The count of application stores in September 2010 was 95 and I expect it to have crossed 150 as more and more “independent app stores” stores crop up. The latest in this count includes MDLE Alliance, Opera and Allview Mobile, each making their store announcements on consecutive days.
App store downloads and usage has seen huge growths. The first phase of growth has been a feature of in-device apps stores: Apple, Android, Ovi, Blackberry have dominated this era. Consider calling this “Apps as a support to device differentiation era”. In an earlier post, I had mentioned this as the 1st Gen App stores. The 2nd Gen App stores are the Operator apps stores. Essentially, these are white labeled independent app stores which the operators customize to themselves in the hope of differentiating themselves from the other. The revenue models in both these app stores is basis data downloads (for operators) apart from app subscription, in-app purchases and ad revenue.
The current profusion of App stores mostly independent ones, with no device integration and no short-cuts to discovery could thus be attributed as an “app bubble”. Having a few thousand applications in a web-based server, does-not guarantee anything for the app stores as long as there is no traffic. After traffic comes the question of monetization, which would be a far shot for most of the mushrooming apps stores.
Where’s the Money?
The point that I make here is that independent app stores would not be successful if they follow the 1st Gen App store model of monetization through App downloads and purchases. Thus these App stores would need to go beyond the current revenue and monetization paradigms.
Relook at Monetization Paradigm
The answer to this conundrum is provided for by the 3rd Gen App store model, where apps are a channel for brands to engage consumers. This differs from the ad being served up by the likes of Admob and inMobi and instead reaches out to much deeper levels of consumer interaction via APIs. What causes this shift is the fact that more and more of user behaviour is shifting “online” and Apps which assist this behaviour are likely to find “user stickiness”. Apps thus are the next gen internet delivery medium for the user delivering relevant targetted content and context to the users.
For instance, if my Facebook page shows that I am a “fan” of a brand, next time, I am in a mall which has the brand, there could be push communication asking me to visit the outlet to check out the latest offerings et all. This is a complicated process and would require a lot of APIs and Engines tracking consumer behavior and offering brand-relevant messaging at the right times. In essence, apps would thus be re-defined from “a stand alone app to augment the phone functionality” to a “active media channel which would be used to engage users and consumers by those who intend to do so”. That would be the next evolution in app-terms.
What would also be important in this context is that the app store is able to trace the user across different interfaces: Mobile, Web, TV and Car. The ability of an Apps store to combine these interfaces would give it the unique ability to profile target campaigns according to relevant audiences. How much money is there for taking? Lets just begin by saying this would be a substitute to TV advertising: far more focussed and relevant.
Apple notched up 82.7% of revenues from Apps stores globally in 2010. While this figure is marginally down from Apple’s 92.8% market share in 2009, it is testimony to the fact that in terms of mobile application stores, Apple remains far ahead of the competition, with the other stores so far unable to replicate Apple’s success in generating revenue from users. Apple, in contrast, has been able to maintain advantage by leveraging its tightly controlled ecosystem—combining compelling hardware and content with the capability to offer consumers a trusted, integrated and simple billing service via iTunes.
Revenue for the Apple App Store rose 131.9 percent to $1.8 billion in 2010 from $768.7 billion in 2009.Global revenue for the total mobile application store market in 2010 increased by 160.2 percent to reach $2.2 billion, up from $828 million in 2009. Helping Apple’s cause in terms of profitability was iPad, which even with a smaller installed base made more margins per app, disproportionately impacting Apple’s Revenue. By 2014, about 50 percent of Apple App Store revenues in the United States will be generated by iPad users, up from less than 20 percent in 2010. Apple is expected retain more than half of market revenue at least through 2014.
Research In Motion’s BlackBerry App World retained its No. 2 rank with 360.3 percent growth. The company’s share increased to 7.7 percent in 2010, up from 4.3 percent in 2009.
Nokia’s OVI Store posted the second strongest growth in 2010, with revenue rising by 719.4 percent, giving it 4.9 percent share of the application market business, up from 1.5 percent in 2009.
