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MOBILE Surveying the Mobile App Store Landscape By Colin Gibbs
MOBILE
Prepared for Fritz Schrichte (fritz@bustedloop.com)
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Table of Contents
GIGAOM PRO: DEMOCRATIZING MARKET RESEARCH...................................2
MOBILE..................................................................................................................2
Learn More About Our Content 2
Subscribe Today 2
Table of Contents 3
EXECUTIVE SUMMARY.........................................................................................6
EARLY MOBILE-APPLICATION DISTRIBUTION MODELS..................................7
Apple.................................... .............................................10
Competitive Advantages 12
Disadvantages 12
Google......................................................................... .......12
Competitive Advantages 15
Disadvantages 15
THE MANUFACTURERS.....................................................................................15
Nokia .......................................................................... .......16
Competitive Advantages 17
Disadvantages 17
Research In Motion .......................................... ...................18
Competitive Advantages 19
Disadvantages 19
Palm............................................................................ .......19
Competitive Advantages 20
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Disadvantages 20
Sony Ericsson.............................................................. ........21
Competitive Advantages 21
Disadvantages 21
Samsung................................ ............................................21
Competitive Advantages 22
Disadvantages 22
NEW ENTRANTS.................................................................................................22
Microsoft ........................................ ...................................23
Competitive Advantages 23
Disadvantages 23
Verizon Wireless ..................................................... ............24
Competitive Advantages 24
Disadvantages 24
PRIMARY CHALLENGES IN THE APP-STORE SPACE.....................................24
Discoverability of Applications ..................................... ........24
Potential Solutions for App Retailers 25
Potential Solutions for Developers 25
Discoverability of the App Store Itself ..................................26
Potential Solutions for App Retailers 26
Payment Mechanisms .........................................................26
Possible Solutions for App Vendors 27
Application Quality and Availability ....................... ...............28
Potential Solutions for App Stores 28
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SUMMARY TABLE...............................................................................................30
MOBILE................................................................................................................30
CONCLUSION......................................................................................................32
MOBILE................................................................................................................32
ABOUT COLIN GIBBS.........................................................................................34
ABOUT GIGAOM PRO.........................................................................................34
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Executive Summary
The distribution of mobile content is in the midst of dramatic evolutionary step. Until
recently, offerings ranging from ringtones to enterprise/productivity applications
generally were distributed via one of two channels: the carrier deck, which is accessible
from feature phones and typically focuses on games and other consumer-targeted
products; and online, third-party distributors such as Jamba (a longtime provider of
content subscriptions) and smartphone-focused storefronts such as Handango and
Handmark.
But the industry began to undergo a seismic shift last year with the launch of Apple’s
App Store. The channel, which is integrated with the company’s popular iTunes store,
found an immediate audience with both iPhone and iPod touch users and developers
of mobile applications. Apple earlier this year announced its 1 billionth download –
within nine months of the App Store’s launch – and currently boasts a library of nearly
40,000 offerings.
A host of competitors from across the mobile spectrum are in various stages of
following Apple’s lead. Google was first with Android Market, which is built on an
open-source platform backed by a consortium of dozens of key players in wireless.
Research In Motion jumped on the bandwagon in recent weeks with its BlackBerry
App World, and Microsoft, Nokia and Palm – among others — are set to launch
offerings this year.
The motivation to build an application-distribution channel varies from segment to
segment, of course. Apple has long relied on iTunes to help it sell hardware at high
margins, and the company is duplicating that strategy in mobile but also pocketing
revenue on paid downloads. But Nokia – another phone manufacturer – is hoping to
morph into a mobile Internet-services company, using free offerings such as wireless
e-mail to create stickiness with users. Carriers such as T-Mobile USA and Verizon
Wireless are experimenting with new kinds of application stores in an effort to grow
their subscriber bases and, in some instances, to sell devices. Google, interestingly, is
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taking a longer view and forgoing a piece of each transaction in the hopes of boosting
mobile Internet traffic and cashing in on increased advertising revenues.
This report identifies the major players in the application-distribution model and looks
at how the trend will affect carriers, handset manufacturers, developers, content
owners and end users. It also examines key factors that will contribute to the success
or failure of specific app stores including:
• Reach (The addressable base of users/handsets)
• Business models and marketing strategies
• Partnerships/alliances
• Developer ecosystems
• Potential pain points, including push-back from operators
The report also identifies potential newcomers to the mobile space – a segment that is
sure to grow. Wrapping up, we examine general shortcomings in the new app-store
model, what solutions are already needed and how the space will evolve over the next
several years.
Early Mobile-Application Distribution Models
The history of mobile content and applications includes many more fits than starts.
Ringtones – the first non-messaging, downloadable mobile data offering to find an
audience – exploded upon their introduction in the late 1990s, generating $4 billion in
worldwide revenues by 2004. Profits ramped up as ringtones evolved from a series of
monophonic beeps to “truetones,” clips of real singles from original artists, before the
worldwide market began to slide in the last few years.
