App stores are “all of the rage” right now. They existed quietly for years with alternative stores like Handango, and then gained prominence when Apple launched its App Store.
Since that time, major handset manufacturers, alternative app stores and carriers have jumped into the fray. Today, the mobile app market is thriving, with hundreds of handsets capable of installing and running apps, and a slew of big-name app stores striving to compete with Apple and its more than 3 billion downloads. But – despite all of the hype – are app stores really the wave of the future? We believe that there are some downsides to the app store that will dampen enthusiasm for carriers, handset manufacturers and the end-user over time.
From an end-user’s perspective, the two primary issues are app discovery and quality. With a low barrier for entry, hundreds of thousands of apps will come to market via these stores. The iTunes App Store alone is home to some 115,000 applications, making the search process increasingly cumbersome. Add to that the uncertain quality of apps purchased via these stores and the lack of support for most. If an app performs poorly or crashes on the user, he generally must wait for a fix in the next version or ask for a refund – both time-consuming processes.
For carriers and handset manufacturers, the entry of both parties into the app store fray is creating a conflict of interest, with both sides seeking to drive revenues from their subscribers. Consider, as a hypothetical example, a Samsung Windows Mobile phone user on the AT&T network has access to at least three different app stores (the carrier’s app store, Windows Marketplace and the handset manufacturer’s application store). Not only does this confuse the user, who is already overwhelmed at the number of applications available on each store, but also increases the shear in the value chain. Each time a user makes a purchase from one application store, it is a loss of opportunity for the other two stores.
Reaching End-Users Through Alternate Channels
Certainly app stores will introduce many innovative applications, and carriers, handset manufacturers and others will drive revenue from them. However, working with a handset manufacturer to directly embed applications on the devices and working with mobile carriers to make the service available to the operator’s subscribers may prove to be far more effective.
With handset manufacturers, embedded applications ensure that the user already has access to the application when the device is purchased. There is no need to wade through a sea of applications, just as there is no need to make payment using the mobile device, since the application is pre-activated. Embedded apps increase exposure by increasing the surface area, while eliminating a major barrier to adoption – the licensing fee.
Furthermore, since the applications are embedded onto devices, the developer knows beforehand the devices on which the applications will be used. This enables developers to invest efforts into customizing and fine-tuning the apps to specific devices. They can create apps that integrate with device-specific hardware and native applications, and even apps that match with the device themes. As a result, developers are able to produce compelling apps that work seamlessly on the target devices. When there is a support issue, the response time is faster, as the developer has a thorough understanding of the device and platform.
When working directly with mobile carriers, monetization and personalization are key differentiators. Carriers can accommodate scenarios like one-time purchase, subscription-based, advertisement-based and pay-as-you-go services. These scenarios provide more options for application developers as well as carriers, who can use these services to drive additional revenue streams through “call-to-action” features such as the purchase of ringtones and wallpapers, or to drive SMS/MMS traffic. The revenue can then be shared between the parties. Furthermore, since the application stores are eliminated, revenue to be shared between the content provider and the mobile carrier is relatively higher.
In terms of up-take/success of the application sold to a mobile provider, not only are these apps tightly integrated with operator services, they can be private-labeled with the operator’s brand, promoted and region-specific. Since most carriers have a regional focus, providing applications/content relevant and localized to those areas will likely produce better penetration.
Understanding the Customer
There are immense benefits of providing high quality customized applications to operators and handset manufacturers. While striking deals with such channels is competitive and has a high barrier to entry, these can be extremely effective channels – in terms of reach, stickiness and revenues generated. In the end, these deals create a win-win for the industry – with the ultimate beneficiary being the consumer – who gains easy access to proven, well-integrated applications that promise peak performance.
Arvind Venkateswaran is Geodesic’s senior vice president of business development and general manager of the Americas.
