The R&D Tax Credit Aspects of Mobile Applications



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Mobile-Applications

        Mobile application usage has never been higher. In fact, it has become an essential part of the mobile experience. According to global information and measurement company Nielsen, the average time a person spends engaging on apps every month increased 63 percent in two years, rising from 23 hours per month in 2012 to 37 hours in 2014. 

        This unprecedented demand fuels an increasingly competitive marketplace, where millions of apps are already available and more are created every day. The present article will discuss recent trends in the rapidly evolving mobile app industry and present the R&D tax credit opportunity available for those using innovation as a means to thrive in the mobile era.


The Research & Development Tax Credit

        Enacted in 1981, the federal Research and Development (R&D) Tax Credit allows a credit of up to 13% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

  • New or improved products, processes, or software
  • Technological in nature
  • Elimination of uncertainty
  • Process of experimentation

        On December 18, 2015 President Obama signed the bill making the R&D Tax Credit permanent.  Beginning in 2016, the R&D credit can be used to offset Alternative Minimum tax and startup businesses can utilize the credit against $250,000 per year in payroll taxes.


The Era of Mobile Apps

        A recent study University of Alabama study estimates that there will be 10 billion mobile internet devices in use globally by 2016. This means 1.4 devices per person on the planet. The Internet of Things and wearable technologies promise to accentuate this trend, considerably increasing the number of gadgets used by the average person.

        As a result, the mobile applications market should experience a compound annual growth rate of 16.2 percent between 2014 and 2020, reaching $54.9 billion by the end of this period. The total number of apps downloaded will reach 268 million by 2017, creating significant business opportunities. For instance, in 2016, revenue from mobile advertising will be worth four times its 2011 value.

        A report from Transparency Market Research defines mobile applications as “user-friendly software designed for operation on mobile devices such as smartphones, tablets, and other handheld devices.” It presents six major categories within the mobile app market, namely,

  1. Games and entertainment
  2. Productivity
  3. Social and personalization
  4. Music and lifestyle
  5. Travel and navigation
  6. Other (business, finance & utilities applications)

        When it comes to store types, apps are classified as native (on-deck) or third-party (off-deck).


Overcoming App Development Challenges

        Companies find it increasingly challenging to rapidly develop, deploy, and maintain mobile applications. Besides adding functionality and robustness to apps, marketers must find a way to stand out in this competitive environment.

        A June 2015 Gartner report underlines the difficulties in meeting rising performance and usability standards. The study estimates the demand for enterprise mobile apps will grow at least five times faster than internal IT organizations’ capacity to deliver them and urges mobile strategists to “use tools and techniques that match the increase in mobile app needs within their organizations.”

        An earlier Gartner study finds that the majority of companies remain in the early stages of mobility, struggling with how to start app development or to scale up operations. Kishore Khandavalli, founder of Dallas-based SevenTablets, argues that most companies consider apps as a modified version of their websites and points out that less than 30 percent of them have established a real mobile strategy. According to Mr. Khandavalli, a company with complex operations needs as many 20 different apps to meet the needs of both its employees and customers.

        Gartner suggests four best practices for those willing to bridge the gap between mobile app demand and supply:

  1. Value-driven prioritization of app development based on the needs of business stakeholders.
  2. A bimodal IT approach where the first mode focuses on integration (retrieving and delivering data to back-end systems) and the second mode creates front-end app features.
  3. Use of rapid mobile app development tools that replace traditional coding and allow those with no programming background to design and iterate prototypes.
  4. A mixed-sourcing approach based on both in-house and outsourced third parties.


Trends & Opportunities

        In a rapidly evolving, market such as the one of mobile applications, it is important to keep an eye out for the latest trends and businesses opportunities. The following paragraphs highlight the most promising areas for app development innovation.  


Faster Development
        The mobile world moves fast. Consumer preferences change in a heartbeat. For this reason, companies must keep up with demand, capitalizing on business opportunities as they appear. In practical terms, this means reducing the development lifecycle of mobile applications.

        An increasing number of companies are engaged in delivering innovative solutions that help shorten the time gap between app ideation and launch. They commonly consist of user friendly, ‘low-code’ or ‘no-code’ solutions that enable anyone, despite technical knowledge, to create, deploy, and manage apps. Their simplified approach to mobile development enables considerable reductions in time and costs while adding flexibility to the prototyping process.

        Visual programming is a big part of rapid mobile development. NY startup Bubble, for instance, has created a platform that allows people with no coding skills to create their own apps. With a drag-and-drop interface, workflow logic, as well as video tutorials and lessons, the solution makes app development completely accessible to people with no experience. Used by over 3,500 subscribers, Bubble’s cloud-based tool has no predetermined templates, so that each application can be unique. 
 
