Estimating demand for mobile applications in the new mobile economy

Anindya Ghose, Sang Pil Han

Research output: Chapter in Book/Report/Conference proceedingConference contribution

5 Scopus citations

Abstract

A fundamental change brought forth by the advent of the mobile internet has been the widespread adoption of mobile phone based applications (apps). Mobile apps are now being used worldwide to perform a variety of tasks - access social networks, read ebooks, play games, listen to music, watch videos and so on. As consumers increasingly use mobile apps, it is important to understand the drivers of demand for these apps. We build a builds a structural model of user demand for mobile apps and jointly estimate it with supply-side equations. We estimate the change in consumer surplus from the usage of mobile apps. We use a panel dataset consisting of apps' sales, prices, and characteristics data from the two leading app stores - Apple App Store and Google Play for 4 months in the South Korean market. Our results show that demand increases with the file size, app age (time since release), app description length, and number of screenshots. In terms of age-restriction, compared to "everyone" (or 4+) apps, "low maturity" (or 9+) and "medium maturity" (or 12+) apps lower demand. Compared to lifestyle apps, gaming apps have a positive impact on app demand while multimedia and education apps have a negative impact on demand. Notably, we find consumer preferences show strong correlation across apps from the same group (i.e., either within free apps or paid apps). We incorporate consumer heterogeneity in the model and find that older and male consumers tend to be less sensitive to the price of apps than younger and female consumers, respectively. In the supply-side we find app file size and app age are major cost component in app development. Also, our findings suggest there exist significant returns to scale in app development. Our counterfactual experiments show price discount strategy results in a greater increase of app demand in Apple App Store compared to Google Play and the effects of price discounts increase non-linearly. Our findings also indicate strong substitution effects between game apps and other apps such as utility and education apps. Using the estimated demand function, we find the top ranked apps in both app stores enhanced consumer surplus by approximately US $158 million over the 4 month period in South Korea.

Original languageEnglish (US)
Title of host publicationInternational Conference on Information Systems, ICIS 2012
Pages455-474
Number of pages20
StatePublished - 2012
Externally publishedYes
EventInternational Conference on Information Systems, ICIS 2012 - Orlando, FL, United States
Duration: Dec 16 2012Dec 19 2012

Publication series

NameInternational Conference on Information Systems, ICIS 2012
Volume1

Other

OtherInternational Conference on Information Systems, ICIS 2012
CountryUnited States
CityOrlando, FL
Period12/16/1212/19/12

Keywords

  • Android
  • App characteristics
  • Apple
  • BLP
  • Consumer surplus
  • Demand and supply estimation
  • Mobile apps
  • Mobile economy
  • Random coefficients nested logit

ASJC Scopus subject areas

  • Computer Science Applications
  • Statistics, Probability and Uncertainty
  • Applied Mathematics
  • Library and Information Sciences

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