But no other type of non-messaging application has enjoyed anywhere near the
success of ringtones. In fact, uptake of most apps has fallen far short of expectations,
leaving industry forecasters perplexed and producing armies of confused and
frustrated consumers. Some examples of mobile-app genres that have had historically
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disappointing performance include:
• Games
• The mobile Internet
• Full-track music downloads
• Video/television
• Location-based services (LBS)
• Enterprise/productivity
There is no shortage of factors that can be blamed for such shortcomings. Twelve-key
handsets with tiny screens and limited processing power, overpriced offerings that fail
to live up to consumer expectations, sluggish networks that sometimes require
minutes to deliver even simple downloads – all have contributed to disappointing
mobile-data revenues. But it is becoming increasingly clear that one hurdle has held
the space back more than any other factor: the lack of a viable distribution model
supported by a thriving developer ecosystem.
Mobile applications and services for years were largely limited to two primary
distribution models: The carrier deck — an operator’s branded home page on the
wireless web — where most mobile data users shopped for ringtones and other content
for feature phones; and third-party online retailers that usually leveraged operator-
billing agreements to sell their wares to users of both feature phones and smartphones.
Each of those two models suffers from substantial flaws, however. Carrier decks are
notoriously crowded spaces that often require dozens of clicks for users to find their
desired content, and typically offer no recommendations or other ways to navigate the
library quickly. Just as importantly, carriers have proven incapable of effectively
managing their content offerings: operator-funded marketing of mobile applications
has been weak, and the carriers have failed to woo developers with attractive
ecosystems that provide easy-to-use tools and simple, affordable certification
processes.
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Third-party vendors such as Handango and Handmark have found an audience in the
space selling applications to smartphone users but failed to move beyond early
adopters and gain traction among mainstream consumers. GetJar, a 5-year-old U.K.-
based vendor of apps for both smartphones and feature phones, claims to be the
world’s largest distributor of mobile apps, delivering more than 14 million downloads a
month. Meanwhile, providers such as Jamba and Buongiorno Ltd. have seen modest
success in marketing ringtones to younger users. But that traction has come at a cost
for the industry as a whole. Both companies have been the subject of lawsuits from
consumers and watchdog groups who claim the retailers have fraudulently marketed
their wares to underage consumers and deceptively sold content subscriptions to
minors; the end result has been to create an atmosphere of distrust among consumers.
Finally – and perhaps most importantly — while the carrier deck is easily found on
through almost any phone and service provider, third-party retailers face the
substantial hurdle of drawing traffic to their sites.
Meanwhile, developers have long struggled to bring their applications to market for a
variety of reasons. The feature-phone space is dominated by two platforms: Java ME
(Micro Edition) from Sun Microsystems and BREW, a platform built by Qualcomm.
While both enjoy a large footprint (Java ME has especially broad support), each has its
drawbacks. The tightly controlled environment of BREW, which is well-suited for
CDMA networks, allows developers to port their wares across devices fairly easily but
Qualcomm has drawn criticism for the platform’s rigorous and costly requirements for
developers. The open source Java ME, on the other hand, offers free development
tools but is notoriously difficult to deploy across the wide swath of addressable
handsets – often a carrier mandate for certification — leading to sometimes onerous
porting costs.
Developers for smartphone platforms have also faced difficulties. Symbian – which
was owned by a consortium of mobile players until Nokia took it over last year –
boasts the widest footprint of any mobile OS but has developed a reputation for having
a steep learning curve. RIM’s BlackBerry (which leverages a specialized Java
Development Environment) has drawn praise as an ecosystem for developers but,
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until recently, failed to spur innovative, non-business applications. And Windows
Mobile has struggled with fragmentation issues, requiring developers to target specific
devices within the platform itself.
Apple
Apple began to move the needle in mobile data in the summer of 2007 with the release
of the first iPhone. The gadget featured a breakthrough UI (user interface) that proved
an attractive alternative to QWERTY keyboards and traditional 12-key layouts, and
included an innovative, intuitive mobile browser in Safari. Just as importantly, Apple
backed the handset with a media blitz that demonstrated the device’s impressive
capabilities.
But Apple’s truly revolutionary move came a few months later when CEO Steve Jobs
reversed course and said the company would support applications from third-party
developers. The company made good on its promise the following summer with the
launch of its App Store, a branch of its popular iTunes offering dedicated to downloads
for the iPhone and iPod touch. The online and mobile storefront launched with more
than 500 applications, more than double the number Apple expected. And unlike
carrier decks, which rarely offered even free trials, App Store downloads were available
at a variety of price points -- from free to $70.00 -- from brand heavyweights such as
Facebook, MySpace, Major League Baseball and Bank of America.
The App Store was an instant success, delivering more than 60 million downloads and
netting an estimated $1 billion in its first month. By April 2009 – just nine months
after its launch – the App Store delivered 1 billion downloads, with a reach of 77
countries and a library of 50,000 applications.
The success of Apple’s model can be traced to several key factors, including:
• A broad base of addressable handsets and no unnecessary porting
costs. Apple sold as many as 500,000 iPhones during its opening weekend in
the summer of 2007, and the device continues to gain momentum, with iPhone
and iPod touch sales recently topping the 40 million mark. And while carrier
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mandates often require developers to support a wide variety of handsets in
order to gain space on the deck, they can build titles directly for the iPhone
(and the iPod touch, which shares the iPhone platform and general form factor)
without having to create alternative versions for other handsets.
