Tax Reform

Mobile Apps are Niche Sector of the Telecommunications Industry

Statistics from a litany of sources demonstrate one clear takeaway: app use is skyrocketing. Facilitated by increasing numbers of smartphone users, apps are downloaded from proprietary online markets and provide dynamic services for consumers. Some 40 billion apps have been downloaded in the Apple and Android ecosystems respectively. According to a Pew Internet survey, half of adult cell phone users now have apps on their phones. While games are consistently the most popular apps, social networking apps are gaining in popularity.

The app market depends mainly on purchases and advertisements for revenue. App developers rely on one or both of these means to make their app, brand or product profitable through a mobile device. According to a new study by Localytics, an app’s retention rate is a litmus test of increasing importance alongside the familiar and sometimes overused aggressive marketing tactics. Localytics’ breakdown indicates that app publishers consider a user to be loyal or retained if that user opens an app 11 times or more. By that metric, Localytics found a mere 31% of mobile users could be considered loyal, indicating the difficulty of developing an app able to retain a loyal user base. The Localytics data references a fierce war among apps for consumer attention, which also infers the inherent competition and vibrancy of the app market.

Consumers’ usage habits also demonstrate their preference for apps over traditional web browsing. Mobile analytics firm Flurry found that consumers spent more time using apps than web browsing for the first time in June 2011. In December of last year, the mobile app usage soared to 94 minutes a day as opposed to web consumption’s 72 minutes. Interestingly, there seems to be no trade-off. Consumers are not dramatically decreasing their time spent browsing the web, they are simply devoting additional time to app usage. However, it is important to note that this data does not represent the reality that some apps facilitate in-app web browsing, which clarifies the relationship between apps and web use as less adversarial and more complimentary.

The FCC’s regulatory rationale has often run counter to market signals as Thomas W. Hazlett indicated in his working paper on mobile competition. The wild innovation and competition between smartphone manufacturers and wireless carriers sparked by the introduction of the iPhone in 2007 ran contrary to the logic of “open platform” rules parroted by the FCC, which blocked collaboration between carriers and phone vendors. Mobile app usage is a burgeoning sector of the telecommunications industry, and stifling regulation may threaten the current symbiosis between consumers and the network of smartphone innovation.

Developers and consumers alike are dependent on the software, hardware, and carrier ecosystem to preserve a healthy environment for investment and innovation. Policymakers should seek to encourage and promote the meteoric rise of app use and its accompanying economic growth.


In Depth: Tax Reform

Mainstream economists, small business owners and taxpayers across the country understand that growth-oriented reforms mean increased opportunity for all. As demonstrated by the annual Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, sound tax and fiscal policies are critical to economic health, allowing businesses and households to flourish. A …

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