Estimating demand for mobile applications in the new economy

Anindya Ghose, Sang Pil Han

Research output: Contribution to journalArticle

123 Scopus citations

Abstract

In 2013, the global mobile app market was estimated at over US$50 billion and is expected to grow to $150 billion in the next two years. In this paper, we build a structural econometric model to quantify the vibrant platform competition between mobile (smartphone and tablet) apps on the Apple iOS and Google Android platforms and estimate consumer preferences toward different mobile app characteristics. We find that app demand increases with the in-app purchase option wherein a user can complete transactions within the app. On the contrary, app demand decreases with the in-app advertisement option where consumers are shown ads while they are engaging with the app. The direct effects on app revenue from the inclusion of an in-app purchase option and an in-app advertisement option are equivalent to offering a 28% price discount and increasing the price by 8%, respectively. We also find that a price discount strategy results in a greater increase of app demand in Google Play compared with Apple App Store, and app developers can maximize their revenue by providing a 50% discount on their paid apps. Using the estimated demand function, we find that mobile apps have enhanced consumer surplus by approximately $33.6 billion annually in the United States, and we discuss various implications for mobile marketing analytics, app pricing, and app design strategies.

Original languageEnglish (US)
Pages (from-to)1470-1488
Number of pages19
JournalManagement Science
Volume60
Issue number6
DOIs
StatePublished - Jun 2014
Externally publishedYes

Keywords

  • App characteristics
  • Apple
  • Demand estimation
  • Google
  • In-app advertising
  • In-app purchases
  • Mobile analytics
  • Mobile apps
  • Mobile marketing

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research

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