Google’s Android Market made the most dramatic advance, with revenue soaring 861.5 percent for 2010. This allowed Android Market to take 4.7 percent share of global mobile application store revenue in 2010, up from 1.3 percent in 2009.
Source: IHS Screen Digest February 2011
In the earlier post, i had written about the evolution of application stores. 1st Gen and 2nd Gen Apps stores were great in as far as apps in principle were concerned.But the real test of Apps stores is in the MONETIZATION bit. Millions of Apps and Billions of Downloads are great stats to convince USER ENGAGEMENT, but “it aint mean nothing” if it makes no money and Monetization is the key.
To provide an analogy, a radio station with great broadcast content and listener-ship is great from a user engagement perspective, but the station does-not make money unless there are sponsors. And then the monies can be used for better content, more broadcast rights, bettering the quality of the programmes etc. Sponsors use the radio station as another media channel to reach out to the listeners to create awareness and engage their consumers better. Majority of the listeners will not possibly not want to pay for the programmes directly, but don’t mind being part of the channel. The same applies for Apps as well.
Apps Stores Evolution
3rd and 4th Gen Apps stores
The key addition here is “sponsors”. Sponsors would use the apps as another media channel to reach to consumers and engage them more effectively. “More Effectively” reflects the ability of applications to profile its users better and thus a greater match between target audience and the sponsor message. On a very initial level, this could be ads and we all know how iAds, inmobi or Admob are able to advertise better to the consumer through ads in apps. Thats just the beginning.
Where’s the money honey?
Globally app stores are monetizing traffic through in-app and in-store subscriptions/payments.However, there is a larger picture that many of us are missing in terms of media capabilities of apps stores & how brands could use apps as a channel to engage consumers. Apps with their unique push capabilities and API sensitiveness can be a very efficient medium for reaching and engaging out to Brand users/consumers.
Under the constraints of consumer freetard-onomics, the answer to monetization problem lies in getting a key stakeholder who has yet not been a part of the eco-system: Brands. To me, Brands today and tomorrow will try establishing apps as a key channel to establish an engagement with consumers. This according to me will establish what i call the third evolution of Apps stores which would centre around Channel and User Centricity. Thus apps will increasingly go from just an app to enable branded life-style experiences around focussed groups of users. That to me is where Applications and Platforms will monetize.
The construct that i build hereis actually close in principle to the search legacy in Google.The difference here is that while search delivers ad-sense relevant advertising/message for monetization, Mobile App stores will have brand deliver experiences which are far more customized to the user. What would brands pay to have these experiences delivered to the user? You can start the calculations basis the broadcast media numbers
We would need APIs enabling the portfolio of services such as LBS. LAYAR, Search and Profiling engines, Shopping Carts, NFC and Analytics is more than adept at taking this Brands concept to fruition. To me this rivulet is the mother lode of monetization going forward.
Android and Apps were two buzz words of the 2010. While Android went places and became the No 1 platform for smart-phones globally, Apps went on to become the “word of the year 2010″ as chosen by American Dialect Society. Apps in the mobile computing parlance adorned ubiquity as symbolized by the clichéd “There’s an App for that” maxim.
One has to walk a step back and look at the evolution of App stores as it stands today and then try and extrapolate apps into future.
Apps Stores evolution
1st Gen Apps stores
1. The first App stores were all OEM Apps Stores. The intent was experience differentiation for the user. So we had the iPhone and Apple Apps Store, Nokia and the Ovi Apps Store, Blackberries and the Blackberry App world and a few others.
2. Along the same time, there was a parallel development of Apps stores around Operating Systems/platforms. There were Android and Windows which were Platform specific running across range of Device manufacturers.
3. The next level of Apps stores were really the “independent” app stores as against the “local stores” which were hard-bundled on the device. These were device agnostic in the sense that they catered to all device platforms.
