Betting on Apps
App makers never had it so good. A couple of weeks ago, Facebook announced that it was buying online messaging app Whatsapp for $19 billion, making this deal the biggest ever purchase of a venture-capital backed firm.
Some experts say the price paid by Facebook was too high for a 55-employee, 450-million user-base, ad-free messaging service. That might be true, but Facebook had reasons to worry about declining interest among millennials, and its own messaging service, though popular, never reached the kind of popularity that Whatsapp or WeChat have.
The deal signals a more important trend – bigger firms are ready to pay big for apps that have lots of users, and zero revenue stream. Instagram, also bought by Facebook, was among the first to prove this point. Since then Viber has been sold, and apps like Twitter and Pinterest have generated high valuations. It might be a bubble, similar to the dotcom era that went bust in 2000, but for now these app-making start-ups are more valuable than much bigger firms in traditional sectors like manufacturing and engineering. And the momentum is likely to continue. Yesterday, Flipboard, the popular news aggregation app, said it was buying Zite from CNN.
Behind fun apps lies sophisticated technology. Organizations engaged in providing a good platform for app-makers stand to benefit as much as the app-makers themselves. SAP, with its Mobile Platform, has helped thousands of organizations design apps that help them offer enterprise-grade, mobile first experience to employees, partners, and customers. The same platform can be used to deliver creative consumer apps that would be the next hit on the App Store or lead to the next big thing: powerful problem-solving apps.
Chat apps like Whatsapp will continue to be popular but they will find it increasingly hard to distinguish themselves as newer apps adopt the same technology and user interface. Over time, big deals are likely to shift away from chat apps to those that are more technology intensive, and can solve pressing problems. In fact, such apps are fast gaining in popularity. The problems they can solve range from overcoming shortage of cabs to monitoring your health. These apps can change lives.
Hailo, a taxi app founded in London three years ago, says that 60% of the city’s cabs are now on its books. Many cabs have ditched the traditional black color and are decked out in yellow, the Hailo color. It has spread to 14 other cities, including one in Japan. Nearer home is Uber in San Francisco, which has a shortage of cabs and worked as a good launchpad for the app. Now Uber is being used in 49 cities in 19 countries.
Many experiments are already under way in emerging markets, where new mobile devices and apps are helping relieve pressure on poorly financed and ill-equipped clinics and hospitals. In the U.S., which splashes out a breathtaking $2.8 trillion each year on a health-care system riddled with inefficiencies, the potential for such apps is huge. The prospect of revolutionizing the way care is delivered in the U.S. inspires entrepreneurs. Mercom Capital Group, a consulting firm, says that of the $2.2 billion venture capitalists put into health-care startups last year, mostly in America, $564m went to mobile-health businesses.
The mobile-health market can be broken down into two broad categories. First, there are the apps and appliances used to monitor the wearer’s physical fitness. Firms such as Nike and Jawbone make wristbands and other wearable sensor-gadgets that let people record their performance, and their calorie-burning, as they sweat on the treadmill or run in scenic parks. Second, there are apps and devices that link patients with a medical condition to the health-care system. For example, CellScope, a startup, makes otoscopes—devices for looking inside the ear—that can be attached to an iPhone and an app that can send the images it takes to a physician. Recently, Google said it was working on a contact lens containing a tiny wireless chip and sensors that would measure and transmit the glucose levels in a diabetic patient’s tears. Apple got a patent in December that will allow it to incorporate heartbeat sensors in phones which can then connect to their doctor using another app. The involvement of tech giants can lead to much more funding for such technologies, leading to apps that are more powerful than we currently use.
The start-ups in the sector are likely to get high valuations, and a few might even be able to make it big on their own unlike chat apps that have been acquired by larger players. If you want to bet on apps for the future, go for the problem solvers.