money on apps in four different ways: they pay for apps themselves, purchase upgrades inside the apps, give companies revenue when purchasing products advertised within apps, and pay for regular services provided by the apps. Thirteen million Canadian smartphone users spend on average $149 per year to download apps (ICTC 2012). Seven percent of this amount goes to spending on new applications created recently while the rest is spent on relatively new or not very new mobile apps. Canadian app expenditures on just downloading makeup 22% of the grand total while in-app expenditures make up 38%.

Therefore, mobile applications have become very accommodating to advertisers that significantly benefit from users that purchase products promoted through their favorite apps. As the rate of smartphone penetration rises and as the more Canadians choose to get rid of their outdated devices and substitute them for smartphones, revenues from in-app ads have shown significant growth (IAB Canada 2010). In-app advertisement revenue increased from twelve to fifty-two to one hundred thirty-six million dollars in 2008, 2010, and 2012 respectively. When it comes to the total expenditure of Canadian smartphone users on apps and related purchases, they spend on average $675 every year (IAB Canada 2010).

It is worth mentioning that the total amount spent by Canadian users on applications does not go entirely to Canadian companies that develop apps. On the other hand, a significant share of revenue generated by foreign app users goes to Canadian developers. Eighty percent of Canadian app developing companies fall into the category of micro and small (ten or fewer employees) enterprises. However, as the number of Canadian app enterprises grows, the economy promises to expand in the next several years.

Canadian vs. Foreign App Economies

According to the research conducted by Gartner (2010), 1.2 billion smartphone users have downloaded fifty billion apps (both paid and free). Therefore, the development and usage of mobile apps have become a widespread phenomenon that continues to grow. For example, Australian users spend approximately $208 million; United Kingdom users spend $432.7 million while U.S. users spend $2.04 billion (ICTC 2012). The pie chart below shows the global app economy revenue in comparison with Canada:

“App economy revenue”
Figure 1. “App economy revenue” (ICTC 2012).

Advantages of the App Economy in Canada

It has been estimated that there are 22,800 technical professionals among the direct employment of 41,300 in the Canadian app economy, which generates approximately $775 million of yearly revenue (Ng 2012). Human resources play an integral part in the development of the app sector because without talent there will be no innovation. Moreover, there is no arguing that the rapid speed of the app economy development brought tremendous benefit to the improvement of new skills and increased the productivity of human resources. It is noteworthy to mention that the level of skills, as well as the educational attainment of the Canadian workforce operating in the app development environment, is higher compared to the majority of other competing nations (ICTC 2012).

One of the main reasons the country’s economy is capable of generating revenue at its current level is that app developers successfully combine entrepreneurial, interpersonal, and technical skills in their performance. Moreover, the skill requirements for new app-makers change on a regular basis as a result of the appearance of new devices, platforms, and users’ demands. The constantly evolving app development market has increased the need for companies to look for workers that will be appropriate for the set of the required skills. Furthermore, Canadian universities and colleges started making changes in their curricula to include programs that cater to application development, which means that more skilled individuals receive certified education in this sphere and be eligible to work in large Canadian corporations.

As Canadians continue to buy advanced smartphones and install new apps for social networking or gaming, the industry grows and includes more and more skilled professionals to contribute to the creation of profitable apps. According to the article written by Marlow (2012), technical workers (for example, app programmers) receive an average salary of $68,000. Furthermore, companies are continuously hiring employees and still cannot fill the demand due to the constant changes in the app market. In the interview for Marlow’s (2012) article, the CEO of Toronto’s Endloop Mobile, Kerry Morrison indicated that the current situation on the Canadian app market is referred to as the “golden age” of technology and innovation, with large cities of Toronto, Calgary, and Montreal leading the innovational development.

Disadvantages of the App Economy in Canada

Financing

Over the last decade, Canada’s app economy has been steadily progressing to reach the phase of continuous growth and expansion. Corporations that are only starting their development are faced with the challenges associated with increase capital. Therefore, while large companies can afford to have steady access to finances through various sources, smaller businesses lack credibility to get financial support from banks (Abdulsaleh and Worthington 2013). A survey conducted by ICTC (2012) found that two-thirds of the responding app developers established their operations by using their personal resources, and the third of these respondents were trying to look for funding that would help them grow. 73% of the survey respondents also indicated that they were planning to increase their hiring and 41% were predicting significant growth in the future if they access the available financing.

Hacking

One of the most notable disadvantages of the app economy is associated with the significant growth of the sector – the lack of privacy and the spreading of security issues. The Canadian app sector is currently dealing with hack attacks that result in the loss of revenue, damage to companies’ reputation, as well as the exposure to legal risks. The damage caused by privacy breaches is likely to grow if they remain unaddressed.