2nd Gen Apps Stores
4. A significant portion of the apps store activity was actually happening at the device sides leaving the carriers out in the cold, relegating them to the “Proverbial dumb pipes”. Many large, medium and small Telecom operators/carriers have started launching the Operator Apps stores. By partnering with VAS companies, third party “white labelled” app store makers and other software developers, Operators launched apps stores for users. In spirit these were consistent with the independent apps stores offering applications and VAS across a range of devices they were servicing.
$15 billion! That’s the total mobile apps pie in 2011. Apple’s App Store helped mobile application downloads soar in 2010. With Google’s Android Market pushing Apple, the growth story could become a little more steeper. The $15 billion number by Gartner, is up 190 percent from $5.2 billion in 2010, and counts both users buying applications and applications generating ad revenue on smartphones and tablet computers. Consumers will download 17.7 billion applications this year, more than doubling from the 8.2 billion downloads installed in 2010.
Gartner expects free downloads will account for 81 percent of total mobile-application-store downloads in 2011. However, users will begin paying for more applications as quality and billing systems are boosted. Gartner claims that Apple accounted for 9 out of 10 apps downloads in 2010. Even with its 10 billion downloads, a 90% share of download is a very implausible number especially because of the growth in Android and GetJar. Apple seems to have mastered the art of attracting developers, organizing content and engaging users throughout the life of the store in order to remain profitable.
In many ways, this is a thumbs down to Google’s Android Marketplace. While Apple’s App Store has set the gold standard for application stores, Android Market is struggling to reduce spammy applications and improve billing options to boost paid application sales.
Gartner also expects media tablets such as Apple’s iPad and Android-based tablets, RIM’s PlayBook and other devices to drive more downloads from consumers.
With such huge growth numbers, the mobile-application market is beyond just a passing fad as many initially expected it to be. Gartner forecasts that, by 2014, 185 billion applications will be downloaded from online stores such as Apple’s App Store, Android Market, Nokia’s Ovi Store, Research In Motion’s App World, Microsoft Marketplace and Samsung Apps. Gartner also said Apple’s App Store will remain the best-selling store through 2014, although to a lesser extent, as the Android Market and other shops gain momentum. Revenue from mobile apps on stores will grow by 1000% over the next 3 years and reach a staggering $58 billion.
However, Gartner also remarked that Applications will have to grow up and deliver a superior experience to the one that a web-based app will be able to deliver. Native apps will survive the web enhancements only when they provide a more personal and richer experience to the ‘vanilla’ experience that a web-based app will deliver.
Even as Application stores are getting into prominence, Applications are rapidly getting commoditized and Applications will need to morph into Integrated services for serving the consumer digital space in future.
Application stores has also brought about the easy way in which applications are consumed (download and use with no knowledge of mobile functionality). While, 2bn apps downloads were recorded in 2009, various surveys put the apps downloads in near future at 6.5bn – 21bn. That by itself is a wide variation, and it only goes to prove that whichever way you see it applications will be a critical growth denominator for wireless and smartphone growth.
However, another trend that augments the App story is the development of integrated services for the “digital living”. Application stores are poised to evolve into a whole new modality, as services in the consumer communication space morph into integrated services. Integrated services are those that work on any delivery medium that the consumer may be using: cable, DSL, wireless, wireline or satellite rather than being tied by transaction to one delivery medium.
This age is coming and will require a different kind of application and a different kind of application store to service it. Integrated services applications offered through an application store will be downloadable from any device, and depending on the networks to which a consumer has access, will work comfortably over any network and the corresponding device. As a result, applications will need to be certified by not only the device vendor, but the carriers over whose networks these applications will be expected to work and application stores will need to interact with more than wireless devices.
As services become ever more integrated, application stores will increasingly be supported by conventional carriers and operators.
The bottom line is that applications have become as commoditized as downloadable music. Increasingly, consumers will worry less about exactly where the application runs and more about what the application does. They will expect that the application will be available wherever they are and regardless of the device they are using to access it.
