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VisionMobile is the leading research company in the app economy. Our Developer Economics research program tracks developer experiences across platforms, revenues, apps, tools, APIs, segments and regions, via the largest, most global developer surveys.

The Mobile Application Store phenomenon

[Apple's App Store, Android Market, RIM Application Center.. application stores are the latest fad of the mobile industry. Research Director, Andreas Constantinou, analyses the recipe of the mobile application store phenomenon and the movers and shakers of this virgin market]

shopping bagsThe success of Apple’s App Store has been well documented; more than 5,000 new applications, $30M revenues in the first 30 days of operation, 200 million downloads in the first 100 days.. the facts point to a rediscovered revenue source that the mobile industry is eager to capture. [Update: John Doerr at O'Reilly has shared some research that shows App Store applications growing by 170% each month between August and October 2008 and then plateau'ing to about 6000 apps in early November].

Many industry observers will point to the on-device storefront as the reason behind the success of Apple’s App Store. Others will point to Apple’s single OSX platform that allows developers to target more than 10 million devices globally with a single application build. But our research shows that it’s far more than that.

Mobile Application Stores (MAS) are a new solution market which promises the development of a new revenue stream for operators, handset OEMs and application developers. In the last few months here at VisionMobile we ‘ve analysed the key MAS solutions, namely Qualcomm’s BREW shop, Apple’s App Store and held briefings with Nokia, Handango and GetJar. In this article, we discuss the recipe of the mobile application store phenomenon and the movers and shakers of this virgin market.

The next figure compares five popular MAS solutions in terms of fundamentals, performance and features.

Mobile Application Stores

Mobile Applications Stores have been around long before the iPhone – in fact since 2001 with Qualcomm BREW offering not only an SDK for application developers, but also a complete developer-to-consumer channel for discovering, provisioning, distributing and billing applications on BREW handsets. On one hand Qualcomm’s BREW solution has been criticised for stringent application certification requirements and a cumbersome developer accreditation program. Yet it is by far the most successful MAS solution, with an average of 80 million application downloads per month in 2007 and over $1 billion shared with developers as of early 2007.

[Updated: The official BREW figures from QIS state "80M+ average monthly transactions during 2007", so that number should include content downloads as well as application downloads. It's also worth mentioning that BREW's download system offers one of the most advanced range of billing models, including subscriptions and prepaid credits that can be used for purchasing  applications or content.]

Beyond the 10-11% of the sales base of BREW-capable handsets, there have been very few, usually unsuccessful efforts at building an ecosystem for application downloads.

Nokia Download!
Nokia’s Download! on-device storefront represents a half-baked MAS solution. Launched in June 2006, Nokia’s Content Discoverer was designed to replace Preminet, the supply-side marketplace for distributing applications. Nokia’s NCD, later renamed to Download!, has been widely deployed on S60 and S40 handsets but failed to get the MAS recipe right due to a number of reasons:
- an on-device storefront with very few applications, poor catalog management, inconsistent structure and operator-dependent availability.
- installing an application presents the user with multiple confirmation dialogs, making installation counter-intuitive.
- the process of submitting an application to be featured on Download! is far from transparent with no central portal and distribution agreements done on a case-by-case basis.
- billing relies primarily on premium SMS via specific operator deals and takes a large revenue cut away from the developer. To improve the rev share balance, developers have to implement their own credit card charging mechanisms in which case they have to lure the user to their website to make the payment – plus developers have to use their own IMEI-based licensing schemes.

GetJar
Despite lacking an on-device storefront, GetJar is a successful Mobile Application Store reporting a respectable 17 million downloads per month. GetJar was started by Ilja Laurs in 2004, is profitable, and has recently received $6 million from Accel Partners.

GetJar started as a community site, connecting developers with beta testers, where users can download and test applications. It has since evolved into a distribution channel for application developers including brand-name applications like Opera Mini and Google Maps. GetJar reports 26,000 registered developers and 10,000 hosted applications.

GetJar features mostly free and ad-supported applications. Developers can upload applications to GetJar for free, and get downloads for free. Developers monetise through four revenue models:

1. Free applications with no advertising
2. Ad-supported applications, where the developer monetises through GetJar’s in-house ad-injection (CPM) system, or other ad systems (e.g. Greystripe, Smaato) for interstitial ads.
3. Trial applications, where the activation or upgrade takes place via the developer’s own website.
4. By the end of 2008 GetJar plans to add a centralised billing facility via credit card to support paid-for applications, according to Bill Scott, GetJar’s SVP.