• A low-cost path to market for developers and an attractive revenue-
share model. The iPhone SDK (software development kit) is available free
and the cost of enrollment in the iPhone development program is $99, which is
far more affordable than most carrier-certification costs. Apple keeps 30
percent of download revenues and allows developers to pocket the remaining
70 percent, creating a far more alluring model than traditional carrier
programs.
• A simple, familiar payment system and a cross-platform shopping
experience. Apple’s App Store is integrated with iTunes, which many
consumers view as a trusted storefront through which to consummate digital
transactions. And the App Store allows users to browse the shelves and make
purchases on a computer – providing a superior shopping experience thanks to
the large screen and full keyboard – or on the handset itself.
• Apple’s Safari browser, a touch-screen interface and the
accelerometer. All of which made the device far more user-friendly than
other handsets on the market, and spurred uptake of mobile applications on
the device. The iPhone consistently ranks among the top devices in usage of
both the mobile web and downloadable applications.
• Big-budget marketing campaigns. Apple – in stark contrast to network
operators, who typically spend vast sums to promote network coverage --
continues to invest heavily to promote its mobile devices, illustrating the
iPhone’s capabilities and ease of use. Apple aired television commercials
demonstrating the web browser and App Store, citing a litany of use cases and
nothing, “There’s an app for that.”
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• The iFund. The $100 million capital fund was established by Kleiner Perkins
Caufield & Byers to seed third-party development of iPhone apps.
The App Store is not without its detractors, however. Some developers have bristled at
what they claim to be arbitrary approval policies that, for instance, have barred some
applications of questionable taste while approving a host of flatulence-imitation wares.
And the App Store’s vast library can lead to discovery nightmares for consumers, who
– just like on the carrier deck – might have to scroll through endless lists of offerings
to find the desired app.
Competitive Advantages
A drastic head start over its competitors has given Apple time to build a large
developer community that can address a large number of handsets with a single build.
Just as importantly, consumers know and trust iTunes, which offers tens of thousands
of applications and – unlike most App Store competitors -- serves as the sole
distribution channel for the iPhone and iPod touch. Apple’s proprietary iPhone OS
allows the company to control the platform, minimizing fragmentation issues. And
Apple not only takes a healthy 30 percent of download revenues, its App Store
business drives revenues for its lucrative hardware business.
Disadvantages
Apple has drawn criticism from developers for a seemingly arbitrary approval policy
for App Store offerings, and exclusive partnerships have resulted in the iPhone
typically being offered through a single carrier per territory (such as AT&T in the U.S.),
limiting the reach of the handset and the App Store that serves it.
Google
Google followed Apple onto the app-store field in the fall of 2008 with Android and
Android Market, , a platform and supporting app store that while very similar
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conceptually differed from the iPhone in several crucial ways. True to form, Apple has
maintained a go-it-alone strategy in mobile, partnering only when necessary. Google,
on the other hand, assembled the Open Handset Alliance, a consortium of dozens of
companies across the mobile spectrum including carriers, handset manufacturers,
chip vendors and software developers. The OHA is centered on Android, a Linux-
based software stack that consists of an operating system, middleware, a user interface
and applications. It is supported by Android Market, an application store that
leverages a user rating system and is currently available in eight markets.
T-Mobile USA was the first carrier to introduce a device built on the Android platform.
The G1 (also marketed as the Dream), an HTC-built phone with a slide-out keyboard
and touchscreen, was introduced [DATE]. The carrier shipped its 1 millionth G1 in
April 2009, underperforming the debut of the iPhone, which sold roughly 1.4 million
units in its first four months. (Apple sold 21.4 million iPhones through March 2009.)
But Android is poised to expand aggressively in the coming months: a second HTC
handset, the Magic, has launched in six markets so far this year and reportedly is
slated for a U.S. debut through T-Mobile by the end of the year. (In fact, T-Mobile USA
has vowed to release “multiple” Android handsets from three vendors in 2009.) OHA
member Samsung’s Galaxy will be released in France and Germany in mid-2009
before hitting other regions, and other manufacturers with Android devices in the
works include Motorola, Huawei, Lenovo and Kogan Technologies.
Other differences that underscore the contrasting strategies between Apple and Google
in mobile -- and further sets the playing field for today’s app-store space – include:
• Unlike Apple’s proprietary iPhone OS, Android is an open source
platform based on the Linux OS. While that allows all the players in the
value chain great flexibility in customizing the platform for their own interests
– modifying the user interface, for instance, or tailoring the platform to specific
devices – it risks creating a fragmented environment where some applications
run on some devices (or sub-platforms) but not on others. That danger is only
magnified by the vast number of important players in the Open Handset
Alliance, and could result in a segmented Android Market where a user must
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set parameters for supported applications based on the handsets and/or
carrier.
