App stores are multiplying but will they all survive? E&T investigates.
Imagine if you bought a computer with an operating system that only allowed you to purchase software from one store and carefully vetted suppliers. Imagine, also, that the suppliers had to pay a fee to the original computer company each time a customer purchased software from the store. There would be uproar from consumers and regulators alike.
However, when you purchase an iPhone or an iPod Touch from Apple, as the owner of the device you pretty much have to live with this scenario (although there are hacks allowing you to get round this). But, for the non-geeks, hacks and mods are as unpopular as monopolies.
When the original iPhone was launched three years ago, it only had a set number of applications pre-installed. But it seemed obvious that the operating system of the iPhone and the iPod Touch would easily lend itself to supporting third party software.
Therefore, about two years ago, Apple opened up the APIs (application protocol interfaces) of the device to these third party developers to create new software for its groundbreaking phone and media playing devices. Since Apple already had a large installed base of iTunes on consumer desktops and laptop computers, extending the functionality of the iTunes Store to deliver the applications seemed only logical.
Now it is possible to download more than 140,000 applications from the mundane and bizarre to the really useful. These apps are available from iTunes as well as via Wi-Fi or 3G.
This not only opened up a new revenue stream for Apple, it also allowed its device to gain extra functionality with the addition of all these extra applications. It also created a boom for the software development industry at a time when the world economy faced a downturn.
App stores galore
Some estimates put the iPhone/iPod Touch app market as high as $250m a year (according to a survey conducted in August last year by mobile advertising company Admob) with a significant chunk of this going directly into the Cupertino coffers of Apple. This has been one of the few upswings in consumer spending in 2009.
Now many other companies principally mobile companies have developed their own app store concept.
BlackBerry maker Research In Motion launched its one-stop phone-based store in April of last year. In October in San Francisco, the company hosted its second developer conference with the aim of building on its initial success in getting on board popular app vendors such as Shazam (makers of the music recognition software) by convincing them of the money-making potential of developing apps for their smartphones.
This seems like an easy argument to put forward considering the large sales of Blackberry smartphones around the world. But the reality is that the few thousand apps available for Blackberry devices pales into comparison when compared to the hundreds of thousands available for the iPhone although most apps in both stores are mediocre.
Additionally, other mobile phone companies such as Nokia, Google, Palm, Samsung and Microsoft have either started or are in the process of setting up their own online store fronts.
But will all these apps really add value to these devices and revenue for the mobile device manufacturers at a time when their margins are being squeezed to a big zero?
Last year, ABI conducted a survey of 235 US smartphone users who installed applications on their devices in 2008. It revealed that a significant 17 per cent spent upwards of $100 on apps. That level of spending is especially significant given the low cost of most mobile applications ranging from as little as a dollar or two at Apple's iPhone App Store and at that time the most expensive was only $25.
But the low level of app store prices is a contentious issue for the larger and more established software vendors who claim that it is pushing down quality and increasing unrealistic expectations.
'Apple is seen by some as hurting the market with its iPhone App Store,' says ABI's senior analyst Jeff Orr. 'It drives the price of content down to $1-2, using a model similar to its successful iTunes music store. If you exclude Apple from the mix, applications for other platforms cost about $7-25 each.'
Many of the startup developers who have released software through Apple's App Store do not have the resources to author applications for all available smartphone platforms. This means that they trade higher margins for higher volume basically selling many copies for a few dollars or selling fewer through one of the other application storefronts, but charging a higher price and earning more per transaction.
'On the other hand,' says Orr, 'Apple did a lot for the market with its massive marketing effort telling the public how great mobile content is. That created a 'halo' effect for the rest of the industry.' As a result many other device manufacturers and content developers working on non-Apple platforms are likely to benefit from Apple's success because there is more awareness of the smartphone category.
Beyond the Smartphone
The app store concept has caught the attention of the makers of other types of consumer electronic goods. At the recent Consumer Electronics Show in Las Vegas, Panasonic demonstrated various widgets which can be downloaded to its Internet connected TVs and used to deliver cloud-based services such as Skype video-to-video calling.
However, Panasonic is choosing its partners very carefully. Samsung's TV division, on the other hand, has created a widely available software development kit (SDK) in order to create a large smorgasbord of downloadable widgets and applications on its Internet-connected displays. This will be available via an on screen menu that looks very similar to an app store.
Another company that has also taken this concept on board is British digital radio specialist Pure Digital. They were also present at the show and their flagship product, the Pure Sensia Internet radio, was a hit with visitors. The radio features an on-screen capacitive touch-screen menu that includes various types of applications. The company plans to release its SDK to allow third parties to develop extra functionality for the device.
Even Apple is extending the concept beyond the iPhone. With its recent news that it is to launch a tablet computer the iPad - the company also plans to launch a companion store available via iTunes to serve apps exclusively for the device which will be on sale in a few months.
Could this set a precedent where apps for any platform or operating system are only available from one supplier? If it makes Microsoft and Apple money and they get the nod from the competition regulators, it is feasible but this is a monumental if.