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Mobile App Stores: The Next Two Years

[In this state-of-the-nation article, Research Director Andreas Constantinou analyses the App Store status quo, the key building blocks and the dime-a-dozen future for App Stores]

In the last 12 months Mobile Application Stores have evolved from hype to mass-adoption and even to currency; building an App Store marketing story can increase your valuation, even if no-one agrees what an App Store is. The mobile industry, from CEOs to developers, is engulfed in an app store hysteria such that everyone (operators, OEMs, and platform wannabees) wants to build one.

Yet the long-term reality will be very different; App Stores will become a dime-a-dozen and smart players will need to seek out where they can add and extract the most value, not what app store recipe they can photocopy the fastest. In this article we ‘ll review the present state of the market, the key App Store building blocks and where will the market be heading in two years.

appstores

What’s in a name?
What IS an App Store after all? Is it a developer channel, an on-device apps storefront, a way to deploy applications, or an attempt to copy Apple’s model to the last detail?

To understand what App Stores mean we need to trace back into mobile history; BREW, Symbian, Windows Mobile and Palm have long opened APIs to their software platforms, since 2001-2 in fact.. And while technical openness was established 7 years ago, what was lacking all these years was commercial openness; the funnel between external developers and in-market handsets was so thin that very few software players could pass through. It took Symbian six years to reach 10,000 applications, while it took Apple only 6 months (see our earlier analysis). In the first year of operation, Apple’s App Store brought in 65,000+ apps, 100,000 registered developers, 1.5Billion application downloads and availability to consumers across 77 countries through 40 million iPhone and iPod Touch devices sold.

What Apple figured is that streamlining the commercial route to market was more important than opening up APIs in a friendly language – and as part of that taking out the middlemen (operators, content aggregators and content retailers) who were eating 60% or more of the retail price. BREW and GetJar have been following along, too, although somewhat limited in terms of operator certification hurdles (in the case of BREW) and lack of on-device integration (in the case of GetJar).

In this historical context, it is easy to see that App Stores are a developer-to-consumer merchandising channel; a go-to-market vehicle for allowing developers to distribute and retail their applications directly to the end-consumers, while taking out the middlemen from distribution and retailing. In this sense, mobile app stores are the equivalent of JVC (or any other audio equipment manufacturer) allowing musicians to sell direct to consumers, bypassing labels, distributors and online retailers altogether. Sadly, the music business is more complex that mobile.

State of the market – supply and demand
Most of the hype today is focused on the short head of the most successful app stores. Below we have profiled the five most prominent app stores today and analysed them in terms of distribution model, installed base, downloads, applications and revenues, which makes for an interesting comparative reading. Note that our Apple app store revenue estimates are at $700M/year, in-between the conservative estimates from Bernstein and the optimistic (statistically-skewed) Admob estimates. [updated: we understand that Handango effectively gives only 30-40% revenue share developers, a figure which has dwindle from the 60-70% that was 3 years ago].

app-store-comparison-oct-09

(click to enlarge)

The long tail of app store launches is even more interesting. There is no self-respecting mobile player that hasn’t announced their plans to build an app store, across operators/carriers, OEMs, platform and chipset vendors.
- operators/carriers: Vodafone, Orange, Telefonica/O2, TIM, T-Mobile, Verizon, Sprint, China Telecom, China Mobile, SK Telecom, KT.
- handset OEMs: Apple, Nokia, Sony Ericsson, Samsung, LG, RIM, Palm
- platform vendors: Android, Windows Mobile, S60 (Ovi Store)
- chipset vendors: Qualcomm, Intel, Mediatek

For a slightly deeper dive into the details behind these deployments, Distimo maintains the most extensive comparative table of App Store launches.

Naturally, a diverse range of white label app store providers have emerged to cover the demand. We track 19 App Store vendors so far as part of our industry Atlas: Amdocs, Cellmania, Comverse, Ericsson, Everypoint, GetJar, Handango, Handmark, Ideaworks 3D, Javaground, Mobango, PocketGear, Ondeego, OnMobile, Qualcomm, SlideME, Sun Microsystems and Tanla. Specialised vendors are already emerging with Ondeego offering an App Store for enterprise IT and Tanla offering application license management.