• Android Market appears to be a surprisingly attractive marketplace
for carriers, while still distributing 70 percent of download
revenues to developers. Google claims the remaining 30 percent goes to
unspecified “operating costs” which presumably include a stake for its carrier
partners. Apple, on the other hand, employs a straight revenue-share model,
keeping 30 percent of the revenues itself, granting developers 70 percent and
leaving carriers out of the loop. So while Android Market has more appeal for
carriers in terms of revenue, developers take the same percentage from both
outlets.
• Google has shown almost no interest in regulating Android Market
applications. Apple closely monitors its App Store, regularly weeding out
applications that users may find offensive or otherwise controversial. Google,
on the other hand, allows developers to upload their wares directly, and
generally has stepped in only to block apps that tethered devices to laptops.
(Google restored tethering apps in most cases, but continues the ban for
customers of T-Mobile USA.) Each strategy has distinct advantages: Apple’s
approval policies sometimes appear inconsistent or even arbitrary, drawing the
ire of developers whose apps are rejected and who have no other avenue of
reaching iPhone users. But Google’s anything-goes stance surely has ruffled the
feathers of some network operators, who often must deal with the costly
proposition of irate customers when an application disappoints or a download
isn’t completed.
Apple enjoys the luxury of leveraging its popular iTunes application as a billing
mechanism, allowing users to establish a single account to pay for mobile downloads,
songs, videos and other content across a host of devices. Android Market faces a
steeper challenge, however, in consummating all transactions through Google
Checkout, which some users are surely unfamiliar with. Google would surely boost
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uptake by employing carrier billing but then would forfeit the 30 percent transaction
fee – its sole revenue play in Android Market.
Competitive Advantages
The platform has secured support from a broad range of players across the mobile
spectrum, including key operators and handset manufacturers. Developers appreciate
the laissez faire environment of Android Market, which allows them to upload apps
and sell them unencumbered (in contrast to Apple’s App Store). Android Market has
grown to house more than 6,000 apps, and Google Checkout provides a revenue
stream for Google and also allows carriers to share the wealth with developers. While
the overall number of Android handsets on the market is still relatively small, multiple
ODMs and carriers are planning to launch – or expand – Android offerings in coming
months.
Disadvantages
Android’s initial handset – the G1 from T-Mobile USA – received tepid reviews, and
other handset deployments began occurring only a few months ago. And while
Android has widely been praised as a mobile OS, some onlookers have expressed
concern that an open-source platform that isn’t tightly controlled could become
fragmented, resulting in a host of Android versions with different brands and user
interfaces.
The Manufacturers
Handset manufacturers appear to be the strongest players in these early days of mobile
application stores. And while most app stores take a cut of download revenues, the
primary business case for handset makers is slightly more sophisticated than just
shared revenue: By attracting developers and offering compelling applications,
manufacturers hope to gain market share and generate revenues from hardware –
which is a far more lucrative business. The strategy builds on Apple’s iTunes, which
generates modest margins but fuels sales of high-margin iPods, iPhones and other
devices. (Apple isn’t technically an ODM – original device manufacturer – as iPhones
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are assembled by third-party companies. We categorize Apple as a manufacturer in
this report, however, for business-model purposes.) The primary players in this space
include:
Nokia
The Finnish company boasts an enormous base of handsets, claiming a 39 percent
worldwide market share of handsets overall in 2008 and a 41 percent share of the
smartphone space in the fourth quarter of last year. But the company’s dominance in
smartphones – the high-powered devices that are driving mobile application usage – is
fading, with market share eroding by 10 percent in the fourth quarter of 2008. That
trend is likely to continue as new platforms (Android) and handsets (the Palm Pre and
RIM BlackBerry models) gain traction. And while Nokia is the overwhelming
manufacturer of choice in emerging markets – where fixed-line Internet connections
can be scarce – it is losing ground in the Western markets that are fueling app store
growth.
Nokia’s app store play is a component of Ovi, an umbrella brand of mobile Internet
services that includes a host of offerings, from wireless e-mail to music, navigation
applications and social networking features. The Ovi Store launched recently in eight
worldwide markets (a U.S. debut is slated for later this year) with 20,000 items
including free and paid apps, wallpapers, ringtones and podcasts. The store is
supported by an estimated 50 million handsets, and Nokia has struck carrier-billing
deals in some markets. Like Apple, Nokia takes 30 percent of download revenues and
passes the remaining 70 percent to developers, although operators that provide billing
services will generally keep 40 percent off the top before the revenue split kicks in.
As impressive as the Ovi Store is in scope, however, Nokia may have been overly
ambitious in rolling out the service. While the company appears to have addressed the
traffic issues that plagued the launch, users continue to complain of applications that
disappear from menus, user-interface challenges and performance inconsistencies
from market to market. Also, Nokia’s biggest competitive advantage — a huge base of
devices in the hands of consumers — may prove to be a liability if developers fail to
address many models, leading to a potentially splintered app store and a confusing,
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frustrating shopping experience. Meanwhile, Symbian – a 10-year-old smartphone OS
that accounts for 50 percent of the market and was acquired by Nokia last year – has
yet to offer a dedicated app store despite months of widespread rumors.