GetJar allows developers to promote their apps on GetJar website for a fee of circa $4,000 per month per application. According to Scott, Google Maps downloads jumped from 20,000 downloads/week to 90,000 downloads/week thanks to GetJar promotional banners.

GetJar is also offering hosted application store solutions for operators. The company allows operators to build own-brand or co-branded mobile application stores in what seems like a no-brainer deal: GetJar offers the hosted solution to the operator for free and is also willing to share part of the ad revenue. GetJar operates custom portals for 11 operators and OEMs, including Three, MAXIS Malaysia and Optimus Portugal.

One downside of GetJar is that it does not offer an on-device storefront, where we may see the company partner with on-device portal providers.

Handango
Handango is one of the first application retailers and bills itself as the largest cross-platform smartphone application distributor with over 140,000 applications (including variants) in its online stores and over 100 million applications downloaded to date.

Handango offers application developers three channels of distribution:
- Direct, via handango.com
- Via channel partners such as Verizon Wireless, AT&T, T-Mobile, Alltel, Nokia, RIM, Sony Ericsson, Samsung and AOL. Handango has recently expanded with distribution through physical retail stores, namely BestBuy and Carphone Warehouse.
- Via Handango’s commerce engine web-shopping infrastructure used by over 1,000 content providers.

Handango offers InHand, an on-device storefront which features ratings, recommended and best seller apps. InHand can be freely downloaded from the Handango site and in some cases comes pre-loaded on handsets – in the order of ‘low millions’ of handsets according to Handango’s Alex Bloom, VP Content and International.

Another provider who has entered the MAS scene is US-based mPortal, best known for having powered Disney Mobile’s on-device portal. The company has now turned to offering a client and server infrastructure for application stores. mPortal offers a white label client-server product that combines an on-device storefront, application provisioning, aggregation of 3rd party application catalogs and integration with operator billing – in other words key elements for helping operators take a Mobile Application Store to market. mPortal already powers the branded application store of a tier-1 operator and reports being deployed on 50 device models (SKUs) as of the end of 2008.

Naturally, there are a number of other vendors offering partial MAS solutions, namely Cellmania, Motricity, Jamba, Buongiorno and Handmark.

The recipe behind Mobile Application Stores
At the end of 2008 we are clearly seeing a turn towards complete Mobile Application store offerings in the footsteps of Apple’s App Store. There’s been plenty of blogoshere coverage on Google’s Android Market, RIM’s Application Center, Microsoft’s SkyMarket and Adobe’s Appzone.

This new wave of MAS solutions encompass the complete recipe for a developer-to-consumer channel, contrary to the previous half-baked efforts. The next figure lists the five key ingredients of Mobile Application Store solutions; single marketplace, centralised billing, global distribution, provisioning and on-device discovery. The ingredients of the recipe are far from simple to put together – requiring not only the right ingredients, but also the right cook – which is why Apple and Qualcomm are the only two successful, complete Mobile Application Stores as of the end of 2008.

Mobile Applications Stores - features list

New market = new opportunities
We are already seeing a number of software vendors, OEMs and operators planning to offer Mobile Application Stores, many of them still in stealth mode as of the end of 2008.

We expect the most successful MAS solutions to come from handset OEMs, particularly the top-10. OEMs can manage the distribution, provisioning and on-device discovery elements of the recipe, while partnering with billing and retailing vendors to complete the picture. Operators will find it harder to put together successful MAS propositions, as they control a much smaller percentage of the recipe.

The few players who have developed vertical ecosystems are also in a very strong position – specifically Google, Microsoft, Adobe, Qualcomm, Nokia, Intel and RIM (see earlier article on the 7 centres of gravity in mobile). It will also be interesting to see if Qualcomm is willing to export its very successful MAS solution outside the narrow realm of BREW-capable handsets.

We expect handset OEMs and network operators have gone for shopping early this Christmas, as they try to piece together the key ingredients of a MAS solution. Supply of these ingredients is in abundance: billing (Tanla, Bango, Qpass), distribution and retailing (July Systems, Motricity, Jamba, Handmark), on-device storefronts (mPortal, SurfKitchen and the dozen or so ODP vendors) and provisioning (InnoPath, Red Bend as well as many software services outfits).

