CENTER STAGE: App Avalanche: Mapping Out Winners & Winning Strategies
In brief: The “best of” series showcases Netsize Guide 2010 interviews and insights that set the bar. We take a look at new entries and recount the lessons in a contribution from Andreas Constantinou, Research Director at VisionMobile. PLUS details on a new app store report that offers business model advice and exclusive stats.
The app store market continues to grow beyond expectation.
GETJAR & APPCITY.COM
Last week GetJar, the world’s second largest mobile apps store, hitting a landmark one billion downloads. (My personal thanks to GetJar CMO Patrick Mork for keeping MSG in the loop and inviting me to the company’s well-deserved exclusive drinks soiree and celebration tomorrow in London. Client work has to come first this time – but I raise my goblet of Rock to the great guys at GetJar from my office near Cologne.)
At the other end of the spectrum, we see the entry of Paris-based AppCity.com. Billed as the “first global online store for mobile applications” (whatever that means), the destination offers smartphone subscribers (iPhone, Android, Nokia Ovi, BlackBerry, and Windows Mobile users) access to its current catalog of more than 225,000 apps. (Indeed, this road test via IntoMobile suggests that the new app store is more like an app catalog.)
But the real news is the business model, not the user experience. Specifically, AppCity.com offers a combined advertising-supported and subscription-based business model, and has integrated its billing platform integrates with regional and carrier payment systems to process payments.
The aim, according to Paul Amsellem, CEO and founder, is to deliver a global store for the long tail of apps and take advantage of a new trend. As he puts it in a press statement: “Just as mobile carriers evolved from minute-based pricing to monthly voice plans, we can see a trend toward unlimited app plans, and AppCity.com will be the first global provider of multi-platform apps.”
ARE APPS A RISKY BUSINESS?
Apps stores are growing from strength to strength. But what are the business models and strategies that will drive positive results and deliver clear differentiation?
In his contribution to the Netsize Guide 2010 Andreas Constantinou, Research Director at VisionMobile, a market analysis and strategy firm delivering market know-how to the mobile industry, describes the current state of the market and delves into what companies will need to make a business out of this new channel. His key takeaway: Everyone is convinced that opening one of these software super-malls is a sure-fire way to secure a central – and profitable – position in this emerging business ecosystem. But nothing could be further from the truth.
To understand what lies ahead for the dozens of companies competing for our attention and our wallets, we need to go back in mobile software history. Nearly a decade ago, platforms such as BREW, Symbian, Windows Mobile and Palm introduced APIs (Application Programming Interfaces), allowing third-parties to develop content and services on top of their platforms.
However, the focus of these ‘open’ platforms was more on technology and less on the commercial tools that would allow developers to make money. These open platforms made developers jump through hoops in order to reach direct to consumers. In retrospect it took Symbian six years (!) to reach 10,000 applications. Fast forward, and it took Apple only six months to achieve the same results. In fact, in the first year of operation, Apple’s App Store counted 65,000 apps, 100,000 registered developers and 1.5 billion application downloads
How did Apple do so much better than its predecessors? Apple figured that streamlining the commercial route to market was more important than opening up APIs. On the developer end, Apple reduced the number of middlemen, taking out the operators, content aggregators and content retailers who were eating 60 percent or more of the retail price. On the consumer end Apple took out the obstacles for application discovery and enabled one-click purchase. What better way to win developers and secure a growing demand for apps?
CROWDED HOUSE
Of course, Apple now has company.
At VisionMobile we have analyzed the five most prominent app stores (App Store, Android Market, Ovi Store, Handango and GetJar). We also identified an additional 19 white label application store enablers and vendors. They have emerged over the last months in response to companies across the ecosystem – including chipset vendors and media companies – clamoring for the tools and technologies to set up shop. These white label providers include: Amdocs, Cellmania, Comverse, Ericsson, Everypoint, GetJar, Handango, Handmark, Ideaworks 3D, Javaground, Mobango, PocketGear, Ondeego, OnMobile, Qualcomm, SlideME, Sun Microsystems and Tanla.
The chart above sheds light of the key performance indicators that characterize the size and scope of each app store. However, winning is not about size; it’s about orchestrating capabilities and partnering to fill the gaps within the complex app store recipe.
At first glance, the formula for any company that wants to follow Apple’s lead seems simple enough. They must provide a go-to-market vehicle for allowing developers to distribute and retail their applications directly to end-consumers, and be sure to remove the middlemen from distribution and retail along the way. An on-device app store would be nice, too. Right?
Wrong – if only it were that simple.