One of the most integrated offering is from Mediatek – a chipset vendor powering more than 300 million (!) phones shipped each year – which has launched its own App Store powered by Vogins and SkyMobi. This is a white label app store offered as part of the chipset package and where the revenue is shared among the OEM (30-40%), Mediatek, developers and the operator, according to our sources. In a sense this copies the Qualcomm BREW model (chipset + software + services), but in a very different market where the one-stop-shop hardware+software+app has allowed 10-person OEMs to fill the market with knock-off (‘shanzhai’) phones, selling for 1/5th of Nokia prices.

Key building blocks
To understand the future of app stores one must look not only in their historical evolution, but also in their genetic make-up.

We first analysed the key ingredients for building an app store a year ago – and the receipe still stands. In the next diagram we analyse the five key elements of an App Store and their evolution to the next two years.

key-building-blocks

(click to enlarge)

As we mentioned, an App store is a developer-to-consumer merchandising channel. As such an App Store is made up of five key building blocks:

1. Developer Market: a process for submission, certification, targeting and pricing of applications. Pre- App Stores, developers had to deal with complex, undocumented & fragmented approaches for app certification and pricing. The developer market, was one of the most important elements introduced with the iTunes Store and the BREW Mobile Shop, in the form of a single website where developers could go for submission, certification, targeting and pricing of their applications.

What’s next: we see 10s of developer markets emerge in the next two years. Not only one app store for each OEM, platform and operator consortium (Android, LiMo, OHA, JIL), but App Stores for different consumer segments (enterprise, fashion, kids, elderly, sports, etc). As such we expect the emergence of App Store aggregators, ie entities which will undertake submission and testing of an app against multiple App Store marketplaces.

2. Billing and Settlement: a mechanism for billing, settlement and reporting of application sales. Pre- App Stores, developers had to set up their own billing or use premium SMS with only 10%-50% of the retail price going to developer. Settlement of application revenues used to take weeks or months. App Stores introduced credit-card billing, fast time-to-settlement and a 70% revenue share as the norm.

What’s next: we see operator revenue shares harmonizing to the 70% norm towards the developer, and a multitude of revenue models emerging like subscription, gifting/begging and cross-app billing (where the credit paid through one app is valid for use in another app). The harmonization of operator billing will be critical to the adoption of app stores, removing the last consumer hurdle for mass app adoption.

3. Distribution surface: the size of the addressable market for an App Store across handset OEMs, operators/carriers and geographical regions. Pre-App Stores, developers had to distribute apps on region-by-region AND on a handset-by-handset basis – a true fragmentation nightmare. iTunes Store, Ovi Store and the RIM App Center introduced global distribution on a per-platform and per-OEM basis, offering plenty of room for continual growth of app downloads (and second-order growth in the case of Apple). Already the Ovi Store sees traffic from 180+ countries on a daily basis, and this is via user downloads of the Ovi Store with pre-loads on S60 and selected S40 models coming in 4Q09.

What’s next: With operator consortia like JIL muscling into to claim App Store territory, we will see global distribution across operators as well as across platforms and OEMs.

4. Delivery & in-life management: the mechanism for app download, silent install, in-place access, app licensing and in-life app management. App delivery is one of the most underestimated building blocks for an App Store, as it’s all about the ‘magic’ happening in the background. Pre-App Stores, users had to download a ringtone or an app, then figure out under which menu this was saved on the handset. Naturally, there was no ability to update the application or apply any rights management to it, leading to rampant side-loading and gradual decline of content value.

What’s next: we see application delivery extend beyond B2C towards B2B apps and middleware that can be background- downloaded & installed. This presents opportunities for App Store owners who can monetise on a per-activation/per-unit basis for remote installing of apps, features or bug fixes on behalf of operators, OEMs or enterprise customers.

