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No one would debate that the mobile app market is huge. But just how big of a deal is it? Take a look at these stats:
• The iOS apps catalog contains 1.4 million apps.
• People spent $500 million on iOS apps in the first week of 2015 alone.
• In 2014, Apple paid app developers a total of $10 billion.
Those numbers don’t even include Android apps. Android numbers are more difficult to compile, since multiple companies offer app stores. But, to give some perspective, Google paid out about $3 billion to its developers in 2014 for sales made through its official store.
Compare all that with Hollywood, where U.S. movie revenue came in at about $10.35 billion, and you can see just how important app revenue has become.
Although the numbers aren’t the complete story (iOS data doesn’t include Android apps or service businesses, and the Hollywood number doesn’t include international box office revenues), app revenues have been growing exponentially for years while Hollywood revenues have remained relatively stagnant. If the app economy hasn’t completely overtaken the U.S. movie industry yet, it soon will.
This surge in technology revenue isn’t limited to mobile apps. The tech sector is seeing sweeping growth in many areas. Everything from online software to IT services is growing at an incredible rate. Though there are exceptions, of course, the trend has significantly raised the value of many tech companies over the past several years.
The question for many economists is whether the current trend is a normal growth spurt or whether the market is experiencing a new tech bubble. You don’t have to be ancient to remember the last tech bubble—it burst only 15 years ago. The so-called “dot-com” crash saw dozens of unbelievably fast-growing companies disappear overnight.
So, are we in the same position? There certainly are major differences between now and then. In the late 1990s and early 2000s, tech companies were able to draw investor capital bases with little more than a hint of potential success. The running joke at the time was that all a company had to do to increase its share price was add “.com” to its name. Companies were going into debt renting office space and buying computers to rush into a very uncertain industry.
Today, investors are more digitally savvy and know how to analyze “internet” companies more rigorously. Still, the risk of overvaluation is always possible. Some point out that several tech startups have unnaturally high stock prices and speculative sustainability. The rapid advance of technology coupled with quickly shifting cultural preferences for mobile technologies prevents investors from making anything more than educated guesses.
If the tech market finds itself with another bursting bubble, beneficial technologies may still survive. For example, despite the dot-com crash in 2000, no one thought that online services were going to disappear or that they would never be lucrative. Individual companies were in danger, but it was obvious the tech sector as a whole would bounce back.
What should you take away from all this as an individual investor? Even if you can’t predict the future, it is still valuable to be aware of how technology can shift the value of markets. Knowing the broad changes can keep you from acting on speculation, fear or greed. You should know what drives your investments’ success and how they fit into your personal portfolio. The best decisions are always made within the context of your personal financial plan, so speak with your financial advisor before making any changes.
Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser.
This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014 Advicent Solutions. All rights reserved.