Mobile Applications Industry Overview

1. Mobile Applications Industry Overview • A mobile application is software developed for handheld devices, such as personal digital assistants (PDAs), mobile phones, and tablet computers. Generally, these applications are pre-installed on the device during the manufacturing process or downloaded by customers from mobile software distribution platforms. Although mobile devices have been capable of accessing data networks such as the Internet for a while, it was not until the widespread availability of high quality third generation (3G) cellular networking coverage in the mid-2000s that specialized devices were developed to access the mobile Internet. As these devices gained traction globally, computer manufacturers developed subscriber identification module (SIM) cards, which allow devices to access mobile data services. This gave users the ability to gain quality and consistent access to the mobile Internet, presenting opportunities for mobile software developers. As mobile application stores (often installed on mobile devices) expanded in terms of reach and selection, mobile applications gained widespread popularity. • Mobile Application Categories • Mobile applications are used extensively for business and consumer purposes. From 2012 to 2013 alone, mobile application usage increased 115%, according to Flurry Analytics. Below is a list of the most popular mobile applications categories and their percentage of growth in 2013: • Messaging and Social: With the global growth in communication technology and the proliferation of social media platforms, messaging and social application downloads grew significantly in recent years. According to Flurry Analytics, from 2012 to 2013 messaging and social applications grew by 203% (the highest of any mobile app subcategory). • Utilities and Productivity: These mobile applications are used to increase users personal productivity from document sharing platforms such as GoogleDrive and DropBox to more personal applications such as smartphone notepads and specialized messaging platforms. From 2012 to 2013, utilities and productivity mobile applications grew 149%. • Music, Media, and Entertainment: From 2012 to 2013, music, media, and entertainment applications grew 78%. While lower than the total mobile application growth of 115%, music, media, and entertainment plays a foundational role in mobile application usage. • Lifestyle and Shopping: As smartphones and tablets have grown more commonplace, their role in facilitating commerce has revolutionized modes of retail and consumerism. Mobile applications in lifestyle and shopping grew 77% from 2012 to 2013. • Games: Since the birth of smartphones and tablets, gaming as a mobile application has been pivotal to the proliferation and continued popularity of mobile applications. Entire industries have begun to specialize in mobile app gaming resulting in an explosion of new options for consumers. From 2012 to 2013, the gaming category of mobile applications grew 66%. • Sports, Health, and Fitness: Mobile applications have provided an easy to operate and efficient platform for sharing information on physical fitness, sports, and health tips. These mobile applications grew 49%. • News and Magazines: Nothing has changed the face of news transmission over the past few years more than mobile applications. Nearly every news corporation has begun transitioning away from print media towards mobile application and Internet platforms. Mobile news and magazines grew 31% from 2012 to 2013. • Suppliers • The global mobile applications industry is segmented between on-deck (carrier managed: operators, mobile device manufacturers, and operating system developers) and off-deck (third parties who sell directly to the customer) mobile applications segments. Competitors can be grouped into one of the following four sub-segments: OS/handset manufacturers, application developers, independent vendors, and Operators.

2. Mobile Applications Industry Overview (continued) The on-deck mobile application segment is larger than off-deck applications, accounting for approximately three-fourths of the global mobile applications revenues. However, the off-deck mobile applications segment is expected to grow more quickly because of lower barriers to entry and the establishment of new independent stores. By the end of 2015, off-deck mobile application stores are expected to surpass the number of downloads from on-deck stores, according to Markets and Markets. Location-Based Services Within the mobile applications market, location-based services (LBS) present substantial growth opportunities. Gartner defines LBS as services that use information about the location of mobile devices, derived from cellular networks, Wi-Fi access points, or via satellite links to receivers connected to handsets. These services enable friends to find each other, parents to locate their children, and enhanced mapping and navigation capabilities. According to Gartner, LBS will be one of the three highest value mobile services to reach widespread adoption over the next few years. Location information about mobile devices on a network can be transformed into a valuable asset for mobile carriers. As such, LBS can be utilized to provide tailored, value-added information services that enhance the user experience and generate incremental profits for the service provider. Given the potential market opportunities presented by such information, the global LBS market is experiencing solid growth. In the short to medium term, the market will be driven by factors such as the advancement of global positioning system (GPS) technology, the proliferation of GPS-enabled touch-screen phones, the growing popularity of mobile commerce and devices, the higher speeds of mobile networks, and the increased usage of location-based social network services, location-based shopping applications, location-enabled search, and location-based mobile advertising. As mobile app developers create more applications that utilize location information and as location-based services are added to pre-existing applications, these services are expected to increase in popularity. Berg Insight research forecasts Europe LBS revenue will reach €825 million ($1.1 billion) in 2017. By comparison, the LBS market in North America is expected to reach $1.3 billion. While North America and Europe will continue to lead the LBS market, increased urbanization in developing countries provides a new platform for LBS penetration. As higher population densities create economies of scale benefits for service providers, there will be an accelerated demand for mobile application adoption. As the global demand for LBS equipped applications increases and as cheaper, more accessible mobile devices are integrated into the consumer base, LBS are expected to sustain rapid growth. • Gartner cites the convergence of location functionality with social networking, news, information, search, and entertainment services as the defining factor of LBS growth. Whereas the location-based service market initially was focused on location information implemented into new mobile applications, these services are seeing some of their biggest growth in retrospective implementation into pre-existing applications. • Because of the convergence of location services and nearly every mobile application category, smartphone and tablet users have grown increasingly reliant on location-based services. Pew Research Center published a study stating that 74% of adult smartphone owners use their phones to get directions or other information based on their current locations. Furthermore, among adult social media users 30% say their accounts utilize LBS.

