The Rationale Behind Soaring App Development

Prices

Editors note: Ashwin Ramasamy is the founder of ContractIQ, a marketplace

that 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 in
Boston to identify an app development company to build an app for their
European launch. The skill sets were quite niche, and the yearly spend would cross
$100K, so we had to approach platform evangelists to identify some development
studios that theyd recommend based on first-hand experience.
We picked the Australia and Indonesia markets because we knew we had to
provide some choice at both ends of the spectrum, and the startup had an

Australian connection.

The platform companys Australian and Singaporean offices recommended their

preferred teams in the above markets, based on first-hand experience of launching
some very popular apps. While we did expect price differences for comparable
quality, we did not expect a 15x difference between geographically close markets
with identical skills.
Another anecdote that drives the point home a Southern California-based
agency with a Vietnamese founder is setting up a five-story office in Ho Chi Min
city to hire and train fresh graduates on Node.js. How could they have possibly
bought a five-story building in a metro city within half a decade of existence? Its
not the West Coasts VC money being pumped in. Its plain-old price disparity and
consequent profits that we always associate with outsourcing. Just this time, the
disparity is sinfully high.
We probed further and did a study on app development prices in every important
market in the world. The price disparity for app development is even
more stark than the anecdotes I shared above.

The best app developers in the U.S. charge $250 per hour while the best in
Indonesia charge about $20 per hour. Thats 12.5x difference in how app
developers price their services. Of course, there is purchase-power parity and a
host of other reasons, such as time zone, language, product culture and exposure
that account for some of the difference.
But, in spite of all the rational explanations, such difference in pricing of
comparable underlying service is not sustainable. Substitute the U.S. with any
similar high-priced app development market and Indonesia with markets like
India, the conclusions are the same: App development agencies in high-priced
markets 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. smartphone
usage is peaking (reaching 75 percent in the next two years), Indonesians are not
stopping till the next 50 percent of its population gets hooked. It has about a 100
million users to try, fail, learn and provide a better mobile experience. They have
to think mobile-first and they already are. Their adjacent geographic markets are
leaders in mobile in Japan, Korea, China and Singapore. You just have to travel in
their trains to realize what mobile means to them.

Source: Statistica
Take another big market which is India.

The local tech scene that builds products for India and the world, is exploding: 82
percent of over $1.3 billion worth of investments in the last four quarters are from
early-stage VCs; 71 unique VC firms have invested in India in 2014 alone; and the
share of VC investments in India from the U.S. is shrinking, whereas the share of
Indian VCs is increasing.

What does a thriving local tech scene dominated by mobile mean for the app
developer in an unrelated market?
India has a robust demand-side market for developers and most of it has
something to do with mobile (driven largely by e-commerce and transportation
verticals). The country has a rich legacy of being the worlds backyard for web
development. The agencies that built their cred on web development are quickly
retooling themselves for a mobile-first world.
An exploding product scene is fast filling the design deficit that we always
associate 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 difference
between them and the studios in the U.S.

If youre a mobile development studio in the U.S., the best days of demand
outstripping supply will soon be over. The supply on the other side of the world is
catching up fast in terms of engineering, design and user-experience sensibility.
For the first time, thanks to mobile, they have fast-growing local demand to
practice 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 and
faster. More than 200 app development studios we interacted with expect a 25
percent 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 a
long-term squeeze on the level of custom development that an app might need. So
how 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 and
become full service mobile consulting firms.
In mobile, the action is in Asia. Established mobile development studios in the US

should look at South Asian markets to expand. This will allow them to catch the
upside of growing local markets and at the same time, hedge against the cost
arbitrage of their competition from Asia.
Download ContractIQs detailed app development economy report
(2015) from here.
Featured Image: Kumer Oksana/Shutterstock (IMAGE HAS BEEN MODIFIED)