IS THE APP INDUSTRY WORTH NEARLY $7 BILLION? Will Apple do nearly a billion dollars in revenue in its first year of the App Store? While the exact numbers are debatable, you can’t ignore the monster success Apple has had with its store (which also drives device sales, by the way). How much money has Apple made? This post, titled Apple has made no more than $20 – 45m in revenue from the app store, gives us a figure. One I might add is not too shabby for a product yet to see its first birthday. What makes this more remarkable is that Apple has captured between 1-2 percent total market share worldwide (including feature phones), and only 10.8 percent share worldwide in the smartphone segment. Few (save Juniper) have taken a stab at valuing the total app industry.

StatCounter’s recent announcement that Opera Mini surpasses the iPhone’s Safari as the most popular web browser for mobile phones is testament to the potential of the greater industry. Opera Mini is the most downloaded Java application of all time. So, while I am excited about the enthusiasm for the iPhone, I find the conversation is missing a big-picture perspective. The question we should be asking is: What is the total app market worldwide really worth? After all, Opera Mini’s success story underlines the potential of the app market beyond just the iPhone.

So, allow me to take a shot at valuing the total app industry, worldwide, for pay-apps (apps you pay to own on your phone).  This is the total value excluding Of course, we have to exclude free apps like Opera Mini.

In a nutshell: If Apple can do nearly $1 billion in sales its first year and has 10.8 percent smartphone market share worldwide, how much is the total smartphone app market worth?

This post from AppleInsider tells us that Apple could do $777 million in App Store downloads in 2009.

A 10.8 percent worldwide smartphone market share implies that the total mobile app market is $7.2 billion, if all smartphone users spend as much on apps as iPhone users do. We know that this won’t be the case. A much more likely scenario is one in which smartphone users will spend far less.

So, let’s assume users with these handsets (other than the iPhone) spend half (50 percent) of what iPhone users on App downloads. Now let’s do the math.

$7.2 billion is the extrapolated industry valuation of direct revenue from apps if consumers spent as much on apps for other platforms as they do the iPhone. Let’s take $7.2 billion minus $777 million (iPhone app share), and multiply that by 50 percent. That gives us a valuation of $3.2 billion for the non-iPhone app market, or $4 billion total, including the iPhone.

($7.2 billion – $777 million) * 0.5 = $3.2 billion non-iPhone app market.)

Given these assumptions, the total addressable market for non-iPhone smartphone users is approximately $3.2 billion in 2009 alone. This, of course is direct app revenue, and does not include advertising, in-app sales, carrier data revenues, feature phone app sales, and other yet-to-be-developed revenue models.

What does this figure represent? Is this pent-up demand in search of a marketplace? It sure looks like it. In any case, the number is staggering, and why this fact hasn’t gotten more attention is surprising.

But I can tell you from my experience at Opera, the success of the iPhone app store is great for the industry. Apple’s app store (although benefiting from massive multimedia marketing campaigns) is the proof-point our industry needed to see its own much greater potential. Apple gets high ranks for making the job of marketing or selling an app that much easier. Mainstream consumers now realize it’s not rocket science to load an app on their phone. Now it’s part of an every-day routine for many mobile users.

Apple has created a market, but does it dominate it?

AdMob’s Mobile Metrics Report recently released compares mobile Web usage to market share of mobile devices. As this chart from AdMob shows, the iPhone literally tops the charts for mobile Web usage – and that despite the fact the device only accounts for 10.8 percent market share of devices (according to Gartner’s latest estimate).

Symbian is next, followed by RIM and Windows. With the launch of the Palm Pre, greater penetration of Android devices soon to come, and Microsoft opening its Windows Skymarket app marketplace, it’s a safe bet that consumer spending on apps on other platforms might total half of what iPhone users spend on apps (If you disagree, please make your case for lower estimates in the comments below, or email me – ben@mobspot.com .)

Let’s put a growth-figure in here. If we accept the figures from Ovum, which predict 15 percent per year growth for smartphones, then you end up with an app industry worth nearly $7 billion.

Not bad. We are excited about the App Store concept, which has taken much of the pain out of discovering and buying apps. Now is the time to get equally excited about the opportunity for apps on all platforms.

And why shouldn’t we be excited? Apple’s App store has caused a shift in consumer behavior. It has captured our interest (even passion), encouraged us to explore the mobile Web, and put downloading and purchasing apps central to our daily mobile routine.

Where does this leave Apple?

It may be riding the cool factor now, but where is it written that cool apps will only be created for the iPhone? I’m confident developers are already working on more great apps for other platforms.

Apple also doesn’t have a monopoly on delivering a great consumer experience. I’m sure developers are hard at work coming up with new approaches that likewise set the bar.

My take: Apple has created a market. But it has also paved the way for some fast followers to follow suit – and even go one better. I’m excited about the avalanche of apps we’re sure to see available across all platforms, and the impact on mobile industry and consumer behavior at all levels. What do YOU expect?

