App-ocalypse: Why a quarter of app businesses are set to shut

When the Apple App Store went live in 2008, a year after the launch of the iPhone, smartphones – and life – changed forever.

At peak the store had 2.2 million apps. The Android Play store has around 3.5 million. But now the entire model is in peril.

We are on the brink of a revolution in the way apps find users.

Traditionally the best way to find users for apps has been through online advertising. App companies promote their app through social media ads, search engine ads and targeted promotions on the web. All that is changing.

Now we are seeing huge changes to the way apps can be promoted.

At the heart of this change is a heightened focus on privacy — both among consumers and in particular lawmakers. Privacy is an important component in the relationship between marketer and customer. In the case of the recent surge of focus on consumer privacy, triggering new legislation and sweeping reforms by brands like Apple and Google, it has suddenly become far harder for apps to target and acquire new paying users. Combined, these unprecedented changes are creating a perfect storm for the mobile economy — what many have termed ‘The App-ocalypse’.

Under these difficult conditions, those running app-based businesses have grown increasingly pessimistic about the future of their industry. In fact, a recent survey found that one in four (27%) app developers believe their businesses will collapse as a result of the current reforms — equating to over 3,500 app-based businesses in the UK alone.

What’s changed?

Traditionally, app-based businesses collected user data both through their own apps, and via third party applications. User data was shared between seemingly unrelated apps and app stores, collecting information on user habits, and then using that information to target advertising and create more personalised experiences.

Say, for instance, you liked playing puzzle games on your mobile. Tracking data would recognise that you had several puzzle games installed on your phone and regularly opened them. That data could then be shared with other businesses — including similar puzzle game apps — to let them know you were a likely customer. For the businesses this meant a more targeted advertising campaign, while for the users, more relevant ads. Win win.

The big problem was that, by conducting so much of this tracking behind the scenes, users lost track of their data. They didn’t know who was collecting their data, who their data was being passed onto, or even where it was stored. Not so great for consumer privacy.

A few years back, legislators in the UK, Europe and certain US states started exploring this issue. Major privacy legislation came into effect, including permissions around storing tracking cookies on people’s devices and the new GDPR law across Europe, adopted widely in other parts of the world.

Then, last year, Apple and Google made serious moves to address the use of tracking on their platforms. First Apple removed automatic use of a cookie tracking technique called “IDFAs”, the main way that apps track and target customers across the iPhone. Now, users are asked upfront if they want to be tracked for advertising purposes. If they do not react, by default they are opted out, so now consumer interest data is available to app developers.

Similarly, Google is in the process of phasing out cookies — another vital tracking technology used to understand how users are interacting with their phones.

In this new world, many app-based businesses have been left stranded, unable to target ads as before, with devastating effects on how they drive revenue and find new users to download their apps. Unsurprisingly, 65% of app businesses are now on the lookout for new, more privacy-friendly targeting techniques that do not rely on IDFA or cookies.

A change in targeting

Faced with these challenges, a growing number of app-based businesses are turning to new and experimental targeting techniques — techniques that can still ensure adverts are personally relevant without intruding on consumer privacy.

Leading the pack is the adoption of a revolutionary approach to advertising called Purchase Behavior Targeting (PBT).

By working with payment companies, which process transactions made online, PBT allows businesses to target their apps at people based on the things they’ve previously bought. Rather than looking at personal information such as their age, gender, interests and browsing activities, PBT is only interested in what people choose to spend their money on.

What people have paid for with streaming apps, mobile games, and online stores is anonymized and combined as a new data source — one that doesn’t reveal personal details beyond what that person decides to pay for.

Let’s return to our puzzle game analogy. If you ran a business selling a puzzle game app, with PBT you could exclusively advertise to people who have previously downloaded and paid for other puzzle games. Similarly, if you ran a streaming service, you could target it at people who have previously subscribed to streaming apps. Not only does this ensure you’re targeting the right audience, it also means you’re targeting an audience that you know is open to paying. This is revolutionising the app-based business model.

With these types of new targeting technologies, app-based businesses can still promote themselves and advertise to relevant users, while sticking to the new privacy standards and regulations introduced. In short, the ‘App-ocalypse’ doesn’t have to be the end of the world for this industry.