A report recently published by an Australian newspaper is sparking some concern among the mobile application developer community, by signalling an issue which could significantly impact the ability of application developers to do business in the country. If accurate, it could make mobile app development economically unviable for all but the biggest or most successful publishers.

According to The Australian, the country’s ruling Labor Party has said it will shut a “loophole” that has enabled mobile games and other applications to be sold without going through a formal classification process. It was reported that for computer games, fees for the National Classification Scheme range from A$470 (US$423) to A$2040, and that by not complying developers are “costing the government revenue.” It is not the first time that the issue has been raised in the country: a late 2009 report indicated that the Australian Classification Board had written to the government to highlight the same issue.

There is also the worrying possibility that the Australian government’s actions could set a precedent, and other national governments could look to see how domestic laws apply to mobile games. The addition of another layer of compliance requirements, which will differ on a country-by-country basis, could limit companies’ ability to do business in multiple markets, limiting the choice for customers and the potential market for distributors.

Interestingly, the Australian issue is being driven by the fear of lost income for the regulators, rather than because unsuitable products have been sold to young people. While there have been one-or-two high-profile glitches (such as the “baby shaker” app being approved for sale by Apple), the industry has largely done a good job through self-regulation, and many of the participants in the mobile application ecosystem (including mobile operators and app store companies) have a direct interest in monitoring the products sold through their channels.

Undoubtedly, the mobile application industry is big business. Juniper Research forecasts that “direct and indirect” revenue from mobile applications will hit US$32 billion by 2015, and customers combined from Apple’s and GetJar’s stores have already downloaded more than six billion applications. But the way that the income from mobile applications is split is far from even, and while a few big-name applications and publishers may be raking in the cash, for many the income received is negligible, with application development being a hobby or sideline.

Developing mobile applications entails a certain amount of risk. Developers spend a significant amount of time preparing products for launch into an already crowded market, with no guarantee of success. By adding additional costs to the development process, governments risk forcing home-grown developers out of the market, or could cause a price increase for mobile applications – when it is the easy accessibility of free or low-cost software that is driving growth.

Many of these small-time developers are likely to move on to bigger projects once they have honed their skills, and local applications addressing local needs for local customers create the potential for break-out successes that would simply not be developed by a big publishing house. Some international developers may even opt not to offer products in certain markets if this incurs an extra cost – depriving customers of choice.

The issue becomes even more complex when looking at the various different types of applications available via an app store. Although the Australian focus is on games, it could easily be extended to include other entertainment applications which provide access to Internet content. While it would seem logical that certain applications would be “exempt” from classification, defining this is a potentially complex area, and could entail significant costs for developers looking to prove their products meet specified criteria.

Through looking at the big numbers of the market, the Australian authorities risk pricing small developers out of the market, stunting growth in the mobile application ecosystem (and the tax revenue it can generate) rather than encouraging a fledgling industry. Commerce group the Ontario Technology Corridor recently said that “targeted incentives” have enabled Canada to overtake the UK to become the world’s third largest game development community, with the associated revenue and tax benefits this has brought the country. It is the carrot, rather than the stick, which is delivering results.


Steve Costello

The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members