The economic paradox at the heart of the app economy


Simon Molloy
June 2016


Spend a moment with the table below. It shows the top ten publically traded companies in the world by market capitalisation. Yes, that’s 2007 to 2015 – only eight years.

On January 9 2007, Steve Jobs held up the new iPhone in front of the Apple faithful in the Moscone Centre, San Francisco and thereby launched the app economy.

In that year, the biggest company in the world by a comfortable margin was Petrochina. Exxon Mobil was next then Microsoft. Microsoft was the only technology company in the top ten.

In 2015, Apple was the biggest company in the world (and had been for over two years and Alphabet (Google), Microsoft, Amazon and Facebook jostled for top ten positions over the year.

In 2007 just under 9 per cent of the value of the top ten was in technology companies. By 2015 that figure was just under 60 percent. Eight years!

Economic transformation of this speed and scale are very rare.


Engineer and futurist, Roy Amara, observed that “we tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run”.

The term ‘app economy’ is not a particularly useful one – the rise of these companies is better understood as the next phase in the ongoing growth of information and communications technologies and their penetration into almost all forms of economic activity.

In some ways, the top 10 company valuations of 2015 look like what we could have expected from the dot com boom of the 1990s. Many believed in the transformative potential of the technologies unleashed in the last decade of the 20th century. Perhaps, finally, it is only now that those potentials are being realised. It seems that the missing component was mobile, powerful, personal and highly flexible computing devices. It is in this sense that the app economy label may help us in understanding this phenomenon.

The period 2007 to 2015 coincides almost exactly with the global financial crisis and its aftermath. This period has been characterised by recession, enormous fiscal and monetary stimulus, sluggish economic recovery and low productivity growth.

World Bank data ( indicates that the real value of all US traded equities has fallen from $5.1 trillion in 2007 to $4.4 trillion in 2015. Thus, the rise of technology companies has coincided with a fall in the value of non-technology companies. Notwithstanding this, it is clear that investors are of the view that the technology companies are creating economic value, able to monetise this and generate returns. It’s also worth remembering that a glance at the top ten ignores the other ‘disruptors’ such as Netflix, WhatsApp, Viber, Uber and many others that are transforming the shape of so many industries.


Despite all this technology industry dynamism, economies around the world are plagued by a new era of slower economic growth. If it is true that the app economy is driving new business models and that these business models wouldn’t be disruptive unless they were more efficient than the ones they are displacing, then the question is, why isn’t the app economy driving economic growth and improvements in living standards.

There are a number of possible answers:

It’s a positive sum game, but only just: in a world of heightened competition, more efficient communications and greater access to information, a new business model does not need to be dramatically superior to an existing one in order to displace it. Perhaps the gains from the app economy are relatively small (at least compared to a major economic advances of the 20th century such as the electrification of industry).

Benefits for consumers but insecurity for producers and workers: while consumers are quick to adopt innovations that are of convenience or are cost saving, producers face heightened competitive pressure creating a disincentive to invest and employ. Workers find employment conditions are increasingly short term, creating uncertainty and anxiety about future employment which causes consumer spending to fall and decreases aggregate demand.

Inequality and reduced demand: the app economy is the next epoch in the ongoing success of Silicon Valley. It ultimately represents a massive growth of US exports to the rest of the world and increased incomes and wealth for the owners of US technology companies. For example, with the rise of Uber, around 20% of taxi fare revenue around the world now flows back to California. Technology companies, with their intangible intellectual property assets, are ideally placed to exploit weaknesses in global taxation arrangements driving further inequality. The app economy drives a redistribution of benefits from global tax payers to the owners of technology companies.

The rise of the information barter economy: the app technology companies are driving a new form of economic activity based on the provision of personal information and attention (bought by advertisers) by end users in return for a range of technological services. People don’t need to buy maps thanks to Google and Apple. People make fewer phone calls through traditional telcos thanks to Viber and FaceTime. People save on travel costs and shopping time thanks to online stores. This all means reductions in recorded economic activity in telecommunications, transport and retail and therefore lower measured economic activity.


For app companies, scale is a primary objective. App companies are in a global race for scale (see THE RACE FOR SCALE: MARKET POWER, REGULATION AND THE APP ECONOMY) in order to amortise high development and branding costs across as many users as possible. The potential exists for the development of a cadre of technology companies commanding national or international monopolised marketplaces. This has already begun to present competition and industry regulators as well as the political system itself, with new and powerful challenges.

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