As U.S. App Economy Matures, States Target Developers

Mobile app development is emerging as a bright spot in the U.S. innovation economy, according to a report commissioned by CTIA-The Wireless Association and the Application Developers Alliance. The groups estimate that more than 500,000 jobs have been created in the U.S. based on app development since the launch of the original iPhone in 2007. This count includes IT-related jobs in service of app development, non-IT jobs at app companies and jobs in the local economy supported by app developers. As the app economy becomes more important in the U.S., states are beginning to create their own strategies for luring developers and spurring local innovation.

In The Geography of the App Economy, Dr. Michael Mandel and Judith Scherer of South Mountain Economics LLC, map states and regions benefiting the most from the first five years of the mobile app industry. California, unsurprisingly, leads in total number of app economy jobs, with 151,900 jobs as of April 2012, and in annual economic impact, an estimated $8.2 billion in app economy wages. Washington state, however, has the most app-intensive economy. The authors measure app intensity by comparing the ratio of app economy jobs to total jobs, indexed to the national average. Using that scale, Washington has a state economy that is four-times more app intensive than the national average.

Only eight states have an app intensity score that exceed the U.S. average. These include (in order) Washington, California, Massachusetts, Oregon, Georgia, New Jersey, New York and Virginia.

Despite the low number of states with high levels of app intensity, the authors observe that many active app clusters exist in states with low levels of intensity. The report describes the emergence of burgeoning app ecosystems in St. Louis, Austin, Dallas, Madison (WI) and Detroit. A report earlier this year from Dr. Mandel noted that, although New York state ranked only seventh in app intensity, New York City and its surrounding suburban counties lead the country's metro areas in app-economy jobs. It should be noted, however, that the study separated San Francisco and San Jose. Together, those two regions substantially exceed New York City's job count. Other top metros include Seattle, Los Angeles and Washington, D.C.

Since a wide range of companies employ mobile apps to provide services to their customers and to handle their internal IT needs, many metros have sufficient demand for mobile development to fuel app clusters. The strongest clusters appear to be rising in metros with universities, with an abundance of tech-savvy workers. The authors find robust app economies to be strongly correlated with educational attainment.

Read The Geography of the App Economy...

Though few states employ programs specifically targeting the app economy, the federal government has had promising results over the last few years with a string of app challenges. These challenges offer cash prizes, or simply recognition, to developers who create apps that bridge communication gaps between government and the public and that deliver government data in accessible new ways. Many of these challenges are browsable on the Challenge.gov site. While the stated purpose of these competitions is to help government tap into the knowledge and resources of the public to address pressing issues, app challenges also help spur innovation in the app field and provide a source of capital to developers. Even when there is no cash prize, developers can use the recognition they receive from a challenge as part of their pitch to investors.

This model, pioneered by the federal government, private companies and foundations, now is being used in the state of Washington to encourage local app innovation. Last week, the first-ever Evergreen Apps Challenge, a collaborative effort of the state, King County and the city of Seattle, awarded $75,000 to mobile app developers who found innovative ways to harness online government data for the benefit of Washington residents and visitors. Economic development was built explicitly into the goals of the competition, which seeks to "stimulate economic development by encouraging innovation and the creation of new intellectual property with commercial potential by individuals, startups and small organizations." The contest was promoted at a number of events for the mobile app community, including a "startup weekend" and several mobile developer networking events.

Louisiana, though ranking near the bottom in app intensity, is cited in the app-economy report as promising region for mobile development. The state's economic development office has targeted app developers over the last few years, recruiting high-profile companies such as Gameloft and Electronic Arts to open studios in the state. Instead of app competitions, Louisiana is using a more traditional, but effective approach to attract developers with its Digital Interactive Media and Software Development Incentive. The incentive offers developers a tax credit of 25 percent of qualified production expenditures for state-certified digital interactive productions in Louisiana and a 35 percent tax credit for payroll expenditures for Louisiana residents with no annual cap. Though the state continues to contend with an insufficient labor pool, the authors of the report expect Louisiana to emerge as a center of mobile app activity over the next few years.

These approaches to stimulating mobile development represent only the first wave of economic development initiatives targeting the local app economy. As the market for mobile applications grows, states will have to find new, inventive ways to attract and encourage mobile development companies.