Distilling market noise into market sense
The VisionMobile blog is a space where VisionMobile analysts and industry insiders exchange views on the fast-changing mobile market and the trends that define the future direction of telecoms.
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]
The 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 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’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.
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 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.
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.