In the early 1980s, the Macintosh faced an onslaught of competition from an army of PC makers whose products ran Microsoft software. The fight did not end well for Apple. In a few years, Microsoft all but sidelined Apple, and the company almost went out of business. Can Apple, which insists on tight control of its devices, win in an intensely competitive market against rivals that are openly licensing their software to scores of companies? It faces that challenge not only in phones, but also in the market for tablet computers, where the iPad is about to take on a similar set of rivals.
For Apple which has lived the part of the bitter PC history, the stakes are huge, as the mobile computing market could prove to be larger than the PC market ever was. Having a tightly controlled ecosystem, which is what Apple has, is a large short-term advantage and a large long-term disadvantage. The competition this time is more formidable: Android, Windows Mobile, Blackberry and (even) Nokia. For now, the smart phone market is growing so rapidly that the rise of Android has not necessarily been at the expense of the iPhone. That will change as the market matures.
Apple’s stock has soared nearly 50 percent this year, and touched all-time high of $314.74. But the rise of Android has been both sudden and unexpected, and its ascent highlights some of the advantages of an open approach. There is much more rapid innovation taking place in an open environment. For every new version of the iPhone, Android has 20 odd smartphones ready to challenge Apple’s leadership mantle. That leaves little room for error at Apple. The company must continue to create hit products, as a single misstep could give Android and other rivals an opportunity to make inroads and steal market share.
Also, as the number of people with Android phones grows, Android will grow more attractive for app developers. For now, Apple’s App Store, with more than 250,000 applications, enjoys a large advantage over the Android Market, which has about 80,000. And those numbers don’t tell the whole story. Apps made for the iPhone tend to be of better quality, are more frequently downloaded and on average are more profitable for developers. But that edge may not last, especially as many developers fret about Apple’s tight control over the App Store.
While the naysayers stack up, the view isn’t as dooming as it seems for Apple. For starters, Apple is the richest company in the technology industry. With $45.8 billion in cash, it can afford to invest heavily in research and development. Apple’s large early lead in devices and developers puts it in a much stronger position than it ever had in the PC market. And because it is one of the largest purchasers of Flash memory, which is one of the most expensive components of a smart phone, it has enormous economies of scale,
What’s more, the iPhone isn’t really fighting alone. The two other devices that run Apple’s iOS mobile software, the iPad and the iPod Touch, further strengthen the iPhone, because consumers like being able to access the content and applications they bought on iTunes and the App Store on multiple devices. Apple has sold more than 120 million iOS devices.
And while Apple’s personal computers were by and large technically superior to Microsoft-based PCs, they were also far more expensive. In the smart phone market, carriers, who play a vital role in distribution, have been willing to subsidize the iPhone so that its cost to consumers is roughly the same as that of comparable Android phones.
Bottomline: Apple may lose its overall leadership, but maintain a share of the market that could easily be in the 25 percent to 30 percent range at a very profitable level. Even that is enough to sustain a very large and very profitable business.
Reproducing a report about Mobile Applications and its impact in Emerging Markets (Afro-Asian markets)
Emerging markets will drive the growth of global mobile value-added-service (VAS) revenues from $200bn in 2009 to $340bn in 2014. With China, India, Indonesia, South Africa, Nigeria, Egypt, Turkey, Israel, Saudi Arabia, Brazil, Mexico, Argentina, Russia, Poland and the Ukraine expected to account for 36 per cent of such revenues at the end of the forecast period.These numbers were released by Informa Telecoms & Media, which has been monitoring the high growth potential for VAS in emerging markets as high market saturation limits growth prospects in developed countries.
In fact, operators and service providers in emerging markets have been more innovative and proactive in developing and deploying mobile VAS than their counterparts in the developed world, especially in the areas of mobile payments, P2P funds transfer and agricultural information services. The reason being that these services are having a big impact on the day-to-day lives of the local population and are contributing to the social and economic development of the population in these markets, Informa said, citing services such as M-Pesa from Safaricom in Kenya, the Rural Information Service from China Mobile, the Please Call Me service from MTN in South Africa, and the CellBazaar service from GrameenPhone in Bangladesh.