About the author:

Prior to founding Mobspot, Ben was Director of Global Marketing at Opera Software, where he led multiple record-setting product launches of Opera Mini. Opera Mini is the most downloaded mobile application in the world. He has a BA from the University of Washington and an MBA from Copenhagen Business School.

Notice anyone missing? Service providers and mobile operators.

In fact, their absence in this line-up tells us these players are either content to leave it to the handset makers and Internet giants (a first step on a slippery slope to being a dumb pipe perhaps?), or are simply oblivious to the vast arsenal of capabilities at their disposal, capabilities such as customer relationship data, personalization technologies, and location information that allow them to fight back. In my view, if these players could open up to make all the above available to developers (in a standardized, no-brainer way), then they would cover the bases to be much more than just another application store. With their reach and resources, operators and service providers could be the super shopping malls of the mobile Internet.

Last week I explored this in a post that outlined how Qualcomm and its Plaza Mobile Internet platform potentially change all the rules, levelling the playing field and allowing operators and brands to play a central role in this brave new Open Web. This week I’m back with an exclusive look at Amdocs, a company preparing to take the wraps off an application store platform that ups the ante. Thanks to Jessica Francisco, Amdocs account manager at Weber Shandwick for reaching out, and thanks to Idan Carmeli, Business Development Manager, Amdocs Interactive, for giving MSG the inside track on the company’s app store strategy.

Idan’s controversial yet correct observation: Service providers must learn how to leverage third-party developers. “The biggest question that should be on operators’ minds is: How do I convince developers to use me and not any other of the app store channels that are available in the market?”

The answer: Operators must open up and offer their assets – their customer billing relationship, their customer information, their ability to deliver content personalized to customer segments, and their network capabilities – to developers. “Operators know how to sell content and bill for it. Now they have to be open to third-parties and give them the tools they need to sell to their customers.”

An excerpt of our Q&A:

Q: Some call the app store model the killer model. Google et al have app stores in place, what is the impact on off-portal?

A: It accelerates the move to off-portal, which isn’t good news for service providers. But there is another side to this. The increased interest of consumers in finding cool content and apps means it’s a good place for operators to be [in the middle of this exchange] if they can find ways to better monetize this marketplace.  We’re helping service providers create an environment – an ecosystem similar to what we’ve seen from Google and Apple – that leverages their [service provider's] unique assets to bring developers and application providers on board.

A: There is nothing written about your app store platform and offer at this time. What can you tell us about it?

Q: We will be formally launching this new solution [at WC 2009] next week in Barcelona, along with other Amdocs Interactive offerings. The app store is a platform that allows service providers to, on the one hand, provide tools for developer communities to create applications, and, on the other hand, gives them [developers] a channel to present these apps on the content store. So there are two sides: One, a commerce platform and all the enablers on top of the commerce platform that are derived from our acquisition of Qpass that allow developers to create, upload an application to an existing content store, define how much they want to sell it for, sign the contract with the service provider for the revenue share – the works. Two, the tools for developers to actually build applications that aren’t just generic applications because they can access service providers’ services, such as SMS, WAP access and location as well as other available customer information . The aim is to connect all this – in a convenient way — into developer toolkits that are provided by the service providers to the developers to help them build applications they can later sell through the [service provider's] app store channel.

Q: Does the application store come with apps to start? Or do you help service providers populate it with apps so they have something to sell from the get-go?

A; As part of Amdocs, we have our own framework in place for working with third parties in the mobile start-up arena and we have a framework for building relationships and creating a channel between the start-up community and the innovator community on behalf of our customers.  So, we can leverage these relationships and all these start-ups that are part of our program in order to populate an app store. It’s not the focus of our solution, but we can facilitate this.

Q: So you offer the nuts and bolts for an app store. But I also know that you have mobile search and personalization capabilities – through ChangingWorlds, for example – that could potentially make this a self-learning storefront…

A: Definitely. Our ultimate vision for everything we do in Amdocs Interactive is to bring to market solutions that leverage all our assets. So eventually we will want to embed relevant capabilities in our app store solution. For example, we recognize that personalizing the app store experience for the consumer is an important value-add for both the developer and the consumer as it solves the relevancy issue that’s causing real pains for third-party developers on other mobile platforms.

Q: In other words, developers might pay a premium to content providers for the ability to target individual consumers? What would the deal look like?

A: It would be the service provider saying to the developer ‘you have this app that certain consumers are more likely to appreciate than others, so let’s make a deal and I’ll make sure the apps consumers see are the ones most relevant. Something like that could be reflected as a premium in the revenue share model between the service provider and the application provider. But first service providers should get where they want to go, and that is being able to launch an app store as quickly as possible because nobody is waiting for them.

Q: A devil’s advocate question here: What is the USP of an app store run by a service provider? Apple and Google have a lot of mindshare already…

A: When opening up to third-parties, service providers  actually create an edge for themselves by creating an edge for their partners. Our app store is not just a content store, but  an end-to-end process and a set of tools for developers that allows them to offer apps to users in a way that they find compelling because they are personalized, or location-aware, or indicate presence, or simply build on the history of the consumer relationship because the developer has access to this data. That’s an edge Google can’t provide its developers.

