America is on the verge of a consumer electronics renaissance, thanks to the development of smartphones, asserts venture capitalist Marc Andreessen.
Even though smart phones are generally manufactured overseas, their software is created in the United States and those profits stay in America, Andreessen told Fortune magazine.
"I think the fact that software is becoming so important is leading to a hardware renaissance," he said, according to Fortune.
It is not clear if the electronics renaissance will lead to a manufacturing boom and more jobs, he said. Better software might mean fewer components, which, in turn, might make domestic manufacturing more cost effective. In addition, more complex assembly might increase in the United States, which allows designers to be close at hand.
But in any case, Americans should prefer to be manufacturing software.
"What you have to look at from an economic standpoint is gross margin, and you'll find that people who designed the majority of the intellectual property are getting a majority of the profits," he told Fortune.
Manufacturing jobs, he said, "are not high-value jobs, and I think there are very few Americans who would want to work in a Chinese manufacturing plant."
Although smartphone app profits have grown, ironically the future is in giving away apps for free, according to market researcher HIS Inc. App developers then charge for content through the app, know as in-app purchases.
In-app purchases will account for 64 percent of total market revenue in 2015, up from 39 percent in 2011, IHS predicts. Revenue from in-app purchases will increase to $5.6 billion in 2015, up from $970 million in 2011.
“Smartphone users overwhelmingly prefer free apps to paid apps, as we estimate 96 percent of all smartphone apps were downloaded for free in 2011,” noted Jack Kent, an IHS analyst. “In 2012, it will become increasingly difficult for app stores and developers to justify charging an up-front fee for their products when faced with competition from a plethora of free content."
By the end of the third quarter of 2011, according to IHS, free apps accounted for 45 percent of the top-grossing U.S. iPhone applications and 31 percent of the highest-earning U.S. Android Market applications.
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