        Headquartered in Atlanta, GA, OutSystems is one of the leading rapid app delivery companies on the market. The OutSystems platform covers the entire lifecycle: development, quality assurance, integration, deployment, monitoring, and management. It combines visual development with one-click deployments, enabling customers to run applications across multiple platforms in less than 20 percent of the time of traditional methods. It also features an open and extensible model that ensures code portability so apps that are developed in the platform can be run in other tools.


Cloud Technology
        Cloud technology has played a major role in the recent multiplication of mobile apps. It has enabled an exponential growth in app functionality, with data storage and processing now happening outside the mobile device. The benefits of cloud applications include a richer user experience, enhanced responsiveness, and offline mode.

        Many notable companies run their apps in the cloud, including Instagram, Pinterest, Netflix, and Foursquare. A recent survey of IT executives has pointed to three reasons why apps are migrating to the cloud: 1) accessibility to data from multiple devices; 2) lower costs; and 3) increased speed for business. 

        Besides enabling the creation of powerful, cross-device apps, cloud technology has also simplified app development. New Hampshire based Snappii, for instance, has created a software-as-a-service solution for developing sophisticated mobile business apps. Using the innovative, cloud-based LiveBuild model, it enables customers to build the app in the cloud and make it function right away. The same simplicity goes for updates, which are instantly made in just one click.

        Another example of cloud-based app development platform is Appery.io, which recently reached 250 thousand users. Designed by California based Appery, the solution creates cross-device applications using visual programming and optional coding. Since it runs in the cloud, there is no need to install or download the app builder. The cloud-based framework also facilitates collaboration so multiple team members can easily access projects in real-time.


App Security
        App security gaps have been a major threat and concern. A 2014 Gartner study predicted that 75 percent of mobile applications would fail basic security tests the following year. The same report stated that, through 2017, app security breaches would be mostly caused by misconfiguration rather than “deeply technical attacks on mobile devices.” 

        Chicago startup Keeper, which recently signed up Samsung as a customer, is an example of the central role of security in the mobile world. According to the company founder, Darren Guccione, as a result of recent deals, Keeper’s password-security app will be preloaded on tens of millions of new smartphones over the next year and a half.

        The innovative company promises encrypted password security (via a single master password for each user) and secure storage of photos and files. On November 17, Keeper launched a new version for Android 6.0 Marshmallow, which offers support for fingerprint security as well as auto fill capabilities.


Beacons
        Beacons represent a new paradigm in indoor communication. They are low-cost, low-powered transmitters that communicate with smart devices via Bluetooth Low Energy (BLE) technology. When in proximity to such devices, they trigger activity in mobile applications, allowing them to understand their position on a micro-local scale and to pull specific data from the web, based on location.

        BLE-enabled beacons have a broadcast range of around 100 meters and are therefore ideal for indoor tracking and awareness. All beacons have a unique identity and offer non-invasive, one-way communication. By enabling apps to communicate with users via Bluetooth, beacons redraw the line between online and offline, opening up the way for a new wave of innovation. 

        The creation of beacon-friendly applications and the incorporation of beacon capabilities into existing applications can change the way retailers, event organizers, transit systems, enterprises, and educational institutions interact with people in indoor spaces. A 2014 Business Insider Intelligence report predicts that the number of installed beacons would grow 287 percent in the following four years, reaching five million units. 

        Silicon Valley based Shopkick was one of the first companies to implement beacon technology in retail settings. Ranked by Nielsen as the most widely and often used real world shopping app, Shopkick helps retailers make the in-store experience more personal and rewarding. Some of the companies using “shopBeacon” devices include American Eagle Outfitters, Best Buy, J.C. Penney, Macy's, MasterCard, among many others. 


Wearable Technology
        According to the International Data Corporation, the global wearables market will experience a 45.1 percent CAGR between 2014 and 2019, reaching 126.1 million units by the end of this period.

        New vendors and devices along with enhanced end-user awareness are the most important drivers of this increasing demand. Smart wearables, which are capable of running third-party applications, were expected to reach 25.7 million units in 2015, up 510.9 percent from 2014.  

        As a result of such trends, the demand for wearable apps is higher than ever. For now, the most popular applications focus on health and fitness, however, they start to expand towards other areas such as security, workplace productivity, and collaboration, etc.

        Though cross-device applications, which work both on wearable and mobile devices, have been seen as a promising category, experts believe in the emergence of fundamentally new apps that capitalize on the uniqueness of wearables.


Internet of Things
        Powered by the use of sensors, actuators, and data communication technology, the IoT creates a new world of ubiquitous connectivity. In this scenario, objects become strategic tools for collecting information and responding to it. 

