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An app-ealing business model?

By James Panichi  -  20.06.2013 / 03:45 CET
Apps are big business, and Europe risks being left behind

Forget the doom and gloom of the ‘old economy'; for those caught up in the booming ‘app economy,' the future could not be brighter. Hundreds of thousands of jobs have already been created, while new mobile- phone operating systems have given rise to a genuinely competitive market. And it is a world in which good ideas are the main currency. 

There is just one question: is Europe in the game? According to many observers the answer is ‘No'. While in the United States the app economy was last year estimated to have created 500,000 jobs, European start-up companies are struggling to keep up.

And it is not because of a lack of ideas. Web start-ups in Europe often find themselves struggling with red tape and conservative banking practices while their US counterparts manage the transition from drawing-board to boardroom quite smoothly.

“One of the problems is that many Europeans do not understand the business model behind apps,” says Ann Mettler, executive director of the Lisbon Council, a Brussels-based think-tank. “They cannot understand that you can make a lot of money for something that costs so little, meaning that you need volume to make a decent return on investment.”

“Another example is the ‘freemium' model, where the entrepreneur essentially gives the product away but charges for extras,” Mettler told European Voice. Offering your intellectual property to the world free of charge is not an idea that fills the average European bank manager with confidence.

But for those app investors willing to take a leap of faith, there is money to be made. Take Britain's app posterboy, 17-year-old Nick D'Aloisio, whose Summly app was picked up by Yahoo for $30 million. Or the app sensation Rovio Entertainment, the Finnish company that catapulted the Angry Birds game to worldwide fame.

And it's not just the freemiums that are successful. The German online language learning company Babbel started as a website in 2007 but was then able to harness the potential of apps for mobile phones and tablets. Today, Babbel has ten million users across 190 countries. And people are ready to pay.

Niche markets

The growth in the app market appears assured, with competing platforms now fighting to secure the best ideas. There are Apple's iOS operating system, Blackberry and Facebook, along with Microsoft Mobile. Even Samsung may now be weighing up its dependence on Google's Android, with rumours that it could launch an operating system of its own.

All of this adds up to a seller's market. “Apps offer a chance to reach a worldwide niche market,” says Charles Crouch, a fomer business manager at Apple and a lecturer at Boston University's international graduate program. “They really have opened up new business opportunities to serve the small micro-markets that are out there. You can see that over and over with the very specialised apps.”

Crouch says Europe is facing an uphill climb if it wants to keep up. And it is about culture as much as it is about policy.

“[In Europe] there is not a culture of celebrating the success stories, which encourage others to do the same,” Crouch says. “And as for the business side, with apps you are probably talking about a couple of guys and some computers. There are no assets. There is just intellectual property and guys who have experience in coding, not running a business. They need something they can be set up easily.”

Things might not be changing fast enough. Sunrise, the maker of a calendar app, recently raised $2.2m to develop the product. It was quite a triumph for Frenchman Pierre Valade and Jeremy Le Van, a Belgian. Here's the rub: both of them live and work in New York.

James Panichi is a freelance journalist based in Brussels.

© 2014 European Voice. All rights reserved.
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Nick D'Aloisio The British teeneger sold his Summly app to Yahoo for millions. REUTERS

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