The biggest hurdle for Nokia in the U.S., however, may prove to be a lack of
cooperation from carriers, who may view Ovi as a threat to mobile-data revenues. Such
deals are critical in the U.S., where prominent on-device placement and hardware
subsidies are necessities for mobile data usage. But Nokia has a history of provoking
carriers with on-device entertainment portals, and has yet to reach a billing agreement
with a stateside operator, potentially forcing would-be buyers to type in credit card
information for every purchase. U.S. carriers are warming to the idea of partnering
(sometimes exclusively) with other players in the space, as demonstrated by tie-ups
such as AT&T/Apple, Sprint/Palm’s Pre and T-Mobile USA/Android. But network
operators are unlikely to forge many such alliances, fearing brand dilution and the risk
of confusing customers. The clock is ticking on Ovi Store’s prospects in the U.S., and
the service may have to gain critical mass in Europe and elsewhere to encourage
American operators to support it. And that’s a very tall order.
Competitive Advantages
Nokia boasts a massive base of addressable handsets, both among smartphones and
feature phones. (Ovi offers apps for both Symbian- and Java-based Nokia handsets.)
The company has a formidable presence in Europe as well as emerging markets, and
its brand is recognized worldwide. Interestingly, a key differentiator for Ovi is the
scope of its offerings – Nokia seeks to become not just an app retailer but a social
networking provider and a cloud-based service provider, among other things.
Disadvantages
Nokia has failed to gain much traction in North America, and its global dominance is
slipping even as the overall smartphone market gains ground. The company’s vision
for Ovi, while impressive, may be overly ambitious in a market where so many players
are rushing simply to get a mobile app store online, and Ovi faces a formidable task in
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creating an app store to address a wide variety of handset models. (That ambition may
have been a factor in Ovi’s inauspicious debut.) While Symbian remains the most
popular smartphone OS on the planet, it has yet to develop the kind of simple, intuitive
user interface that some of Nokia’s competitors have built.
Research In Motion
RIM doesn’t enjoy the smartphone marketshare Nokia claims, but the BlackBerry
maker is closing the gap on the dominant Finnish company in a major way –
particularly among U.S. consumers. RIM’s share of the American market expanded to
19.5 percent in fourth quarter 2008, according to Gartner Research, and BlackBerry
models accounted for three of the top-five selling smartphones in first quarter 2009.
(The BlackBerry Curve claimed the No. 1 spot, ousting several consecutive first-place
performances by the iPhone, thanks largely to an aggressive sales promotion from
Verizon Wireless.)
RIM launched its App World earlier this year and is gradually rolling out the service
worldwide. Developers are charged a $200 registration fee but keep 80 percent of
download revenues, with RIM pocketing the remaining 20 percent; carriers receive
nothing. App World’s library is impressive, with hundreds of applications available for
free or for $3 and up. (Interestingly, App World doesn’t support premium apps priced
less than $3.) Users have complained that App World is heavy on more expensive
applications, however, which seemingly contrasts with Apple’s strategy of offering
thousands of bargain-basement offerings. While the strategy may be an effort to
leverage RIM’s user base of road warriors and high-powered executives with deeper
pockets, it doesn’t appear to be a path to the kind of hockey-stick uptake Apple has
enjoyed.
And the BlackBerry ecosystem has drawn complaints from the developer community.
Five versions of the BlackBerry SDK exist – due to RIM’s relatively long history in the
space – leading to a lowest-common-denominator environment that requires
developers to choose between offering more sophisticated applications or addressing
the widest swath of handsets. (Similarly, developers have complained that earlier
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BlackBerry models suffer from severe memory limitations.) And RIM’s widespread
deployment across operators and networks has led to a host of different network
transports, each of which is implemented as an isolated transport.
Competitive Advantages
RIM’s reputation among enterprise users is iron-clad, and the company is successfully
expanding its audience to include lower-end business users, prosumers and even
consumers without a business need for a smartphone. App World surpassed the
2,000-application mark less than three months after its launch by pent-up demand
from an already-installed user base and developers looking to tap that base. Also, the
company’s phones are offered by a wide variety of carriers with a strong presence in
North America – which is a leading market for mobile apps.
Disadvantages
RIM’s longstanding presence in the space has produced five BlackBerry SDKs, which
in turn has led to a somewhat fragmented environment in which developers must
choose between building simpler apps that are supported by a wide swath of
BlackBerry handsets or more sophisticated offerings that run on fewer models. And
because App World cuts operators out of the revenue chain entirely – eschewing
carrier billing for a PayPal-powered service and sharing download revenues with
developers only – it risks being ignored by wireless service providers such as Verizon,
which has said it won’t sell handsets that have App World embedded on them.
Palm
The venerable manufacturer seems to have regained its relevance with Pre, a
smartphone using Palm’s new Linux-based webOS that was released by Sprint in June
2009. But while the device and platform have garnered positive reviews – and webOS
has been deemed Palm’s most valuable asset – Pre sales have been tepid, due in part to
inventory shortages (that may have been planned in an effort to drum up publicity).
Interestingly, a study found that the Pres sold at launch were purchased by existing
Sprint customers, failing to lure users from other carriers.