5. Retailing & Merchandising: application discovery, promotion, as well as premium placement, search and recommendations for applications. Pre- App Stores, developers had to buy and market complex shortcodes or scattered website ads. iTunes et al introduced in-store app discovery, 1-click purchase, in-store promotions and automated recommendations.

What’s next: as with all fast moving consumer goods (from detergent to mobile phones), retailing and merchandising is the most important segment of the product lifecycle. As applications become ubiquitous, we see specialized app stores with segment-specific retailing of apps, inventory leasing for app promotions (CPC or per week rental as already seen in the Ovi Store and RIM App Center), social recommendations (your friends bought this app, so you should buy it too) and developer back-channels (allowing the developer to reach out to their customers via App Store facilities).

Outlook for App Stores: What the next two years hold
We spoke to George Linardos, Nokia’s VP of Product Development for Media and Games who sees the App Store market evolving to the state of the US television networks; i.e. the emergence of a few major cross-regional App Stores followed by 10s or 100s of localized and specialized stores.

This a natural evolution in a crowded, commoditizing market and addresses a very important challenge. “Today’s app stores throw the high value apps together with the low value ones into the same pool. The top-10 listings are based on number of downloads in most cases. There needs to be better segmentation, so that high-quality applications can be seen as quality applications”, notes Sebastian-Justus Schmidt, CEO of SPB Software, a software house which makes 6 of the top-10 best selling applications in the Windows Mobile space and has the best selling product across all platforms according to Handango.

Indeed, the iTunes Store practice of dividing and conquering among application developers does not create, but destroys value – as can be seen from the continual decline in average app price. Schmitt continues “If you expect to get apps for 1 dollar you will get the quality of 1 dollar”. This observation confirms the necessary emergence of specialized stores; from the cheap & cheerful everything-you-buy-is-1-dollar Store, to the premium Store with perpetual updates and 24 hour customer support for each and every app.

Beyond specialized app stores, recommendations will also play a crucial role in merchandising. ‘People who bought this also bought that’ (aka collaborative filtering) and social endorsement (aka social graph mining) will become key to App Store performance, which is why Nokia has hired some of the brightest minds to work on Ovi Store recommendations. Linardos expects to see major new merchandising and recommendation features appear on the Ovi Store in the next 6 months (perhaps in time for MWC 2010?) and sees Nokia’s global marketing machine as one of the key differentiators in Ovi Store.

Beyond specialisation in App Stores, we expect to also see co-existence of multiple App Stores within the same handset. This is not just a hypothesis. Already LG and Samsung phones shipping in 4Q09 come with four (!) App Stores co-existing within the same handset; one from the OEM, one from the platform provider (Windows Mobile) and two from the operator (SKT – who has their own device- and web- application stores). In this dime-a-dozen picture of the future App Store market, retailing and merchandising becomes an even more strategic element; where the value is in selecting the ‘best’ apps from each application store and auctioning promotion space (paid-for widget real estate) for these apps on the idle screen. This is where JIL and operators should be focusing, rather than trying to photocopy the Apple recipe.

[update:] In response to the many comments, here’s a list of companies who are offering merchandising and recommendations platforms for apps: ApppopularAppolicious, Appsfire, ChorusI use thisMplayit and Yappler.

 

Comments welcome as always.

- Andreas
follow me on Twitter: @andreascon

  • http://www.tieto.com Vinay Kapoor

    Hi Andreas,

    As usual, an excellent blog entry. You are right in pointing out that we will eventually see emergence of App store aggregators, but perhaps their business models may evolve as well. I personally feel that the process of charging the developer a cut for selling the app may itself become outdated and be replaced with something more innovative (ad funded? carrier funded?) as multitude of app stores will at some point start a price war.

    Google could have played that part, but not while Android is still their baby.

    Also, do you think there may be a fault in the view that app stores are like malls which should sell apps for multiple platforms? After all, for an extended period of time, a consumer is interested only in apps for the platform that they use on the phone. Ergo, it is the platform vendor or the OEM who are best suited to the task.

    Finally, as an industry, are we again falling into the trap of obsessing with new shiny objects irrespective of their value? Compared to premium VAS, app stores today are a small player in the mobile services market. Not everyone will get their investment back!