Comments welcome as always.

- Andreas

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  • http://martinjsmith.blogspot.com martin smith

    Andreas, I think the developer gets 70% of sales revenue with Apple's App store (not 30% as stated in the chart).

  • http://visionmobile.com/blog Andreas Constantinou

    Martin – thanks for spotting the typo, it should have been 30% to Apple. Fixed now.

    Andreas

  • Roy

    Andreas,

    As a result of the growing MAS opportunity, several large carriers will continue to build-out their app stores as OEMs & Platforms build theirs (as you state in your report).

    Some of these large carriers have very sizable consumers bases (50-100+ million). And they already have most of the ingredients that you list in your table (except for global distribution).

    Since these carrier driven app stores app stores are promising to be more open going forward, won’t this MAS category be another "content battleground" between carrier & OEMs?

    How do you think “carrier led app stores” will compete or co-exist with “platform led app stores” in the next 12-18 months? . . . How strategic is a MAS for a carrier . . . Who wins over time (Carrier, OEM or Platform) & why?

  • http://visionmobile.com/blog Andreas Constantinou

    Hi Roy,

    I think operators/carriers will struggle to develop their own mobile app stores. The provisioning and on-device discovery elements are the hardest to control across 100-200 or so handset models that tier-1 operators have to cater to. Plus operators most often don't have the know-how for dealing with software developers. Verizon may be an exception here since it has launched its own MAS solution for BREW and non-BREW devices.

    Unavoidably, MAS solutions will co-exist across OEMs and MNOs, in the same way that OEM and MNO content offerings compete for the users' attention. My bet for who wins over time would go to the OEMs for a simple reason; the application discoverability (short click distance from the idle screen, catalogue management, etc) are domains which are most familiar to and mostly controlled by OEMs globally (with Japan and US being exceptions). With the exception of operators with major handset customisation investments (notably Vodafone and Verizon), I would expect the most successful MAS plays to be those run by OEMs.

    - Andreas

  • Gwen

    Hi Andreas -

    Currious to know what impact you see these MAS having on Smartphone sales. Do you see them directly impacting Smartphone sales in a positive way? Is the consumer situation “Wow I have purchased a smartphone it has so many cool apps I will use/buy” or “I want to do all these cool things with my phone that these apps enable and so I will go out and buy a smartphone.” Is there room for both scenarios? Is one more likely than the other? I'd love to hear your thoughts on the topic.

    Best,

    Gwen

  • http://visionmobile.com/blog Andreas Constantinou

    Hi Gwen,

    I only have anecdotal evidence on the impact of MAS on smarpthone sales – and that comes purely from personal experience, and so is non-significant statistically. But it may be helpful in extrapolating and drawing some early conclusions that are generalisable.

    The diversity of applications on the iPhone, coupled with discoverability, catalogue management, search, etc, makes it easy to find the application that's best suited for each user (i.e. comes very close to 1-2-1 targeting of apps for users). This in turn creates passionate users, as they can find applications they care for. This in turn creates word of mouth marketing, blogging and generally viral marketing. If a campaign can target the opinion leaders (alpha users) then the viral effect is more pronounced.

    I have seen this effect apply to the iPhone, from personal experience. That is, the 'I love this application on your phone, how can I get this phone?'.

    One thing for sure is that users/people think in terms of use cases, not platforms or technology. The use-case focus is also behind the rise of application-specific phones (e.g. Three's SkypePhone and ING's Facebook phone). So in answer to your question, I would say that users would buy a phone if they find that it is particularly good in a task or use-case, whether that is listening to music, getting the latest gossip on facebook, making them look cool, or being small enough to fit in their pocket. I don't think that the 'average' phone buyer would buy into the potential/technology/platform aspects of a smartphone (and there is no average buyer :)

    BTW, the word smartphone should be banned :) – it's is an industry term that doesn't translate in the userland.

    Andreas

  • Neil Fergus

    Hi Andreas, I have been in the mobile apps side placing developers for various firms (OEM's, app developers)

    Where do you think the best area to develope a small miche that would serve a specific marketplace. An MAS for a specific service -financial fir example or targeting development for certian types of phones, smart phones for example.

