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

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-2020.html.

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

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

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