        A June 2015 report from McKinsey & Company’s Global Institute estimates that the IoT market could reach $11 trillion by 2025. Entitled “The Internet of Things: Mapping the Value beyond the Hype”, the study points out that the hype may actually understate the full potential of the Internet of Things – “but that capturing its maximum benefits will require an understanding of where real value can be created and successfully addressing a set of systems issues, including interoperability.”

        The fact is that the digitalization of the physical world creates major opportunities for innovation in mobile app development. From controlling home appliances to remotely gathering meteorological data, such applications are the gateways to a myriad of potential benefits. Not only do they link IoT and mobility, but they add value to the connectivity by processing information and presenting it in useful ways.

        Many companies are engaged in creating “IoT platforms” that facilitate the development of apps targeted at the Internet of Things. They often feature an ingestion tier for incoming-data storage, an analytics tier, activation and management capabilities, as well as an application program interface that enables communication between the platform and the app.

        Acquired by PTC in 2013 for approximately $112 million, Pennsylvania based ThingWorx is an interesting example. The innovative platform is designed to build and run IoT applications while reducing time, costs, and risks. In October 2015, ThingWorx announced a partnership with Amazon Web Services (AWS) that will enable developers to combine the scale and elasticity of AWS with the productivity advantages of ThingWorx’s Application Enablement Platform. 


Big Data Analytics
        Successful app development is increasingly linked to the so-called big data, which has the potential to shed light on customers’ behavior and decision-making processes, allowing companies to take advantage of business opportunities while enhancing user experience. 

        Tackling actionable insights that hide behind massive amounts of data requires a powerful virtual architecture. There is continuous pressure to meet rising performance standards while minimizing management burdens. Cloud-based applications are an alternative for companies willing to overcome infrastructural difficulties, such as costs, storage, and elasticity. In the words of Ahish Thusoo, founder of Qubole, a provider of a self-service platform for big data analytics, “there is no “one-size fits all” infrastructure solution. What makes the cloud attractive is its elastic infrastructure, which can enable other dimensions that make the business more agile and high performing.” 

        There are numerous examples of data-driven mobile applications aimed at a wide variety of purposes. Headquartered in San Diego, CA, Roambi is an app that responds to the needs of an increasingly mobile workforce. The Roambi app allows workers to access and analyze business data to make informed, on-the-go decisions.


Promising Industries for Mobile Apps

        As mobile applications become an increasingly important aspect of our personal and professional lives, it is difficult to point out which areas show the most promise for app development. As a matter of fact, innovative tools and ideas can lead to the creation of highly successful apps in any industry. Nonetheless, the following sections list some of the areas in which mobile apps are multiplying at a remarkably fast pace. 


Healthcare
        Mobile devices can greatly contribute to improving patient care, making it more convenient, cost-effective, and focused on prevention.  Innovative telemedicine and remote healthcare mobile applications shorten the distances between doctors and patients and giving doctors easy and timely access to information.

        According to the U.S. FDA, 500 million smartphone users worldwide were expected to be using a healthcare application by 2015. By 2018, this number should surge, with 50 percent of the more than 3.4 billion smartphone and tablet users having downloaded mobile health applications. 

        Examples of innovative healthcare apps include DoctorOnDemand, which facilitates quick video consultations with physicians from $40 per appointment, and HealthTap, which follows the same telemedicine logic with the advantage of allowing patients to consult with personal doctors provided that they join the platform.
 
        When it comes to monitoring health data, the RevUP app by MD Revolution connects users with health and wellness experts that help them track relevant information and provide guidance and recommendations. Similarly, Microsoft’s HealthVault App enables users to keep their medical records up-to-date with manual and automatic data input. The app can be connected to smart medical devices, fitness trackers, scales and other apps in order to receive real-time information about the user. 


Manufacturing
        Manufacturing companies are increasingly turning to mobility as a driver of operational efficiencies. According to Simon Jacobson, a Gartner analyst, "There has been much more activity in mobility in general, whether it's iPad-, iPhone- or Android-based, in the manufacturing environment. If you're a vendor seeking to sell into any operational environment and you don't have a mobile capability, the odds of you being considered strategic by your clients is pretty minimal.”  

        A survey by cloud-based software company Canvas revealed the most frequent use of mobile applications in manufacturing environments so far – 48% used mobile inspection apps; 36% used mobile work order apps; 23% used mobile survey apps; 21% used apps for invoicing; 18% used mobile checklist apps; 6% used mobile inventory apps; and 23% used mobile apps for other processes.