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Palm, too, is struggling with developers in the infancy of webOS. The company has yet
to build a substantial app library, with roughly 30 apps available two weeks after the
Pre’s launch. (Pre owners have shown a remarkable hunger for applications, however,
with the phone generating an estimated 1 million downloads in its first two weeks.)
And the portfolio isn’t expected to grow substantially for quite a while: although select
developers have had access to Palm’s new SDK, dubbed Mojo, it won’t be available to
most developers until late this summer at the earliest.
The new device and OS may have suffered due to Palm’s exclusive deal with Sprint,
which has lost substantial ground as AT&T and Verizon Wireless have gained market
share. Sprint has seemingly stanched the bleeding with bargain-basement, all-you-
can-eat data plans, but thus far has declined to back the Pre with an aggressive
marketing campaign. So Palm’s best hope for the Pre likely hinges on support from
competing carriers. Both Palm and Sprint have declined to discuss terms of the
exclusivity, but Verizon has hinted it will carry the Pre beginning early next year. That
move could be a huge boost for the Pre, especially considering Verizon’s proven
success in promoting high-end handsets.
Competitive Advantages
The Pre has drawn very positive reviews from analysts and users, and webOS is an
undeniably attractive platform for both developers and consumers. Just as
importantly, Verizon is set to offer the Pre beginning early next year, which should
drastically expand Palm’s reach.
Disadvantages
Neither Sprint nor Palm has backed the Pre with the kind of big-budget marketing
campaigns that have fueled iPhone sales, and Pre shipments have failed to impress
most analysts. Palm has been slow to release its webOS SDK, which has prevented the
Pre app store from growing its library in the early days of the device.
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Sony Ericsson
The manufacturing joint venture between Ericsson and Sony Corp. is aggressively
expanding PlayNow arena, an app store with roots in the ringtone business. PlayNow
arena currently offers more complex content, including full-track downloads and
movies, and is soliciting apps supported by SE devices running Java and Symbian. The
app store will support 38 handset models at launch – with more expected in short
order – with distribution spanning nearly six dozen markets. SE promises multiple
billing mechanisms, including carrier billing, and developers will keep 70 percent of
net revenues – presumably after carriers take their share – of downloads. While the
store has yet to launch, it appears developers will be able to distribute their wares free
– with no submission, certification or annual charges. The store will also offer content
from GetJar, an independent, UK-based retailer of mobile content.
Competitive Advantages
An impressive worldwide footprint and base of addressable handsets shows promise,
and an apparent lack of any developer fees may lure new apps. The company’s
willingness to employ multiple payment mechanisms provides flexibility in serving
consumers and partnering with others in the value chain, and may help secure carrier-
billing relationships that could prove crucial to its success.
Disadvantages
SE is sure to have trouble supporting such a broad range of handsets in so many
markets, and the storefront may not receive support from network operators unless it
secures carrier-billing agreements. Also, Sony Ericsson has lost market-share in the
overall handset market recently due to its focus on mid-range phones – a costly
mistake at a time when the markets for both high-end smartphones and low-end
models have thrived.
Samsung
The Korean ODM has already launched a beta version of its branded app store,
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focusing primarily on the UK and Germany and supporting a modest 13 handsets – up
from 11 at its January debut – running Symbian and Windows Mobile. The store has
yet to offer carrier billing, requiring users to supply credit-card information or use a
PayPal account, and is accessible only via computer – not from the handset itself. The
relatively small library of apps leans heavily to high-end offerings, with many offerings
priced between $10 and $40. The portfolio will surely expand to include Android
devices in coming months as Samsung begins to offer phones supporting the OS.
Competitive Advantages
Samsung may be wise to dip its toes into the app-store waters by supporting only
several handsets rather than ambitiously targeting dozens of models. Like Sony
Ericsson, Samsung charges no initial costs for app submissions, and developers take
70 percent of download revenues.
Disadvantages
Although it’s been on the market for more than six months – a respectable period in a
space where new storefronts come online every few weeks – Samsung’s app store still
has an experimental feel to it, as if the ODM is hoping only to fill a temporary need
while other app vendors (such as Windows Marketplace and Android Market) gain
traction . Also, until carrier-billing agreements are struck and a mobile storefront
comes online, uptake is sure to be minimal.
New Entrants
While it may seem the app-store space is already crowded, the segment will see a
substantial number of new players before much consolidation occurs. We expect to see
ambitious carrier deployments in the next one to two years, most of which are likely to
be powered by white-label app-store operators such as Qualcomm’s Plaza Retail and
Handango, a longtime smartphone-application vendor that several months ago
announced a white-label solution. A few of the key players expected to launch app
stores in coming months include:
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Microsoft
The software behemoth recently began accepting submissions for Windows
Marketplace for Mobile in support of Windows Mobile, which claims a 12.4 percent
share of the worldwide smartphone market. While Microsoft has yet to divulge details,
it has said it will support both credit-card and operator billing, and the storefront will
be supported by an impressive 30 million devices. The company will wisely try to tap
its enterprise-heavy base with Windows Marketplace Business Center, which will
include apps from business-focused developers – presumably separating the silly,
iFart-type apps from more productive, and lucrative, offerings. And Microsoft hopes to
differentiate its store from Apple’s with a progressive, user-friendly shopping
experience that stresses improved discoverability, multiple platforms and payment
options, and a simple money-back guarantee. Whether the company can actually
deliver on some of those promises has yet to be determined, however.