    -Vinay

  • http://www.shanzai.com Tai-Pan

    So what about the Shanzhai Appstore..? purportedly Android apps will be incredibly easy to hack and recompile.

    Eventually there could be an illegal free version of all the most popular apps made available on a Shanzhai appstore.

    http://www.shanzai.com/index.php/market-mayhem/as

  • http://www.ipaystation.com Bruce Burke

    You did not mention the recently released mStore from Telefonica http://bit.ly/10DEi

    With 260 million subscribers worldwide Telefonica's mStore will service more sooner than any other service. Access will be pushed to the handset and provided on all new handsets moving forward. The initial rollout is in Spain but will soon be released to all Telefonica service countries, starting with Movistar customers.

  • http://themobilemontage.com Jonathan Engelsma

    Interesting and well-written article on the current state of affairs with regard to mobile app stores. App stores may well remain relevant for the next couple of years, but eventually it seems movement towards rich Internet apps on mobile makes perfect technical and commercial sense for some of the key stakeholders, not to mention the end user.

  • http://www.aa.com joe

    Just like many other inovations – the first person to come up with the idea is not the one who most profits from it. In this case, Handango who may be the first to sell apps on the internet, will most likely not be the one to win the mobile app war. Giants like Apple and Google were smart to see where Handango would lead the pack then all of the sudden jump in take the entire market by storm thus leaving Handango and the rest of the app stores to fight for the scraps.

    .

    .

  • http://www.aa.com joe

    oops! – sorry for the misspelled words

    .

    Just like many other innovations – the first person to come up with the idea is not the one who most profits from it. In this case, Handango who may be the first to sell apps on the internet, will most likely not be the one to win the mobile app war. Giants like Apple and Google were smart to see where Handango would lead the pack then all of the sudden jump in and take the entire market by storm thus leaving Handango and the rest of the app stores to fight for the scraps.

    .

    .

  • http://www.mplayit.com/fb Craig Dalton

    Great overview of the existing App Stores and future challenges.

    At Mplayit, we recognized an number of years ago that retailing and merchandising was an area in desperate need of attention. With the flood of apps heading towards these new platforms the problem will just get worse and worse.

    We've been tackling this problem head on. As you mentioned, we see social merchandising is a critical element in discovery going forward.

    I'd be happy to give you an overview of the technology.

    Regards. Craig

  • http://www.opengardensblog.futuretext.com Ajit Jaokar

    A great article as usual .. Howvere, when you are talking of appstores for the next two years .. there is one imp trend I see i.e. everyone is creating an 'appstore inside' strategy (like Intel inside). This includes unlikely players like software maker Intuit and Intel itself. So, as you rightly point out – an appstore can be viewed as an ecosystem bolted on to a developer program. This will mean that whatever an appstore touches, it will make it into a platform. This trend has evolved beyond the iPhone and indeed will go beyond mobility itself ex to netbooks and devices like N900, software and hardware). see From Intel inside to appstore inside http://opengardensblog.futuretext.com/archives/20
    keep up the good work :) rgds Ajit

  • http://appsfire.com Ouriel Ohayon

    very insightful post. Specially on the vertical-ization of app stores and the new discovery mechanisms via the social graph (which we are building by the way with http://appsfire.com)

    I would also add that app store will extend beyond smart phones. BMW for eg just introduced a prototyope of app store for cars

    http://www.bmwblog.com/2009/09/14/concept-bmw-app

  • Syed Niyaz Basha

    Once again, excellent work ! Very useful.

    Rgds

    Syed

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

    Hi Vinay,

    > the process of charging the developer a cut for selling the app may itself become outdated

    Indeed. There's money to be made in merchandising and retailing; charging the developer for premium placement, access to backchannel APIs, access to target premium subscribers, etc. So developer could get 100% of share but spend more than 30% of it on marketing :)

    > app stores are like malls which should sell apps for multiple platforms?