In case of app developers do not pay enough attention to how they could protect their products from hack attacks, the impact of hacking will damage the growth of the sector. Therefore, it is crucial for app developing corporations to implement new security methods and stay away from the traditional approaches since hackers already know how to overcome them. According to the study conducted by Arxan Technologies (2017), the risk of unsecured applications is constantly on the rise, with 84% of Internet-of-things apps and 69% of mobile apps reporting their inability to completely protect from hacking attacks. What is noteworthy is that free apps are in as much danger as paid apps since some hackers seek out any personal information of users to use for fraud; therefore, hacking is an issue to be addressed by apps developers of any group or category.

To give an example, let’s assume that an app sells for $1 in the App Store. If there is a pirated version of the same app that hackers give out to users for free, the company-developer is risking to lose millions of dollars if users usually download this app in exceptionally high volumes. Such a financial threat adds to the possibility of increased losses in the context of a rapidly growing app economy where new applications and mobile devices enter the market at a very quick pace. To put it differently, the more successful applications there are on the market, the higher the risk of them being hacked, and thus the bigger the losses companies can experience from attacks.

Relatively recent research conducted by Symantec (2012) showed that vulnerabilities of mobile apps have doubled by 2011, with the Android OS at the highest risk. On the bright side, the report noted that the years of innovations in the sphere of mobile devices’ development did not give rise to the corresponding innovations in mobile threats on the level that is characteristic to Personal Computers.

The issues connected to privacy issues can work in two directions: developers of apps have to protect their products from hackers while there is a high need in protecting consumers from fraudulent developers that steal personal data. Therefore, developers should notify users about the data being accessed when they use their apps in order to spread awareness of threats. It is also the job of Canadian policymakers to look into new ways of how invasive attacks (hacking app developers or app developers stealing valuable data) could be prevented.

Future for the Economy and Conclusions

As mobile applications continue to capture the interest of smartphone users, the Canadian app economy will thrive. However, with challenges such as poor financing or the lack of anti-hacking efforts, the sector’s stakeholders must contribute to creating an inviting environment where innovation, growth, and progress are welcomed. Because the app economy employs a significant number of skilled technicians and software developers, there is a need for establishing targeted measures for a better operating ecosystem of app development that benefits from healthy competition, efficiency improvement, and a respectful business environment.

The following list contains proposals as to how the app economy stakeholders can improve the business environment in Canada and contribute to steady growth:

  • Supporting small app developing companies that lack financial resources to develop within the ever-changing environment.
  • Ensuring the necessary capital for small companies that are starting up an app business.
  • Putting an emphasis on establishing a workforce that is well-educated and prepared for the intensity of the app economy.
  • Collaborating with other business sectors.
  • Raising awareness of the increasing global competition.

It is predicted that the Canadian app economy will continue to expand; therefore, companies should be prepared for the increase in customers’ demands and make appropriate contributions to the market to sustain growth. Because the app economy puts a significant emphasis on talent, it is imperative to support smaller companies that possess enough talent but lack financial support since they will benefit the market in the long run.

REFERENCES

Abdulsaleh, Abdulaziz, and Andrew C. Worthington. 2012. “Small and Medium-Sized Enterprises Financing: A Review of Literature.” International Journal of Business Management, 8(14):36-54.

Arxan Technologies. 2017. “Study on Mobile and Internet of things Application Security.” Web.

Gartner. 2010. “Forecast: Mobile Application Stores, Worldwide, 2008-2014.” Web.

IAB Canada. 2010. “Canadian Mobile Advertising Revenue Invest Ontario.“ Web.

ICTC. 2012. “Employment, Investment, and Revenue in the Canadian App Economy.” Web.

Marlow, Iain. “App Economy: 51,000 Canadians Employed in Mobile Software.” Web.

Newzoo. 2014. “Global Games Market Will Reach $102.9 Billion in 2017.” Web.

Ng, Gary. 2012. “ICTC: 51,700 Total Jobs Related to the ‘App Economy’ in Canada.” Web.

Nieborg, David. 2016. “From Premium to Freemium: The Political Economy of the App.” Pp. 225-240 in Social, Casual and Mobile Games: The Changing Gaming Landscape, edited by T. Leaver and M. Willson. London: Bloomsbury Academic.

Symantec. 2012. “Internet Security Threat Report.” Web.

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IvyPanda. 2020. "The App Economy in the Canadian Market." November 23, 2020. https://ivypanda.com/essays/the-app-economy-in-the-canadian-market/.

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