Competitive Advantages
While the platform remains a primarily business-oriented mobile OS, it maintains a
respectable market share in the smartphone space and Microsoft’s high profile should
not be discounted. Microsoft’s focus on high-end executives is underscored by its fee
structure: $99 buys developers five submissions a year, with additional apps charged
at $99 each. The strategy could serve as a filter, minimizing the number of frivolous
entertainment offerings and maximizing opportunities for more expensive,
productivity apps.
Disadvantages
While some of its competitors gain traction courting more mainstream users,
Microsoft may paint itself into a corner with more enterprise-focused apps. More
importantly, Marketplace for Mobile is tied to the success of Microsoft’s OS, which is
in dire need of an overhaul if it hopes to expand beyond hardcore business types. And
Windows Mobile 7.0 isn’t expected until next year, which will give competitors such as
Android and Palm’s webOS plenty of time to gain market share.
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Verizon Wireless
The nation’s No. 1 carrier will launch its V Cast application store in the fourth quarter
of 2009, promising developers a 14-day time-to-market and, like many competitors,
70 percent of download revenues. The store will support free apps in an effort to
encourage new users to consume mobile offerings, and Verizon vowed to include APIs
(application programming interfaces) to help developers leverage assets including
location, messaging, presence and billing information.
Competitive Advantages
Network-specific information such as location and messaging could give Verizon a
huge edge in helping developers build compelling applications, and the ability to
embed an app store on handsets before the point of sale cannot be overstated –
especially for the nation’s largest carrier. Also, Verizon has developed an impressive
ability to market its wares in the era of the smartphone, as evidenced by its role in
helping the BlackBerry Curve outsell the iPhone in the U.S. in the first quarter of 2009.
Disadvantages
Verizon is taking a substantial risk in forcing consumers to actively download
competing app stores such as Android Market and RIM’s App World onto their
handsets, rather than allowing them to come pre-installed. Verizon also has a
decidedly unimpressive record when it comes to retailing its own mobile data services,
as evidenced by disappointing uptake of entertainment offerings such as full-track
download offerings and V Cast Video.
Primary Challenges in the App-Store Space
Discoverability of Applications
While the cross-platform nature of most app stores has made searching for
applications easier than traditional carrier decks, finding a specific app or genre can be
still be difficult – especially in Apple’s App Store, which boasts 65,000 titles. User-
rating systems such as those employed by Android and Apple’s App Store can be
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helpful but also tend to serve as self-fulfilling prophecies where offerings remain
popular for popularity’s sake. So a disconnect remains between developers – who find
it increasingly difficult to draw attention to their app – and users.
Potential Solutions for App Retailers
• A combination of user reviews and recommendation engines that can
lead users to applications they are particularly inclined to appreciate. Such
systems have boosted the popularity of online vendors and services like
Amazon.com and Netflix.
• Promotion of specific apps through traditional media (such as Apple’s
“There’s an App for That” television commercial) and social networking sites.
• Better user interfaces and cleanly organized stores. Genres should
expand beyond simply “entertainment,” “productivity” and “lifestyle” to include
a host of possibilities such as music, video, location and exercise. And vendors
should tailor mobile storefronts for the constraints of the device, providing a
cleaner and simpler user interface than their computer-centric counterparts.
Potential Solutions for Developers
• Brand your apps wisely and market them effectively. Fund an ad
campaign, if possible, specifically targeting users who are most likely to be
interested in your app. Use social networks such as LinkedIn and Facebook to
promote the offering and encourage (and possibility incent) users to
recommend the app to friends. Post a video on YouTube to demonstrate the
software, and try to work with app stores to optimize product placement.
• Offer free, stripped-down versions to introduce users to premium
apps. iShoot, a $3 tank game for the iPhone, gained tepid uptake when it was
released last fall but sales soared after a free “Lite” version was released a few
months later.
• Make sure bloggers and key media people get a chance to play with
and write about your app, especially at launch time or soon thereafter.
• Move quickly to fix bugs or other hang-ups. Engage with users online,
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through message boards, and install in-app “tell-a-friend” features.
• Consider building franchises of successful apps by creating sequels under
the same brand.
Discoverability of the App Store Itself
This has yet to be a substantial problem, as the few app stores that have been on the
market for any considerable period of time (Apple’s App Store and Android Market,
most notably) have enjoyed both substantial marketing campaigns and the luxury of
being embedded on handsets at the point of sale. As other outlets come to market,
though, drawing users will become more of a challenge.
Potential Solutions for App Retailers
• Carrier relationships. Nothing can draw eyes like having prominent
placement on the handset itself.
• Cross-platform promotion and marketing. Team with handset
manufacturers, media companies and other high-profile players to lure users to
your storefront. More specifically, identify and target your audience: RIM
might do well to advertise App World on mobile sites from Bloomberg and
CNN, for instance, while Android could leverage its relationship with Google to
deliver search ads related to mobile entertainment.