3. Mobile Applications Industry Overview (continued) Mobile Application Revenue In 2013, the number of smartphones surpassed the number of non-smartphones. As of 2014, mobile applications have ‘come of age’ and the global growth of the industry has far exceeded the predictions of earlier reports. According to PortioResearch, mobile applications generated revenue of $12 billion in 2012 with a total of 46 billion applications downloaded. In 2013, according to Gartner, these numbers more than doubled. There were 102 billion app store downloads in 2013, generating more than $26 billion in revenue, with Apple’s App Store and Google Play dominating the market. By 2017, total downloads are expected to skyrocket to 268 billion, with revenue of more than $76 billion. In corroboration with Gartner, over the next five years, Strategy Analytics expects an increase in the demand for popular services and applications to drive global consumer and advertising spending across a range of mobile media platforms to more than $200 billion by 2017. Though operators are increasingly losing control over location information, the expansion of the LBS market presents growth opportunities for the entire industry. In 2008, operators accounted for 80% of all LBS revenue, according to Pyramid Research. This market share has decreased to around 50%, while the total market has grown more than fivefold. While the rapid growth of the mobile application industry will continue, Gartner predicts a gradual slowdown in mobile app downloads. Various studies have concluded that new tablet and smartphone users download mobile applications at a significantly higher rate than older users. Following this logic, as smartphones and tablets become more commonplace, users downloads will slowly begin to decrease. According to Gartner, iOS and Android App stores combined will account for 90% of global downloads in 2017. Other platforms for application downloads, such as Windows Marketplace, BlackBerry App World, and Nokia Store are predicted to generate no more than 10% of total downloads. It is important to note that smartphones and tablets are not the only platforms for mobile applications. The introduction of wearable devices into the market may provide opportunity for mobile application growth. Cisco predicts a 52% CAGR in wearable devices from 22 million devices in 2013 to 177 million in 2018.

4. Mobile Applications Industry Overview (continued) Overview The improvement in network technologies, the restructuring of revenue-sharing, the reduction in mobile data usage costs, and the increase in application usability have all contributed to the global growth of mobile application adoption. Over the past few years, smartphones and tablets have begun to shift towards 4G which will provide superior content delivery technologies. These structural and technological evolutions present an enormous opportunity for mobile application growth. Perhaps the most interesting frontier for growth in mobile applications is in wearable devices. Cisco predicts that machine-to-machine connections and wearable devices – including smart watches, smart glasses, health and fitness trackers, and wearable scanners – are expected to comprise 20% of mobile connected devices in use by 2018 and to generate nearly 6% of all mobile data traffic. The introduction of wearable devices will revolutionize the interface, presentation, and growth of mobile applications. Overall, Cisco predicts an 11-fold increase in mobile application data traffic and significant market growth in technologically developing regions such as the Middle East and Africa. However, the surge in the number of applications has increased the risk of data theft through the potential delivery of phishing and spyware in applications. As mobile devices are utilized more commonly for banking, social, and business purposes, there has been a substantial increase in threats to mobile application security. Mobile applications provide a largely untapped and potentially profitable platform for hackers. In addition to issues of security, the lack of meaningful business applications and industry-specific mobile applications have restricted the growth of the mobile application market. This restriction, however, provides a significant opportunity for new market participants. The increasing adoption of smartphones, the genesis of wearable devices that utilize mobile applications, and global technological development will continue to drive demand for the next generation of mobile software applications, opening the channel for development of innovative software and consumer applications. Top consumer mobile applications for upcoming years – including money transfer, mobile browsing, mobile health monitoring, near field communication (NFC) services, mobile payment, and mobile advertising – are all expected to drive substantial market opportunities for the mobile applications industry. Various factors will sustain this extensive growth in mobile applications: more mobile connections, more mobile users, more smart devices, faster networks, increased Wi-Fi availability, and more advanced applications better suited to mobile devices. Cisco predicts that by 2018, global mobile data traffic will reach an annual run rate of 190 exabytes per year, up from 18 exabytes in 2013. With such a massive influx in mobile traffic and platforms capable of seamlessly presenting mobile apps, there is substantial potential for growth in the mobile application industry.