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What’s the deal about app stores?

No doubt the AppStore on iTunes has awakened the non-wireless industry to the potential of mobile content.  It has caused a flurry of announcement from companies entering the space, from mobile operators such as Vodafone and giant tech companies such as Microsoft (hey Amazon, where are you?).

But lately, the concept of app stores have gotten a bit of a trashing by industry experts, such as Tomi Ahonen and Mark Jaffe.  Tomi points out that app stores are as irrelevant to mobile telecoms as Segway is to cars.  He makes a strong case pointing to the fact that simple ringtones (the old style ones) earn 14 times more revenue than all app stores combined.  In fact, non messaging premium content (music, games, ringtones, etc) globally is worth $85 billion, while the estimated app store revenues for 2009 was $343 million (i.e. app stores are 1/250th in size of the overall premium content market, when you exclude messaging). Mark Jaffe disses app stores because they are too clunky and hard to navigate.  He feels that specialized stores need to pop-up, or it will never really hit mass market.

Both authors are right in that app stores are not the answer to everything, and in fact, since few have managed to do it well, all these new app stores simply means there are more chances to screw up a user experience.

I’ll add some interesting facts here: There was a similar hype about mobile games some time ago (almost 10 years ago, when there was 1 handset that could download and install anything – the Motorola A008). Naturally given the “snake” hysteria, the expectations was that everyone would become mobile gamers.

Alas, stats have shown that only about 4-6% of non-3G users, and app 10-20% of 3G handset owners ever bother to download a game. Yet, 25%+ of handset owners have played a game. This indicates that there is a problem in discovery and a problem in perhaps the value proposition of mobile games to the consumer.

The point is though, there is still only a small % of the population which will download and pay for mobile games – which is the #1 category for downloaded apps. That means all other categories of content have a % much less than that. And this has been stable for nearly 10 years! Mobile operators have pushed games for a long time now, but I think most have come to the realization that if you reach 10% of the user base you have done an ok job.

My company ran a promo with our mobile operator partner and managed a 25% user penetration, which is staggering. However, most of the promo was based on giving away a game. Once users had to pay, it gravitated towards the 10-12% mark again.

Advertising helps, but is expensive when you are retailing items worth $0.99-$5 (and especially when you only keep 50% which is the case when mobile billing is used). But if you stop advertising, sales will fall.  The economics simply are not there to make mobile games (and apps) any bigger than this small % of users.

What the iTunes app store has done though is opening up to the general non-techie/geeky population that you can download stuff to your phone other than ringtones. What are some of the tricks to get it right when selling on a small screen? Well, I don’t want to give away all of my secrets, but really it comes down to being a good retailer.  Some of the things we did in my old company for instance, sound simple because they were – but they were very effective:

  • We launched new games every Friday, which 1) times with the weekend when downloads are the highest and 2) trained our users to check in on our site that day
  • We randomized display of games, so that each time you came in, except for the new titles, you would see different games.  We also did not display items you had already purchased, which like the previous example both served to minimize the time it would take you to browse new content.  On a small screen the cost of time is huge, and anything you can do to help ease discovery helps
  • We introduced viral recommendation, which you can read about in the report “Sharing on a small screen“.
  • … and many other small tricks which together made our games portal one of the biggest successes in Europe

What remains to be seen if other players than Apple and the likes of Sony Ericsson manage to do a good job of launching app stores.  If not, getting the non-early adopters to continue to download apps may be set back for years, as getting it right is hard and the number of failed app stores are likely to be many.

Lastly: If you are a mobile games developer, or know a lot about the industry, feel free to take this poll about whether you are dropping J2ME in favor of iPhone + Android: [polldaddy poll=”2479129″]

Posted in Mobile Entertainment, The Business of Mobile.

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