“Compared to the developed world, there are very different economic, social, demographic and cultural challenges in the emerging markets. In many countries, 3G services are still not available, or are limited to mobile subscribers in larger cities. Therefore operators have to depend on 2G services such as SMS, USSD (Unstructured Supplementary Service Data) and IVR (Interactive Voice Response) systems, to be able to drive mass market adoption of their mobile value-added-services, and to successfully reach subscribers in smaller towns and rural areas,” said Shailendra Pandey, senior analyst at Informa.
Pandey adds that mobile social networking is beginning to see strong growth in emerging markets but most of the services are instant messaging chat applications. One of the most successful service examples is China Mobile’s IM service called Fetion, which has over 100 million registered users. The addressable market for the Fetion service is large as it can work using IVR, GPRS and SMS access modes. Also, mobile app stores have so far not received the same attention from the operators in emerging markets as they have in the US and Western Europe, although some large operators like China Mobile have already launched – or are considering launching – their own app stores. Earlier this year, China Mobile collaborated with Nokia to launch a joint mobile app store MM-Ovi and it has been reported that over four million mobile apps had been downloaded from this app store by March 2010.
This is a continuation of the earlier post on Why Apps Stores are important for Operator Lifelines
The Operator abilities to do the Apps stores will define their existence going into the future. However, it is not as easy as just creating a Apps Store. There are considerations that need to be factored in before any operator gets into a data and revenue based strategy around the Apps Store models.
A few pointers to the Operator Apps Store strategy is as detailed below:
1. Mobile operators can shore up their position in the mobile applications space by taking a series of definitive measures. Operators need to decide on the extent of activities that they would want to undertake in the application store segment. While global players with a large captive customer base might want to build end-to-end capabilities in the space, smaller players might decide to undertake only select activities in-house, relying extensively on third-parties for the technology platform.
2. A critical component of operator strategy to compete in the space would be their support of device-agnostic platforms. This will allow operators to support a much wider device portfolio through their storefront, while simultaneously reducing porting efforts, and hence costs and time-to-market for the developers. Additionally, platform-agnostic applications will allow a distinct positioning option for operators, thereby avoiding direct competition with vendor partners. Another option available to operators looking to encourage device-agnostic application creation would be to actively promote web-based applications.
3. Since the quality and reliability of the applications available on a storefront will be dependent on the strength of the developer community, it is imperative that operators provide the necessary incentives for the creation of exclusive applications for their storefronts. This will depend on aggressive revenue share arrangements, wherein operators allow developers to retain a higher share of the application revenues when compared to other storefronts, can help operators play the role of ‘disruptor’ and corner a higher market share. While a revenue share of at least 75% for the developers will be necessary to remain competitive, analysis indicates that by increasing developer share to 80%, operators can get incremental revenue uplift of around 11% points, resulting primarily from a greater market share of application downloads.
4. Operators should strive to develop pricing models which are optimized based on the nature of the application, with popularity, market potential and stickiness of an application being the defining criteria. For instance, typically applications in categories such as medical and finance are highly customized, resulting in a limited number of such applications. However, because of the utilitarian nature of these applications, the consumer willingness to pay is fairly high. As a result, these applications are very suitable for subscription pricing. Operators should also play an active role in formulating the monetization strategies of applications, to ensure the greatest returns from their storefronts.
5. Operators should launch application stores to retain their prominent position in mobile content distribution, as well as to benefit from new revenue streams through the sale of applications, provision of access services and rendering of additional services such as integrated billing and access to networks that application interfaces are supported on. While application stores provide operators with an opportunity to re-establish their position in the mobile content value chain, the opportunity requires a strong operational strategy for success. Operators need to leverage existing capabilities in this space so as to be able to create a robust offering for the consumers. The opportunity should be looked at from the perspective of a strategic imperative to reverse the present trend of disintermediation from the content ecosystem, rather than a pure revenue enhancement exercise. It can’t be left to Apple to pave the way anymore in the application store market. There is plenty of room for more.