    I definitely see aggregation of apps in the ingestion process and marketing/merchandising process (e.g. what JIL wants to do). Of course they will be localised to the language and platform, so platform-specificity becomes as common a part of the process as localisation.

    >Not everyone will get their investment back!

    Absolutely! Much like 3G investments :)

    Andreas

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

    Tai-Pan – agreed, but MTK and OEMs still stand to make substantial revenues for paid-for Android apps.

    Bruce – Telefonica was mentioned as an MNO launching an App Store, although the article didn't go in depth in terms of carrier-specific launch plans. Thanks for the additional info on the Movistar App Store.

    Jonathan – why is a Rich Internet App different to an app? Whether it's apps developed on Symbian, Flash or a Web Runtime, they are all applications. App Stores are less to do with the underlying platform or development language/paradigm, and more to do with the D2C route to market, ingestion, billing and merchandising. So App Stores apply equally to web apps.

    Joe – true, followers have a more disruptive advantage than first-movers. C. Christensen has a good framework describing why this happens.

    Andreas

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

    Craig, Ajit, Ouriel, Syed,

    Thanks for the additional comments and the references. I might add a list of merchandising-related vendors for App Stores at the end of the article.

    Andreas

  • http://www.aa.com joe

    I worked at Handango for 3 years. The company's leadership has not one person left from those who ran it in its inception. They’ve had 3 CEOs and a carousel of executives in the last 3 years. Last year 40% of the workforce was let go, (no hard feelings – its business and everyone understands). The attitude of the workforce still there is not as optimistic as it was just a few years back. Most of those still employed are there for that reason alone, they are employed. It used to be a family. Now it is a place of work. I keep up with them now and then and I hear the same complaint, "It's not how it used to be". Hey, work is work – the bills are getting paid so just do your job (they understand that too). I guess everyone envisioned Bill Gates showing up and buying the business for $1-Billion and everyone getting a nice share to live off the interests. But Microsoft, Google, Apple, and every other carrier decided to develop their own app stores thus taking the wind off Handango’s sails. That too is business. Oh well……

  • http://www.getjar.com patrick

    seems like an awful lot of Android downloads given the number of devices on the market. Has Google disclosed Android downloads publicly? very curious to know the source of this information.

    P

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

    Hi Patrick,

    There is very little reliable data we had to go by for Android. The downloads per month are derived from AdMob's metrics (10 downloads per user/month for August) and downsizing slightly to account for skew in Admob data.

    What are your estimates based on the GetJar experience and what you are seeing from Android devices?

    Andreas

  • http://www.mobinex.biz Israfil Coskun

    Hi Andreas,

    Once upon in a time, there was a so-called competition between device manufacturers and operators about whose customers are the end-users.

    Nowadays, it seems device manufacturers are ahead of the operators due to their unique value add (which is more than MNOs) as you mentioned at key building blocks.

    Within the time, we will see verticalization, agreed but not only in application quality or technologies.If we think that US market players (Apple, BlackBerry, Google) and their end-users are early adopters of the global world; huge mass who simply does not consume english content and apps potentially stays in front of the operators and developers.

    Local market knowledge of the end-users and operators APIs seem keys here.

    I think biggest obstacle for operators is to get close to developers and manage them to increase visibility in this app store wars.

    Do you agree, if so what is the recipe here?

    Best Regards

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

    Hi Israfil,

    Indeed, operators are failing when it comes to attracting developer audiences; this is because they don't address primary developer needs, specifically reaching across a broad addressable market, or reaching out to the right consumers.

    For example, most efforts (like Betavine, Litmus, Orange Partner) are limited in terms of the device market they target (due to choice of specific platforms), they increase go-to-market complexity (due to half-baked app store efforts) and they don't help developers with merchandising or targeting specific user segments.

    I believe the recipe for operators is to let OEMs and platforms run their own app stores, and help developers by bridging across these app stores and allow them to target the right consumer. How do they do that? By using retailing and merchandising techniques using in traditional web stores (for example user profiling, recommendations, and targeting).

    - Andreas

  • Christian Nøk

    Thanks for a great article Andreas.

