From Sanctions to Innovations: How the Mobile App Market is Changing

The Russian mobile app segment is entering a period of change. In response to sanctions and changing technologies, companies, especially banks, are reconsidering their strategies for developing online channels. Now they focus not so much on Google Play and the App Store, but on developing their unique solutions. Will the new approach help overcome the limitations of large online stores and positively influence the mobile app industry?

Online Stores and Developers: Problems of Interaction

Since the emergence of the dominant online stores of Apple and Google in 2008, the mobile application segment has undergone significant transformations. The App Store and Google Play platforms (and then similar app stores of Huawei, Samsung, and others) opened up new prospects for developers. They showed that the mobile format has huge potential for successful monetization. From year to year, the audience of mobile applications and the income received with their help grew. Last year, the combined turnover of developers of these two stores exceeded $ 146 billion ($ 104 billion they earned through the Apple Store and $ 42 billion through Google Play ).

At the same time, these platforms not only shaped the market but also set strict limits on it. To comply with the standards, it was necessary to invest heavily in app development and spend more time. In addition, due to constant changes in these rules, developers sometimes had to rework their applications at the last minute to meet the new requirements. Or turn to regulators, as Kaspersky Lab did, which filed a complaint against Apple with the FAS in 2019. At that time, the platform demanded that the company remove modules responsible for parental control functions from its application. This happened after Apple itself launched a similar function in the iPhone operating system. Kaspersky Lab insisted that Apple was using its monopoly position to promote its services, not giving others a chance to compete on an equal footing. The decision was made in favor of the Russian company.

Nikita Chugunov, Senior Vice President, Head of Digital Business Department, VTB

Developers were also concerned about the censorship and content control policies of these platforms. Online stores imposed restrictions on certain types of content and were overly strict in selecting applications. Companies and users claimed that Google and Apple were biased and sought to maintain a monopoly on the market. For example, in 2016, the Telegram team had to remove built-in games from its platform at Apple's request.

There were also questions about how these platforms made money. Online stores did give developers access to millions of potential users. But they also charged high fees, from 15 to 30% of turnover, for app purchases and other transactions (such as in-game purchases). This meant that most of the revenue from successful apps went to the online stores themselves, not the developers. One example of this controversy was the Epic Games scandal in 2020 when the super-popular game Fortnite was removed from the App Store and Google Play due to disagreements over fees.

These restrictions hampered innovation, stifled competition, and generally slowed the market down. As a result, while Google and Apple helped the mobile app market flourish, they also created a system with many barriers for developers around the world.

Russia's Window of Opportunity

Since February 2022, Russian mobile app developers have had to adapt to new challenges due to political events and sanctions. The changes have particularly affected banks that have been sanctioned, and whose apps have been removed from iOS and Android marketplaces. New mobile technology solutions were needed — effective for banks and convenient for customers.

Surprisingly, it was not mobile technologies that proved more resistant to sanctions, but web technologies. But at the first stage, they were less user-friendly than the simple native interfaces that customers were accustomed to. As a result, banks opted for hybrid IT solutions that combine elements of web and mobile technologies.

VTB was the first to respond to new challenges and presented its innovative solution VTB Online in 2023. This is an online bank that works and looks the same on all devices and browsers, while it is based on the web version. The application icon can be installed on the smartphone screen in the usual format. This technology makes components and functions inherent in native mobile applications available to the user:

• Quick login with biometric identification;

• push notifications for iOS ;

• address book support, camera access for QR code payments.

Particular attention is paid to data security control:

• Users can set limits for transfers;

• monitor your account login history;

• check links for phishing and more.

• This is not just an alternative to traditional mobile banking, but also an effective solution that meets current realities and customer needs.

Many other Russian banks and companies from related segments, also affected by sanctions, are starting to switch to hybrid solutions. They are trying to improve web applications and make them as convenient as mobile ones. But so far they have not been able to achieve native customer experience in web applications and seamless transition between interfaces of different platforms.

Why are the future hybrid solutions and not apps?

Hybrid solutions in mobile technologies are becoming more popular, and here’s why. They allow using the same universal code for different platforms (for example, iOS, Android, and browsers ). This reduces the time and cost of creating applications - according to estimates by international IT consulting company Zartis, by an average of 30%.

VTB was the first to respond to new challenges and presented its innovative solution VTB Online in 2023

It is also now easier to update and support applications. Since the main part of the hybrid application code is the same for all devices, updates, and fixes can be released faster and cheaper. For example, VTB was able to halve the costs of developing and supporting applications. Instead of three parallel release processes, we now use one. The service is updated on all devices immediately after the release is published, while before this took several months until each client installed the latest version.

But most importantly, hybrid technologies help companies to be less dependent on sanctions and requirements of foreign online stores. For any company (and especially for the financial sector), customers must have constant access to their products and services. Hybrid applications are more reliable and can work even if access to regular app stores is limited for political and economic reasons.

How the market will develop?

Many experts predict a great future for hybrid solutions. The American company Ionic, the creator of the eponymous cross-platform framework, asked more than 13,000 developers back in 2017 what technologies and tools they use to develop applications. Every third responded that in the coming years, most applications will become hybrid, and developers who do not learn to work in new frameworks will be left out of work. A recent study by the consulting company Zartis estimates the global market for hybrid mobile applications at $11.9 billion in 2022 and predicts a threefold increase - up to $35.2 billion by 2028.

The news that leading smartphone manufacturers are relaxing their policies regarding building an app also looks positive for the market. In particular, Apple has agreed to comply with the EU requirements and will allow European users to install apps on iPhones not only through the App Store in 2024. There are other movements in this direction. For example, the Coalition for App Fairness, created in 2020 by the largest developer companies, calls for strict regulation of online stores. It requires them to give up control over the pricing policy of developers and stop limiting communications with users. The monopolistic position of dominant online stores may not be such in a few years.

But perhaps the most important thing for the market is its technical readiness to offer a service that is convenient for the client. According to an internal study by VTB Online conducted in March 2023, some clients hardly notice the difference in the perception of the web version and the application. 44% of the surveyed clients were satisfied with the web version, and 45% with the mobile application. In November, we surveyed users again and found that for 75% of the audience, despite all the restrictions, remote online access has not become more difficult. This became possible due to the transition to the web version of applications: 43% of respondents already use them.

All this creates unique opportunities for growth and innovation in the mobile app sector, especially in Russia. It is worth expecting that the trend of hybrid technologies development among domestic developers will only intensify in the next one or two years. Hybrid applications allow Russian developers to offer alternative ways of delivering their products to end users without losing convenience for customers. For Russian companies, this time of change means an opportunity to “jump on the train” of rapidly developing technologies in time. Global platforms are looking for new ways to maintain their leadership and at the same time face increasing pressure. Russian developers and companies can use this moment to introduce their innovations and strengthen their positions in the market.