    Where can someone lookimg got investor funding in this space (ptentially) find a nuche) for 2009. Whats the latest trend as you see it. I'm looking to pitch an idea of an MAS store offering everything the big guys don't (the best of all worlds and giving more revenue to the developers…

  • http://visionmobile.com/blog Andreas Constantinou

    Hi Neil,

    Good question. I tend to think that niche MAS offerings will not be viable, as the set-up costs are too high. Unless you skip the home-grown solution and related costs and simply brand someone else's white label MAS offering (e.g. Handango, GetJar) and offer a hand-picked set of apps for a vertical segment (e.g. financial).

    However, trying to compete with Apple's App Store or anything similar with a home-grown MAS solution is no small feat – which is why I think most network operators/carriers won't succeed in getting app download revenue from home-built MAS solutions – only through white labeling.

    One successful recipe in this new MAS market might be to act as the matchmaker and integrator – offering a choice of billing integrators (e.g. Bango, Tanla), app catalogues (e.g. Handango, GetJar), on-device storefronts (e.g. mPortal, Everypoint Nemo), and distribution deals through handset OEMs.

    The industry players with the most to make here will be the middlemen who can customise and scale white label MAS solutions.

    Andreas

  • http://www.deanbarron.com Dean Barron

    Andreas, Have you heard about Nemo? The next generation platform for mobile application dvelopers. I heard it's the hottest thing going on the market and puts all of the others to shame. Including all of the companies you list in your article. Just wondering if it's worth a try. LMK, all the best. Keep upi the good work!

  • http://visionmobile.com/blog Andreas Constantinou

    Hi Dean,

    Everypoint's Nemo brings together an enhanced Java runtime with a vector graphics engine, sync APIs, a on-device-storefront and a marketplace for submitting applications and settling rev shares.

    As such Nemo offers some really key technology bricks (much like what In-Fusio was doing 5 years ago) and the important marketplace + on-device storefront infrastructure. However it lacks key billing and distribution deals.

    The solution would be perfect if acquired by an OEM or Sun (who's Java ODP solution is too little too late), but on its own Nemo has a long uphill battle to fight against the so many App Store me-toos.

    Andreas

  • rob

    Nokia is now catching up and catching up fast. They have just launched fabulous Ovi store. The revenue sharing scheme seems good and their stimulus to developers to come up with new and innovative applications seems terrific too, what with their Calling all Innovators contests. This year's (2009) will be featured prominently on Ovi Store. Seems like exciting times for mobile developers.

  • http://visionmobile.com/blog Andreas Constantinou

    H Rob,

    Indeed – Nokia has big plans for Ovi Store and seem to be finally catching up.

    We need to update this article, as so much has happened since November when it was written. Watch this space :)

    Andreas

  • http://www.periwise.com Ohad

    Hi Andreas,

    Very good article, need to update a little bit regarding the Nokia Ovi as you mentioned.

    If I'm now exploring the best way to enter the MAS community as a developer, and my specialty is Java, what would be your answer to the following questions?

    1. Does java give the most wide solution for a variety of devices?

    2. What Java sdk is the most common and recommended since each manufacturer recommends his own extended sdk?

    3. Regarding OVI, I see there is a link to the developers website, so how is the billing can be done centrally?

    4. Is there a need for centralized billing solution in the market and who is leading it now?

    That's for now.

    Thanks a lot

    Ohad.

  • http://visionmobile.com/blog Andreas Constantinou

    Hi Ohad,

    We do plan to update the research soon after Ovi Store is launched.

    Regarding your questions:

    1. Yes, if you are talking about developing applications for mass-market devices, which is the route taken by games developers. Think of Java as the lowest common denominator in terms of development environment across mobile devices.

    2. I don't think there's a single SDK, as there is no single Java flavour out there.

    3. Ovi Store should be launched in May and billing is done centrally via credit card. I 'm not sure if operator billing will also be done centrally 100% of the times

    4. There are a few companies offering global billing solutions (e.g. Tanla, Bango, Qpass, etc), but there are no widely deployed app stores on Java yet AFAIK.

    Andreas

  • http://www.mobileappstoreguide.com Richard

    There's a really great guide to mobile app stores here: http://www.mobileappstoreguide.com

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