    I have some thoughts about these issues regarding what will happen in some years. As of today AppStores are ways of monetizing fragments of information allready availble on the (greatest AppStore of them all, namingly the) web through nice graphical user interfaces and thereby creating a lock-in to some OS, platform or HW.

    I hope and think that web runtimes and the emergence of HTML5 (and even the job Adobe is doing with Flash 10.1 and AIR) will make future Apps more independent of underlying platforms and HW (and run seamlessly across desktop and mobile environments) thereby provding the "glue" to finally make content device independent. Obviously games and HW intense applications will have to have a closer tie to the systems they are supposed to run on, but a significant amount of todays Apps are only thin graphical shells fetching some specialized small amount of data from some server on the web.

    The browsers will become the next king of content. And hopefully content (/app) stores will become independent sales and marketing channels. Todays big AppStore players will of course fight to maintain their positions, but the players left out of todays equation might get another chance further down the road.

    So to all you Operators trying to figure out what to do in the AppStore landscape today. Do as Andreas proposes. Offer an over-the-top marketing and recommendation solution and be ready to turn this into a sales channel the day content becomes independent of HW & platforms. (-And engage in the standardisation of widgets (BONDI, OMTP, W3C) etc.)

  • Ioannis Politis

    Excellent Article,

    However, it would be interesting to see what is there to be for B2B applications. How these will be promoted, and more interestingly managed, through application stores.

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

    Christian – thanks for the kind words and support :)

    Ioannis – I suspect B2B app stores will be provided by System Integrators and enterprise solutions companies as an addition to their services package. But it's still early days.

    In 3 years we should see app stores become much like retail stores are today for FMCGs, only more innovative on the merchandising and revenue models.

    - Andreas

  • http://www.nokleby.com Christian Nøk

    Ioannis – Talking about B2B, Microsoft recently announced their intentions of an AppStore for Sharepoint: http://www.readwriteweb.com/enterprise/2009/11/mi

    And Intel is working on an AppStore for Intel Atom powered devices: http://appdeveloper.intel.com/en-us/

  • ASG

    Andreas,

    Many thanks for the timely article. :)

    With regard to the Key Building Blocks matrix, you may wish to consider an additional column for Post-Sale which might include developer backchannel, support, special offers, rewards and cross-sales.

    Cheers

    ASG

  • maheshdixit

    wow what an article. simply love the way you write. I myself have explored the ovi strore of Nokia and i must say the mobile applications available there are superb. If you want to explore the ovi store. To knoe how Nokia’s new Ovi Store ensures developers have easy access to publish their applications, you can take part in the Forum Nokia Developer Conference ’09 to be held in Bangalore this December. http://www.nokiadevcon.in/index.php

  • http://nokleby.com Christian Nøk

    Here is yet another recommendation platform/service: App Popular (http://www.apppopular.com/)

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

    Thanks Christian – I 've added in Apppopular at the end of the post.

  • Krishna

    Very interesting article!!! In fact, i think the most recent developments in mobile applications will be unveiled at the Forum Nokia Conference at Bangalore next month. Looking forward to see some live demos at this big event.

  • Rahul

    use of mobile are increasing very rapidly. Now mobile has all the capability to replace the laptop because every new day new applications are launching on the market.some are developing on java, blackberry,symbian, android, windows.

    Recently spicelabs has launched a new technology MITR which support almost all the platform like java, symbian, blackberry, windows.

    It is in evolutionary stage and they are working for others remaining platforms also .

    so now we can enjoy all the features of laptop on mobile.

    like shopping, games, chatting, emailing, social networking, puzzles, free sms to mobile, these all the application now possible with mobile also.

    so have a look on these application on spicelabs.in sites and enjoy it

    also search for spice app in getjar.

    on these sites u can download these applications absolutely free.

    its a all in one pack so u dont have to download separate for each application all u need to download one application spice application on your GPRS enabled mobile.

    world is changing with more rapid rate that it would ever had in earlier years. so need of mobile is also arising because its not possible to use laptops in public places and carry laptop also a cumbersome process , so i think mobile is going to be a next version of laptops………………………..

