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Exploding App Market Challenges The Software Industry

|Includes: AAPL, CA, GOOG, Microsoft Corporation (MSFT), ORCL, SAP, SYMC

In the past couple of years, the app market has grown substantially. In fact it has grown so quickly that the future of the software industry is in question. App makers are working towards developing applications to solve just about any human problem. Sounds impossible, but the word impossible just doesn't exist in the technological dictionary.

The app industry is making strides mainly because of the huge price differences that exist between mainstream software and mobile applications. Many apps sell for less than a dollar. In fact, some apps are made available to users free of charge. This price, when compared to software, is minute. Software engineers believe that the evolvement of mobile and web apps make it extremely difficult to build and even maintain profits. If this is true, it means many users are moving away from software. Does this mean that the software-era is fast approaching its end? To answer this question, we'll compare companies from the two industries to see how they are faring.

Software Industry

The top players in the software world, according to Forbes Global 2000, include Microsoft (NASDAQ: MSFT), Oracle (NASDAQ: ORCL), SAP AG (NYSE: SAP), Symantec (NASDAQ: SYMC) and CA Technologies (NASDAQ: CA). Using Microsoft as a case study for the software industry, we'll examine the trend over the last few years. First, let's understand some basics. If users are moving away from software to apps, this should be evident in software makers' sales and subsequently in their income.

In fiscal 2012, Microsoft's net income dropped by $6.2 billion compared to fiscal 2011. This decrease isn't essentially as a result of decrease in sales. The company stated that a goodwill impairment charge is responsible of the decrease. It sounds reasonable, considering that revenue increased by $3.78 billion. Even if the excuse of the "goodwill impairment charge" is to be accepted, a trend that is showing up in its reports raises some questions. The trend is that the revenue increase in fiscal 2012 is the lowest number reported over the past four years. In the first half of fiscal 2013, Microsoft's revenue is set at $37.47 billion, $800 million less than the revenue at the same stage of fiscal 2012. While a conclusion cannot be drawn for the entire year from the figures of the first part of fiscal 2013, another trend is noticeable here. Over the past five years, revenue for the first half of the fiscal year has increased compared to the first half of the prior year, barring fiscal 2013. This may go on to affect Microsoft's total fiscal 2013 revenue.

App Industry

Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG) are by far the two largest companies benefiting from the app revolution. Statistics show that there are currently around a million apps available and over 500,000 of these apps are available for download at Apple's iTunes App Store. It's reasonable to infer that Apple is the biggest player in the app world. As such, we'll use Apple as case study to examine the trend in the app world. Just as we did for the software industry, we'll examine Apple's results over the last few (preferably five) years to point out any trend.

Over the last five years, Apple's revenue and net income have grown significantly. As of the end of 2008, Apple's revenue was about $32.48 billion, while revenue at the end of 2012 was $156 billon. Net income over this period has grown by a multiplying factor of eight. It would be incorrect to infer that the app revolution is mainly responsible for this positive trend, but it has certainly contributed to some extent. Considering the fact that the use of apps has grown incrementally over the past five years it is reasonable to conclude that the app revolution has benefitted companies like Apple. What I'm saying in essence is this: if an iPad will allow me complete more tasks in less time with the help of apps, I'll always go for an iPad over a computer.


Both industries (software and app) are making progress, releasing better product than the year before. However, they aren't making strides at the same rate. The app industry is obviously moving faster and is stronger. More people are integrating apps into their daily lives than ever before. This is not to say that they are completely moving away from software. It simply means that they are beginning to prefer apps over software. And with apps being developed for just about anything, the app world promises greater things in the future. However, software companies that produce useful software products will find their way around the burgeoning app-era.