AppStore SchmappStore

Before diving into this article, let me give you an idea of where I am coming from. I bought my first PDA in 1996 – the original Palm Pilot, and immediately started looking for apps and believed I Handango was just live then (or it may have been some other site).  In 2001, I was part of acquiring a company called Digimob, which ran midletcentral.com, the first site with apps for the only downloadable J2ME supported handset in the world (outside of Japan), the Motorola A008.  I founded a company in late 2002 – MoConDi, whose business was to run content storefronts on behalf of mobile operators, with online sign up for a 1000+ strong community of developers. So I am somewhat familiar with the concept of an AppStore.

What I find puzzling is that the success of Apple’s AppStore is now spurring an “AppStore mania” among mobile operators and the like. Suddenly they have all seen the light and realized an AppStore is the answer!  Surely, there must be people at Handango pulling their hair out by now (and anyone who knows me knows that my hair is thinning as well, partially because we had such a hard time explaining to potential customers the benefits of creating the mobile developer eco-system we had at MoConDi even with an astounding success case as a customer… oh well).  There has never been a doubt that consumers want access to games and apps – but lately it almost seems like (at least if you read the big media), that we needed Apple to tell us this?  Well, as an industry veteran who has spent a lot of time and effort in trying to educate potential customers about this for the last 8 years, I am not ready to say “I told you so yet”.  Let’s take a look at what this AppStore “trend” get’s right:

1. People want apps. Clearly. Anyone in the mobile industry knows this, but the main issue has always been about discoverability and the cost (read: data charges and time consumed looking for them). What Apple has shown – although this is not exactly a secret – is that if you make it dead easy for people to find and pay for something cool, people will. They did it with MP3, and it can hardly be a surprise they did it once they had made a phone.

2. They offer decent revenue models. Gee whiz. This has been a bone of contention for such a long time.  I wrote about this in 2003 in my “Mobile Downloadable Content” white paper (see Research section), and again in a post entitled “Mobile Content Revenue Models – Still an Issue“.  It seems now that a 70/30 split is becoming somewhat of a standard to succeed. Well, again, I have time and time again mentioned the Norwegian market who introduced this split in 2000, causing the market to explode.  And in Japan, DoCoMo has passed 91% back to content providers for ages. Why does it take Apple to teach people this? Does basic microeconomics understanding not exist in the industry?  Ok, I do not want to sound too grumpy here, but I am shocked how long it has taken for certain players to realize this. And yet I still think the rest of the industry will only slowly realize this.

So now it may seem like App Stores will solve it all, right?  Well, unfortunately not.  There are a number of issues that need to be addressed before downloading and installing apps on your phone becomes main stream. This is due to a large number of factors (this list is not intended to be exhaustive, just writing a few. Comments welcome):

a) Sun.  Yes, the makers of Java – who wanted to make this so open really screwed up J2ME.  By allowing each handset maker and each operator even to manipulate how they implement J2ME, they created a nightmare for developers. The Java Community Process has worked hard to standardize how APIs are used, and things have improved for sure, but it is still tough as more and more features are put into phones.  This has resulted in apps having to modified by not only screen size, but capability – and many users cannot get certain apps if they do not have the right handset).

b) Money and style.  The two primary reasons why people choose a phone.  While the iPhone is great, I seriously doubt Apple will ever outsell Nokia in terms of units sold. The Razr V3 is among the most widely distributed phones in the US, 3 years after it was released – all because people thought it looked cool.  Most people do not have smartphones with big screens. Phones are small, and often cumbersome to use for web navigation. They do not have wifi built in, thus rely on data plans and proper set-up for accessing internet.

c) Data plans. Unfortunately all you can eat data plans are not the norm. In many countries, people pay ridiculous sums per MB of data.  One of my previous clients, although not charging for MBs on their portal, charged users EUR 0.09 per page click. No wonder people are not looking for apps.  It is too expensive.  In fact, Mblox just announced that a typical data charge to buy an mp3 song can be as much as GBP 10.  Until prices come down to a bare minimum and people have all you can eat plans, all the App Stores in the world will not change much for the majority of mobile users.

d) The gatekeepers. Most mobile operators have product managers that decide what goes on deck. And most of them are either doing a terrible job or are in the pockets of the big publishers. This may sound rough on the product managers, but given the fact stats show that about 3% of people have downloaded a game, while 25% have played a game preloaded (source: M:Metrics), you know there is a gap in terms of how you manage the store.  Of course it is not just the product managers, as they normally have little influence on the technical platform their employers choose, thus were often left with a poor tool chest to manage the store. Few operators know how to optimize what I call the world’s smallest retail store, as they provide static hard to navigate wap sites.  At MoConDi, we reached 25% penetration of the customer base at our peak with our games store, and one app, a content sharing app, was downloaded by 12% of the user base. You can read more about this in the white paper “Sharing on a small screen” which is in the Research section.  The point is though, that by managing the store well, you will see traction.

The fact of the matter is that there is absolutely nothing novel about the App Store concept.  In fact, BlackBerry owners and Windows Mobile owners, who tend to be tech savvy people, know exactly where to go to get cool stuff.  What Apple is brilliant at is managing a closed eco-system – but their success does not necessarily transfer to others trying to replicate it towards the general mobile phone owner.  But if Apple’s success has opened the world to just two things – change the revenue models towards content providers and flat rate data plans – we may actually see the start of something beautiful…