  • http://mandra.ankit@gmail.com piyush

    Obviously article is very well written.I just want to add some point in it for ex. now is the time came where we can see a new platform which can support other platform also.

    I have recently seen the MITR a new platform developed by spicelabs.in which support almost all the platform whether its java, whether its symbian, whether its windows,or blackberry.and they tested more than 270 mobile phones.

    I think here user will get what they want because user generally don't know what are the platforms, which platform is supported by his handset.I think this problem can be overcome by MITR.

    for more details click the link below

    http:spicelabs.in

    Thankyou

  • Jo Ritter

    Andreas, great article, thanks much!

    You argue that there will be strong growth in the number of app stores and that, as a result, app stores will differentiate by specializing on specific market segments. "Application mega retailing" you call the trend on http://www.m-trends.org/2010/01/mobile-trends-202….

    While I support this view in general, I expect the deterioration of app sales prices to become a significant opposing force in the game. I wonder about the impact falling app prices will have on the app store growth we all expect. Let me elaborate:

    - Consumers expect apps to be free. There is already so much free content out there so that people will continue to expect even quality content to be free. As you said, the average sales price is falling already…

    - Uncontrollable IP infringements. If you have published a successful app today, you get ten cheaper competitors tomorrow. This trend will even accelerate once web widget sales takes off since those come in plain source code. Essentially there’ll be no technical barrier to copy IP. This lowers the case for both, developers and stores.

    - As retail prices are falling, developers will earn less with app sales. Consequently, they will continue their efforts to develop business models based on in-app sales or services. Example: Layar. However, service sales by-passes the store…

    - The growing number of app stores forces developers to hand off a higher portion of their share to the distribution channels (this is the business model for the app store aggregators). This again forces developers to tab into in-app and service sales.

    So, if app sale prices go down, if the ration between free and paid content goes up and if developers thrive for off-deck service sales models, what’ll be the sustainable business case for app store providers (at least those stores that count on sales revenue)?

    What's your take on these concerns?

    -Jo

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

    Hi Jo,

    Very good points.

    I believe the reduction in app prices is due to the 'discovery bottleneck' imposed by the top-25 lists in App Stores. However discovery channels are expanding (via premium placement, recommendations, friend endorsements, multiple discovery channels, etc). At the same time, there are new types of apps for high-value content (e.g. guardian.co.uk app which sells at 2.39 GBP) custom apps for brands (monetised one-off), up-to-the minutes stock-trading apps, etc and various types of segmentation which allow developers to upsell (technically: exploit the app's perceived value).

    With such a level of sophisticated segmentation and discovery channels, I see price erosion to apply to mass-market channels only. Moreover, consumer expectation on price is also going to be a function of discovery channel (think about shopping Prada vs a no-name brand, and think about shopping Prada in Milan vs a backstreet outlet).

    IP infringement: yes, that is an issue, and one that can be countered outside China or only by discovery/distribution channels that care for IP issues (most channels do these days).

    Re: paying a higher share to distribution channels as app stores multiply: this is a really good point, although I think this will manifest as a "pay-to-use-channel", ie an opt-in marketing fee from the use of a promo channel as opposed to a compulsory rev share reduction. It's the way the FMCG distribution and retailing business works today.

    - Andreas

  • http://www.lucymarx.at/ lucy marx mobile

    To understand the future of app stores one must look not only in their historical evolution, but also in their genetic make-up.

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[With the release of Uber’s API, their ploy to achieve world domination has just gotten a lot more probable. Uber…

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VISIONMOBILE RESEARCH

Research on the app economy and developer ecosystems

App Profits and Costs

AppProfits

This research report examines the critical success factors for a profitable app, and how business and technology choices, such as…

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Developer Segmentation 2013

Developer Segmentation 2013

The Developer Segmentation 2013 report delivers a needs-based segmentation model that actually works, with extensive profiling of the eight principle…

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App Economy Forecasts 2013-2016

App Economy Forecasts

This report investigates the relative sizes of the app economy: developer population by region and platform, distribution of revenues, revenue…

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