Payment Mechanisms
Apple effectively addressed the issue by making its App Store a component of iTunes,
which has a broad user base and has earned a reputation as a reputable mechanism for
digital transactions, but other vendors have several factors to consider. Carrier billing
provides the path of least resistance for consumers but can be prohibitively costly for
developers. However, customers are often hesitant to enter credit card information via
a mobile device for both security and practical reasons – especially if the input is
required for every purchase.
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Possible Solutions for App Vendors
• Carrier billing. Partnerships wherein the network operator bills for
application are ideal for the consumer, eliminating issues of trust and
impracticality. And – perhaps most importantly – operators still determine
whether app stores are embedded on handsets before the point of sale or,
alternatively, must be downloaded by consumers post-purchase. Verizon
Wireless, for instance, recently drew considerable flak for announcing it will
not embed Android Market or RIM’s App World on its smartphones, opting to
package handsets only with its own branded app store. The stance is sure to
negatively affect downloads from the two stores, as some Verizon subscribers –
particularly less tech-savvy users – will choose to buy from the embedded
storefront instead of downloading a retail offering the may not even know
exists.
• While companies such as Bango have gained traction serving as a transaction
middleman between content providers and operators, carrier billing systems
continue to suffer from “leakage” – lost revenue due to charge-backs,
improperly delivered downloads, etc. Further, operators – who are likely to
remain the primary customer-service contact for disgruntled users – typically
demand some control over app-store management in an effort to reduce
customer-care costs. More importantly, carriers generally charge 30 percent or
more of download revenues for billing services.
• Third-party transaction providers. PayPal (which handles billing for
RIM’s App World) has earned its reputation as a trustworthy third-party
digital-transaction company, but it has yet to truly gain mass-market
acceptance: the company manages 183 million accounts, but only 73 million of
those are active. So while many consumers are aware of PayPal, app stores
looking to employ the service will be asking many customers to establish
accounts through the company – which may prove difficult.
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• Single-entry, stored credit card accounts. Apple has built its iTunes
business on users’ existing credit cards, requiring them to use credit accounts
to purchase digital goods. But consumer confidence is still difficult to win for
newcomers to the app-store space. There are distinct advantages to creating a
single-entry, stored credit card system similar to those employed by Amazon,
Apple and PayPal, among many others. But building a storefront that makes it
easy and comfortable for consumers to share their credit card information is
still a major hurdle.
Application Quality and Availability
The very brief history of app stores teems with success stories from developers who
have struck gold with novelty apps that replicate the sound of flatulence or cover an
iPhone’s screen in virtual steam. Such offerings are often available for a dollar or two
and sell in impressive numbers to consumers who use them for a few days before they
are forgotten. But their success has also served to crowd stores with imitators, making
it that much harder for more practical apps to find an audience and resulting in lower
ROI for developers of practical apps.
Potential Solutions for App Stores
• Create specific genres of useful apps that are likely to be accessed time and time
again. Possibilities include navigation offerings, financial apps (both personal
and professional) and personalized news feeds.
• Work with developers to build and market practical applications that fill
specific needs.
• Establish subscription models for applications that are particularly well-suited
for consistent, repeated use. Apple has generated substantial revenues with
one-off sales, but app stores that couple subscription models with compelling
apps that demand repeated use on a regular basis – an enterprise-focused
package-tracking app, for instance, as opposed to a fart simulator -- could
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create a strong new stream of recurring revenues.
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Summary Table
Android BlackBerry iPhone Symbian webOS Windows Mobile
Nokia, via the
Google (supported
nonprofit
Company by the Open Research In Motion Apple Palm Microsoft
Symbian
Handset Alliance)
Foundation
Expected to reach
Addressable
5-8M by end of 20M 21M 50M 500,000 30M
handsets
2009
Developers page
LINK LINK LINK LINK LINK LINK
URL
Store available on Yes/TB
Yes/No Yes/Yes Yes/Yes Yes/No Yes/TBD
phone/desktop? D
Exclusive app No. (Handango, No. (Handango,
No. (Handango
store? (Other Handmark, Verizon Yes/Yes No. (Handango) TBD Handmark, MobiHand,
and OnlyAndroid)
vendors) Wireless) Pocketland)
Storefront
URL/download LINK LINK iTunes LINK N/A LINK
page
$99 standard reg. fee; $99 per app; fee is
Submission $200 for reg. and app $299 for companies with waived for first 5
$25 reg. fee $0-200 annually N/A
requirements submission (refundable). > 499 employees creating apps/developer before
proprietary, in-house apps Jan 1., 2010
10 apps; $200 buys 10
Submission limits Unlimited Unlimited Unlimited N/A Unlimited
more
Must be approved by Must be approved by
RIM, which can reject Apple, which can reject
Must be Extensive, and detailed
Approval policies None apps based on apps based on N/A
Symbian signed here
controversial content or controversial content or
other issues. other issues.
Payment Credit card; carrier
Google Checkout PayPal Credit card No N/A
mechanism billing
Continued on following page
Surveying the Mobile App Store Landscape © Giga Omni Media | August 2009 - 30 -You can also read