        Mobile applications help manufacturers keep up with key performance indicators and allow them to capitalize on sensors and location-based technology. With unprecedented access to production data, they can avoid errors, maximize resource utilization, and increase overall productivity.

        The need for targeted solutions that are specially designed for each manufacturing environment has led manufacturers to roll out their own apps. According to a recent study by Evans Data Corporation, companies themselves created 42.6 percent of big data apps in the manufacturing sector, which concentrates the third highest share of programmers creating big data and analytics applications (10.9 percent), compared to other industries. 

        Kawasaki Motors Manufacturing Corp., USA is an interesting example. The company replaced its card-based system by a custom app designed to offer better management of just-in-time operations. This more efficient, electronic method ultimately resulted in $3,500 in operational savings per day.

        Compliance with regulation and legacy systems integration are two important barriers when creating apps for the manufacturing sector. Companies willing to take advantage of mobility should focus on developing innovative ways to overcome these limitations.


Retail
        As smartphones become the primary screen choice for consumers, mobility gains strategic importance for retailers. In the words of Michael Jones, Senior VP, Retailer and Brand Solutions of RetailMeNot, mobile has become “the most important touch point for retailers to win, serve, and retain customers.” 

        Mobile applications can help retailers engage consumers both in-store and through e-commerce, creating a more autonomous and customized shopping experience. A recent survey by Apptentive revealed that 88 percent of respondents used retail mobile apps, 51 percent of which used retail apps while shopping in-store. The top five reasons for using apps in-store include: redeeming discounts, comparing prices, earning rewards points, reading about product features, and finding products.

        The rise of the so-called “mobile shopper” creates endless opportunities for new and unique interactions, strengthening brand loyalty and driving sales. By downloading the Macy’s app, retailers can use their smartphones to find their way through the store to the products they are seeking. With J.C. Penney’s app, customers can take a picture of items they see on the street and check if the store has similar ones in stock. Staples is working on an app that enables users to compare store prices with those of Amazon and other competitors.  


Education
     According to an Insight Premium report, the global market for mobile learning products and services reached $5.3 billion in 2012. With a forecasted 18.2 percent CAGR for the following five years, the market is expected to reach $12.2 billion by 2016. 

        Mobile apps facilitate education, making it easier and more affordable. From textbooks to online classes and tutorials, “m-learning” has gained the status of an educational game-changer. In 2013, the U.S. tablet market in schools raised by 103 percent. In the same year, a survey of mobile learners revealed that 99 percent of them agreed that the mobile format enhanced learning and the totality of them would go back to this format for further training. 

        M-learning is particularly interesting for companies, which can profit from its flexibility and experience significant returns on investment. Reduced instructor and travel costs are just two examples of how mobile training can positively affect the bottom line. Located in Peoria, Illinois, CSE Software is an example of innovation in customized m-learning apps. The company creates educational materials for tablet devices, giving clients the opportunity to incorporate audio and video, interactive graphics, and calculators into their books, brochures, and presentations.


Financial Services
        The unprecedented proliferation of smart devices is pushing banks and financial service companies towards mobile solutions that fit the demands of modern consumers. Innovation has become the watchword as customers increasingly condition their financial choices on convenience and ease of use.

        Mobile banking applications bring major opportunities for financial institutions, particularly when it comes to cutting expenses. While the average cost of a mobile transaction is only 10 cents, this cost nearly doubles for desktop computer transactions. More strikingly, ATM transactions cost on average $1.25.

        Banking apps also emerge as an important weapon in the battle to retain customers. Not only do they provide numerous gateways to promote customer loyalty but they also serve as data gathering platforms, generating unprecedented information on users' behaviors and preferences.

        Innovation trends in mobile financial services include imaging technology, which allows for checks to be deposited with the snap of a picture; mobile person-to-person payment apps, which create virtual wallets linked to users’ banking accounts/credit cards; mobile or branchless banks, specially designed for on-the-go, fee-averse users; and mobile crowdfunding apps that give enhanced visibility to projects, making them accessible to investors anytime, anywhere.
    

Conclusion

        Mobile applications are changing the way we live and do business. They create major opportunities for companies to explore new and exciting interactions with their customers and employees. From retail to manufacturing, virtually every industry can take advantage of the so-called mobile revolution. To do so, however, they must keep up with a rapidly evolving industry and capitalize on emerging trends, such as fast mobile development and the IoT.  Federal and state R&D Tax credits are available to help stimulate and support mobile application developments.

Article Citation List

   


Authors

Charles R Goulding Attorney/CPA, is the President of R&D Tax Savers.

Andrea Albanese is a Project Manager with R&D Tax Savers.

Andressa Bonafé is a Tax Analyst with R&D Tax Savers.


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