Of course, the sharing of customer data would take place in a secure and controlled fashion because these are big issues. And let’s not forget reach. If I’m making a choice to develop something, say, for the Palm Pre platform, , I had to take into account it’s not that big a platform yet in terms of how many users are using that. But if I go to AT&T, I have a subscriber base of upwards of 70 million customers. This is scale the service provider needs to learn how to leverage and offer to third-party developers.

Q: Let’s talk about some business basics. What is the monetization model and where does mobile advertising fit in?

A: The basic monetization scheme is the revenue share from the download of the application.  On top of that the mobile operator can charge for the value-ads we identified, such as placement on the store, perhaps boosted by mobile advertising across the network, as well as access to personalization information. It’s easy to imagine a number of models. In one scenario, it’s an 80/20 split in favour of the developer for the basic upload and distribution through the store. But the operator could take 25 percent for better placement, or 30 percent for better personalization. Lots of business models are possible.

It all comes back to the core assets. Once service providers can make it easy for developers to do business with them, then there’s basically no one better placed than a mobile operator to monetize these apps. They know their customer base better than anyone, and that includes Facebook, Google and even Apple.

Q: What about the developer? What capabilities do you offer them to help monetize their apps? I could imagine top of the list would be mobile analytics and some visibility into sales and mobile advertising campaigns…

A: Definitely. In fact, in the very first concept mock-up that we developed for our product, the most prominent feature on the developer profile page – the page where the developer manages himself — is a dashboard of revenue and usage performance for his applications.  For us, this is an important piece of what the service provider needs to offer developers so they’ll come to their [service providers'] platform.

Q: What about mobile search? A gripe I hear is that people can’t find the apps they want. You have mobile search within Amdocs, are you going to use it to make shipping in your app store less of a chore?

A: Yes, search is absolutely part of our roadmap – that and our personalization capabilities will be part of the app store.  But there is more than that: Amdocs is also an established BSS player and systems integrator,  and we’re priming our solution to best leverage the differentiation potential of the customer data, the customer billing and the business intelligence that’s coming from the BSS.

Q: What about the marketing and the branding? Is it powered by Amdocs? And who gets the developers on board? Amdocs or the operators?

A: Good questions. I think we’re going to collaborate with our customers on this. In the case of making sure that everyone hears about their (service providers’] app platform, it’s ultimately going to be the responsibility of our customers to communicate the app store and why it’s a good proposition.

Q: A big picture question: Is it too late for mobile operators to join that app party? I mean we already have Apple, Google, all the big names…

A: We’re seeing increased interest from our customers because they realize they have to be in on this. They have to be on that train before it leaves the station.

Q: It hasn’t left already?

A: Everybody else is announcing app stores.  Any service provider that goes to the market now, it’s not going to be the first; it’s not going to be the second. But any service provider that enters the market now will need to offer an app store. It’s table stakes.

It’s all about the future of the mobile industry. It’s time [for service providers] to seriously bring partners into their business. That’s that bigger issue at play here. If you look at other examples, such as Amazon in the retail industry, it gets this. It’s a retailer with an online store. But with its Amazon Web Services offering, it’s suddenly become more than that. Now you can ask yourself: What does a retailer have to do with providing computing services to developers and application providers?  It’s only when you dig a little bit into that that you realize that if you want to make sure that your business keeps growing and expanding and capitalizing on 100 percent of the opportunities that you have, then you have to learn how to work with partners in the best way possible.

My take: I am reminded here of The Keystone Advantage: What the New Dynamics of Business Ecosystems Mean for Strategy, Innovation, and Sustainability, a must-read business book by Marco Iansiti, the David Sarnoff Professor of Business Administration at Harvard Business School. In it he points out that scale, once an expression of internal operational and innovative capabilities, is fast becoming a measure of external resources and reach. Put simply, size is about “exerting influence over vast networks of companies and managing assets you don’t own.” All the big names – Microsoft, Google, Nokia, eBay and Amazon – are giants because they pursue a kind of keystone strategy that not only aggressively furthers their own interests but also promotes their ecosystems’ overall health. They have become undisputed market leaders because they appreciated the positive impact their platforms could have on their business ecosystems – and took steps to help other businesses in their ecosystem achieve high performance. This in turn has paved the way for sustainable results over decades.

Mobile operators should borrow a page from this winning strategy and leverage the broad range of content and capabilities available in their business ecosystems to improve the end user experience. Concretely, mobile operators should create platforms in the form of services, tools, or technologies and allow other members of the mobile content and services ecosystem free access.

With companies such as Amdocs and Qualcomm lining up to do just this -in the case of Qualcomm, it’s initially more about widgets -  it’s clear that Google, Apple, Nokia, Samsung, Microsoft and Handango (RIM) could get some serious company. We don’t have implementations yet – but we do have platforms that cover the bases to help operators gain a competitive position in the center of this value Web (NOT chain – that’s old school thinking)…