BUILDING A BUSINESS
At VisionMobile, we have identified five key building blocks that define a winning app store model. These are:
- Developer Marketplace, i.e. the process for submission, certification, targeting and pricing of applications.
- Billing & Settlement, i.e. providing mechanisms for billing, settlement and reporting of application sales, as well more imaginative monetization models such as subscription, gifting, and cross-app billing (where the credit paid through one app is valid for use in another app).
- Distribution Surface, i.e. the addressable market for an app store that spans handset OEMs, operators and geographical regions and the ability to provide application distribution across all of these points.
- Delivery & In-Life Management, i.e. the mechanisms enabling app download, silent install, in-place access, app licensing and in-life app management ensuring that apps can be downloaded, activated and updated auto-magically.
- Retailing & Merchandizing, which covers the gamut of tools and technologies around application discovery, promotion, premium placement, personalization, recommendation and search.
How is this new business ecosystem shaping up? And what roles and responsibilities will each player have in this value creation web?
HIDDEN TALENTS
There are no easy answers, but our analysis highlights the key areas where players can add value and should therefore focus their efforts.
It should come as no surprise that mobile operators, based on their billing relationship with the customer and their insights into customer data including profiles, preferences, purchases and browsing patterns, have an important role to play. Specifically, they bring two building blocks to the table: Billing & Settlement and Retailing & Merchandizing. However, operators are weak on all other fronts.
Against this backdrop, the Joint Innovation Labs (JIL) – a joint venture between Vodafone, Verizon Wireless, China Mobile and Softbank Mobile to develop a one-size-fits-all super store – is far too ambitious.
Why? Because JIL and efforts like it are trying to extract value where they cannot add value – for example, operators should not meddle with running developer marketplaces as they are worst suited in understanding and attracting developers.
At the other end of the spectrum, OEMs and platform providers are indeed well-positioned to create and cultivate developer communities. They have tools, platforms and a long-established process for submitting and certifying apps. Distribution is also a core strength. While operators can distribute across their footprint (often up to a third of regional subscribers), handset makers and platform providers are global. OEMs can integrate apps within the device, easily distribute these across multiple regions and manage all the ‘magic’ happening in the background when a user downloads/installs an app.
So what’s next? The previous table summarises our expectations for how each ingredient in the app store recipe will evolve. One of the most untapped areas of app store value is in the final piece of the chain; Retailing and Merchandising. Which is why so many startups have emerged in the last 6 months to play in this arena, namely Apppopular, Appolicious, Appsfire, Chorus, Mplayit and Yappler.
We also see business opportunity in extending beyond B2C apps towards B2B middleware. This will enable app store operators to monetize on a per-activation basis or perform bug fixes on behalf of operators, OEMs or enterprise customers.
What’s most interesting is the long tail of app stores that will surface; long in terms of not only diversity and specialization but also co-existence. Case in point: LG and Samsung phones which shipped 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 South Korean operator SK Telecom.
Team(s) work
Our conclusion: Apple’s recipe cannot be photocopied.
Moving forward, no single mobile operator, handset maker or platform provider will be able to dominate the value chain or run a one-stop app shop. This is because no single player will have the expertise to excel in all five areas – or building blocks – critical to achieving high performance. All players will need to collaborate and cooperate based on their core strengths and capabilities.
NETSIZE APP SURVEY & REPORT
What are the payment models and mechanisms likely to deliver mass-market app store success? What are the most up-to-date app stats on the market today?
A new Netsize report, aptly titled App Store Billing, offers both. It surveys of 1,000+ mobile professionals and practitioners across 67 countries, to get some answers. And it also presents substantial proof that a Long Tail of application stores is indeed emerging. To illustrate this exciting trend Netsize has drawn from publicly available research to rank the top 52 application stores by size and the number of applications on offer (as of May 2010).
THE NETSIZE GUIDE
The Netsize Guide – which features exclusive interviews with 28 industry senior executives at leading companies and organizations including Havas, M&S, MMA, Nokia NAVTEQ, PayPal and Sony Music Entertainment — provides unique perspectives and reveals how players across the mobile ecosystem are preparing to meet the challenges and take advantage of the opportunities ahead.
The Netsize Guide 2010 also presents detailed data on the wireless telecoms sector in 41 countries, including revenues, market shares and value-added service offerings for messaging and billing of 194 mobile network operators worldwide.
DOWNLOAD YOUR FREE NETSIZE GUIDE HERE.
Disclaimer: Netsize is an MSG supporter. Peggy Anne Salz is author of the Netsize Guide 2010.
