While the tech industry is heralded as the future of the U.S. economy, many people question Silicon Valley’s ability to create jobs the way Detroit did decades ago. Manufacturing jobs are primarily located overseas, and Apple (AAPL) and Google (GOOG) hire relatively few people to work for them directly. This leaves the so-called app economy, a network of remora-like companies that do such things as write software for mobile platforms. These platforms offer American app developers relatively unfettered access to a global market of smartphone users—and at the same time open up competition from cheaper developers abroad. A critical question, then, is whether American developers can expand globally faster than apps made in other countries poach customers on their home soil.
The increasingly global nature of the app market came to the forefront last week when Flurry, a mobile advertising business, released an analysis of data it has collected about 350,000 app developers: It turns out Americans are already switching to more apps developed overseas. Nearly two-thirds of apps recording data through Flurry analytics in June have foreign roots, up from 55 percent a year ago. Still, the most popular apps generally remain Made in the U.S.A.
This doesn’t mean the amount of economic activity in the U.S. generated by apps is dropping—on the contrary, the number of jobs supported by the app economy grew 40 percent last year, according to Michael Mandel, an economist who follows the industry. He found that about 725,000 people in the U.S. owe their jobs to the app economy. Mandell also argues that these jobs are becoming more stable thanks to the emergence of large companies devoted to apps and the integration of apps into existing businesses. Of course, not everyone in software is a Silicon Valley millionaire. In a study done by GigaOM for the App Developers Alliance last fall, just over a quarter of app developers reported making more than $50,000 a year.
Most of the growth in the smartphone market is expected to take place overseas. But Mandel worries that American app developers will find new barriers to doing business internationally. European lawmakers, for instance, are considering stricter data privacy protection laws, in light of reports about U.S. government spying and concerns over the role of American tech companies. One policy push would require that Europeans’ data stay on servers in Europe, which could make it more expensive and complicated for American developers to compete there. “U.S. apps are not going to suffer from foreign competition unless there are trade barriers put up, which is what we’re starting to see,” Mandel predicted.
Then there’s China. Flurry’s data show the Chinese largely uninterested in apps made elsewhere, an ominous sign considering how important the world’s largest country will likely be to the app makers of the future. Chinese customers spend 64 percent of their time using locally developed apps, even as Chinese-made apps have almost no presence in Western markets. By contrast, Americans spend 59 percent of their time on American apps.
China, of course, has befuddled American tech companies of all shapes and sizes. There’s no reason to think that app developers will do any better than Google at winning over Chinese customers. Still, the app maker may have to try. At this point, at least, non-Chinese developers targeting China don’t stand a chance without local partners, says Jake Ward, the executive director of the App Developers Alliance, a trade group that represents app companies and independent developers.
Ward led a panel discussion with experts in China’s app economy earlier this year. The talk painted a picture of an inhospitable market rife with cultural barriers that foreign developers would have trouble overcoming, with warnings to developers that their ideas would likely be implemented more efficiently by local competitors. Ward took away one basic message: “Do not try to enter the Chinese market yourself,” he concluded.