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The Rationale Behind Soaring App DevelopmentPrices
Editors note: Ashwin Ramasamy is the founder of ContractIQ, a
marketplacethat matches enterprises and startups with agencies for
app development,product engineering and analytics services.
During the last quarter of 2014, we were approached by a funded
startup based inBoston to identify an app development company to
build an app for theirEuropean launch. The skill sets were quite
niche, and the yearly spend would cross$100K, so we had to approach
platform evangelists to identify some developmentstudios that theyd
recommend based on first-hand experience.
We picked the Australia and Indonesia markets because we knew we
had toprovide some choice at both ends of the spectrum, and the
startup had an
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Australian connection.
The platform companys Australian and Singaporean offices
recommended theirpreferred teams in the above markets, based on
first-hand experience of launchingsome very popular apps. While we
did expect price differences for comparablequality, we did not
expect a 15x difference between geographically close marketswith
identical skills.
Another anecdote that drives the point home a Southern
California-basedagency with a Vietnamese founder is setting up a
five-story office in Ho Chi Mincity to hire and train fresh
graduates on Node.js. How could they have possiblybought a
five-story building in a metro city within half a decade of
existence? Itsnot the West Coasts VC money being pumped in. Its
plain-old price disparity andconsequent profits that we always
associate with outsourcing. Just this time, thedisparity is
sinfully high.
We probed further and did a study on app development prices in
every importantmarket in the world. The price disparity for app
development is evenmore stark than the anecdotes I shared
above.
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The best app developers in the U.S. charge $250 per hour while
the best inIndonesia charge about $20 per hour. Thats 12.5x
difference in how appdevelopers price their services. Of course,
there is purchase-power parity and ahost of other reasons, such as
time zone, language, product culture and exposurethat account for
some of the difference.
But, in spite of all the rational explanations, such difference
in pricing ofcomparable underlying service is not sustainable.
Substitute the U.S. with anysimilar high-priced app development
market and Indonesia with markets likeIndia, the conclusions are
the same: App development agencies in high-pricedmarkets have to
become full-service agencies and also grow geographically.
Lets consider two supply-side markets: India and Indonesia.
Indonesias local mobile market is robust and growing. While U.S.
smartphoneusage is peaking (reaching 75 percent in the next two
years), Indonesians are notstopping till the next 50 percent of its
population gets hooked. It has about a 100million users to try,
fail, learn and provide a better mobile experience. They haveto
think mobile-first and they already are. Their adjacent geographic
markets areleaders in mobile in Japan, Korea, China and Singapore.
You just have to travel intheir trains to realize what mobile means
to them.
Source: Statistica
Take another big market which is India.
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The local tech scene that builds products for India and the
world, is exploding: 82percent of over $1.3 billion worth of
investments in the last four quarters are fromearly-stage VCs; 71
unique VC firms have invested in India in 2014 alone; and theshare
of VC investments in India from the U.S. is shrinking, whereas the
share ofIndian VCs is increasing.
What does a thriving local tech scene dominated by mobile mean
for the appdeveloper in an unrelated market?
India has a robust demand-side market for developers and most of
it hassomething to do with mobile (driven largely by e-commerce and
transportationverticals). The country has a rich legacy of being
the worlds backyard for webdevelopment. The agencies that built
their cred on web development are quicklyretooling themselves for a
mobile-first world.
An exploding product scene is fast filling the design deficit
that we alwaysassociate India with. In just the last quarter, we
helped at least a dozen U.S.startups design completely out of India
and you wont be able to tell the differencebetween them and the
studios in the U.S.
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If youre a mobile development studio in the U.S., the best days
of demandoutstripping supply will soon be over. The supply on the
other side of the world iscatching up fast in terms of engineering,
design and user-experience sensibility.For the first time, thanks
to mobile, they have fast-growing local demand topractice and
perfect their skills with.
Our own research points to another trend in mobile app
development.
SDKs are making it easier than ever to build bespoke mobile apps
cheaper andfaster. More than 200 app development studios we
interacted with expect a 25percent to 50 percent increase in the
use of SDKs in the apps they build in 2015.
There is a squeeze coming in the near future, on the pricing
front and there is along-term squeeze on the level of custom
development that an app might need. Sohow do developers insulate
themselves from the effects of these trends?
Most app publishers need help with app marketing, analytics and
engagement.Mobile development studios should look to expand higher
up the value chain andbecome full service mobile consulting
firms.
In mobile, the action is in Asia. Established mobile development
studios in the US
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should look at South Asian markets to expand. This will allow
them to catch theupside of growing local markets and at the same
time, hedge against the costarbitrage of their competition from
Asia.
Download ContractIQs detailed app development economy
report(2015) from here.
Featured Image: Kumer Oksana/Shutterstock (IMAGE HAS BEEN
MODIFIED)