Apple App Store Model Is Not The Blueprint For Success; App Store Providers Will Need To Offer More Billing Mechanisms, More Choice » mobilegroove

In brief: App Store Billing, a new report from Netsize, draws from survey to identify business models that will likely bring app store providers and developers mass-market success. The vast majority of respondents report chief enablers are operator-billing methods, not just credit card billing. However, in-app billing, which puts providers and developers in control, may drive the real revenues.

The Apple app store model – which relies on credit card billing to effectively bypass the mobile operator – may be staggeringly popular in markets such as the U.S. But it doesn’t dictate the direction for the global mobile applications market and the 75+ (and counting) app stores jockeying for position and competitive edge.

Indeed, Apple has been able to capture a large percentage of the apps market from within its own walled garden. Its app store model is inextricably linked with its iTunes content storefront and married to its range of proprietary devices. Thus discovery, download and payment are all part of the same seamless experience. The fact that this approach may actually limit its future market reach (to high-end devices users and owners of credit cards, for example) doesn’t bother Apple in the least.

However, the customer segments Apple ignores (such as featurephone users, youth with credit cards and emerging markets that prefer freemium and ad-supported content models) spell opportunity for the dozens of app store providers and thousands of developers bringing their virtual goods and services to market.

Granted, it’s a tougher play –one that requires providers to cater to a plethora of devices and payment preferences – but the pay-off is worth it.

According to Sizing Up The Global Apps Market, the recent milestone report from Chetan Sharma Consulting (commissioned by independent app store GetJar), app downloads are expected to rise from over 7 billion in 2009 (Asia accounted for a whopping 37 percent of the total) to almost 50 billion by 2012. Revenue is forecast to increase from $4.1 billion in 2009 to $17.5 billion by 2012. Predictably, a variety of models — ranging from paid apps and apps bundled with subscription offers, to ad-funded schemes and loyalty programs that raise brand awareness – will drive distribution and monetization. (Listen in to the podcast with getJar here.]

MAKING APPS PAY

Chetan’s report and the sheer number of app stores (75+ listed here via WIP Connect) confirm the existence of a Long Tail of app stores catering to a variety of customer segments (enterprise, gamers), devices (smartphones, featurephones, netbooks, personal navigation devices) and geographies (Asia, India).

By way of background, WIP Connect reckons 39 out of the 75 stores listed are smartphone-only app stores catering to a variety of high-end devices. However, 26 app stores offer software and content for both smartphone and feature phones, while another three focus exclusively on feature phones.

It’s clear that we are seeing an avalanche of new app store providers. But we are also seeing an increase in the range of payment and monetization models coming online as developers seek to increase flexibility (by supporting pay-per-use, freemium and subscription models) and take more control over the end-to-end app experience. An outcome of this is the new interest in solutions that allow developers and providers to sell content, virtual goods and add-ons from within the app (so-called in-app billing).

NETSIZE SURVEY

What are the components of a good app store experience? An earlier Netsize survey of 1,000+ mobile professionals and practitioners across 67 countries, concluded that the four C’s - Convenience, Compatibility, Choice, and Charging are the top enablers of application store success.

The newest report, aptly titled App Store Billing, delves down deeper in the survey results to identify the payment models and mechanisms likely to deliver mass-market success.

Among the findings:

• The majority (85 percent) of respondents indicated that operator billing is a key enabler for application store mass market appeal.
• Almost half (46 percent) of respondents believe operator billing alone will dominate; 39 percent also include credit card billing in the mix.
• Only 15 percent of respondents indicated credit card billing alone will ensure mass-market success for app store providers.

Put simply, the report confirms that the tenets of Retail 101 hold for app stores everywhere. Retailers (providers and developers) must embrace a variety of business models and payment methods to reach their target audience. Credit card billing may be the rage in regions where Apple has carved out a significant share of the market. But the race is just starting.

As Netsize CEO Stan Chesnais put it in a press statement: “The survey shows providers will need to develop much more than a me-too application storefront modeled on the Apple blueprint. Clearly, to guarantee a seamless user experience and a ubiquitous quality of service, application store providers must support a variety of payment mechanisms including operator billing.”

APP STORE LANDSCAPE

The research also presents substantial proof that a Long Tail of app stores is indeed emerging. To illustrate this exciting trend Netsize has drawn from publicly available research to rank the top 52 app stores by size and the number of applications on offer (as of May 2010). The chart speaks volumes (literally) and can be downloaded with the report here.

Predictably, application stores linked with the Apple iPhone and Android platforms lead the list. However, a substantial number of independent application stores run by mobile operators and independent providers also hold top positions. Indeed, new entrants are breaking on the scene with niche app stores that target a wide variety of customer segments.

DOWNLOAD THE COMPLETE NETSIZE APP BILLING REPORT HERE

My take: Are app stores going the way of mobile portals? It sure looks that way if we add up the numbers (75+ app stores) and note their niche focus on vertical markets (such as retail, enterprise, and even cars.). We will no doubt witness an avalanche of app stores and the emergence of an almost equal number of business models (paid apps, subscription bundles, freemium, ad-funded– and everything in between). To support these app store providers and developers will need to offer a variety of payment mechanisms, including operator-billing. Interestingly, app store business growth will likely be driven by models that put the provider/developer in control of the experience. Top of the list: freemium-type models that offer consumers free applications as a means to cross-sell or up-sell consumers to a variety of paid content and services, ranging from real-world physical goods to digital services. (And we should not underestimate the potential of mobile commerce. It was the business model that Alisa Bowen, Thomas Reuters SVP, told me had the most mileage and would potentially make the most money for content owners – period. Listen in!)

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Continuing the focus on app stores, I’ll be back later this week with a look at Ondeego, an app store that has cleverly chosen to target the mobile enterprise and the needs of workers on the move.

Disclaimer: Netsize is an MSG supporter and client.

This entry was posted on Tuesday, June 1st, 2010 at 1:06 pm and is filed under Briefing Rooms, Mobile Apps, Netsize, White Papers. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.