Surveying the Mobile App Store Landscape

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Surveying the Mobile App Store Landscape

By Colin Gibbs

Surveying the Mobile App Store Landscape - 2 -© Giga Omni Media | August 2009

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Table of Contents

GIGAOM PRO: DEMOCRATIZING MARKET RESEARCH...................................2

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Table of Contents 3

EXECUTIVE SUMMARY.........................................................................................6

EARLY MOBILE-APPLICATION DISTRIBUTION MODELS..................................7

Apple.................................... .............................................10

Competitive Advantages 12

Disadvantages 12

Google......................................................................... .......12


Disadvantages 15

THE MANUFACTURERS.....................................................................................15

Nokia .......................................................................... .......16


Disadvantages 17

Research In Motion .......................................... ...................18


Disadvantages 19

Palm............................................................................ .......19



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Disadvantages 20

Sony Ericsson.............................................................. ........21


Disadvantages 21

Samsung................................ ............................................21


Disadvantages 22

NEW ENTRANTS.................................................................................................22

Microsoft ........................................ ...................................23


Disadvantages 23

Verizon Wireless ..................................................... ............24


Disadvantages 24

PRIMARY CHALLENGES IN THE APP-STORE SPACE.....................................24

Discoverability of Applications ..................................... ........24

Potential Solutions for App Retailers 25

Potential Solutions for Developers 25

Discoverability of the App Store Itself ..................................26

Potential Solutions for App Retailers 26

Payment Mechanisms .........................................................26

Possible Solutions for App Vendors 27

Application Quality and Availability ......................................28

Potential Solutions for App Stores 28


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SUMMARY TABLE...............................................................................................30

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CONCLUSION......................................................................................................32

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ABOUT COLIN GIBBS.........................................................................................34

ABOUT GIGAOM PRO.........................................................................................34


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Executive Summary

The distribution of mobile content is in the midst of dramatic evolutionary step. Until

recently, offerings ranging from ringtones to enterprise/productivity applications

generally were distributed via one of two channels: the carrier deck, which is accessible

from feature phones and typically focuses on games and other consumer-targeted

products; and online, third-party distributors such as Jamba (a longtime provider of

content subscriptions) and smartphone-focused storefronts such as Handango and

Handmark.

But the industry began to undergo a seismic shift last year with the launch of Apple’s

App Store. The channel, which is integrated with the company’s popular iTunes store,

found an immediate audience with both iPhone and iPod touch users and developers

of mobile applications. Apple earlier this year announced its 1 billionth download –

within nine months of the App Store’s launch – and currently boasts a library of nearly

40,000 offerings.

A host of competitors from across the mobile spectrum are in various stages of

following Apple’s lead. Google was first with Android Market, which is built on an

open-source platform backed by a consortium of dozens of key players in wireless.

Research In Motion jumped on the bandwagon in recent weeks with its BlackBerry

App World, and Microsoft, Nokia and Palm – among others — are set to launch

offerings this year.

The motivation to build an application-distribution channel varies from segment to

segment, of course. Apple has long relied on iTunes to help it sell hardware at high

margins, and the company is duplicating that strategy in mobile but also pocketing

revenue on paid downloads. But Nokia – another phone manufacturer – is hoping to

morph into a mobile Internet-services company, using free offerings such as wireless

e-mail to create stickiness with users. Carriers such as T-Mobile USA and Verizon

Wireless are experimenting with new kinds of application stores in an effort to grow

their subscriber bases and, in some instances, to sell devices. Google, interestingly, is


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taking a longer view and forgoing a piece of each transaction in the hopes of boosting

mobile Internet traffic and cashing in on increased advertising revenues.

This report identifies the major players in the application-distribution model and looks

at how the trend will affect carriers, handset manufacturers, developers, content

owners and end users. It also examines key factors that will contribute to the success

or failure of specific app stores including:

• Reach (The addressable base of users/handsets)

• Business models and marketing strategies

• Partnerships/alliances

• Developer ecosystems

• Potential pain points, including push-back from operators

The report also identifies potential newcomers to the mobile space – a segment that is

sure to grow. Wrapping up, we examine general shortcomings in the new app-store

model, what solutions are already needed and how the space will evolve over the next

several years.

Early Mobile-Application Distribution Models

The history of mobile content and applications includes many more fits than starts.

Ringtones – the first non-messaging, downloadable mobile data offering to find an

audience – exploded upon their introduction in the late 1990s, generating $4 billion in

worldwide revenues by 2004. Profits ramped up as ringtones evolved from a series of

monophonic beeps to “truetones,” clips of real singles from original artists, before the

worldwide market began to slide in the last few years.

But no other type of non-messaging application has enjoyed anywhere near the

success of ringtones. In fact, uptake of most apps has fallen far short of expectations,

leaving industry forecasters perplexed and producing armies of confused and

frustrated consumers. Some examples of mobile-app genres that have had historically


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disappointing performance include:

• Games

• The mobile Internet

• Full-track music downloads

• Video/television

• Location-based services (LBS)

• Enterprise/productivity

There is no shortage of factors that can be blamed for such shortcomings. Twelve-key

handsets with tiny screens and limited processing power, overpriced offerings that fail

to live up to consumer expectations, sluggish networks that sometimes require

minutes to deliver even simple downloads – all have contributed to disappointing

mobile-data revenues. But it is becoming increasingly clear that one hurdle has held

the space back more than any other factor: the lack of a viable distribution model

supported by a thriving developer ecosystem.

Mobile applications and services for years were largely limited to two primary

distribution models: The carrier deck — an operator’s branded home page on the

wireless web — where most mobile data users shopped for ringtones and other content

for feature phones; and third-party online retailers that usually leveraged operator-

billing agreements to sell their wares to users of both feature phones and smartphones.

Each of those two models suffers from substantial flaws, however. Carrier decks are

notoriously crowded spaces that often require dozens of clicks for users to find their

desired content, and typically offer no recommendations or other ways to navigate the

library quickly. Just as importantly, carriers have proven incapable of effectively

managing their content offerings: operator-funded marketing of mobile applications

has been weak, and the carriers have failed to woo developers with attractive

ecosystems that provide easy-to-use tools and simple, affordable certification

processes.


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Third-party vendors such as Handango and Handmark have found an audience in the

space selling applications to smartphone users but failed to move beyond early

adopters and gain traction among mainstream consumers. GetJar, a 5-year-old U.K.-

based vendor of apps for both smartphones and feature phones, claims to be the

world’s largest distributor of mobile apps, delivering more than 14 million downloads a

month. Meanwhile, providers such as Jamba and Buongiorno Ltd. have seen modest

success in marketing ringtones to younger users. But that traction has come at a cost

for the industry as a whole. Both companies have been the subject of lawsuits from

consumers and watchdog groups who claim the retailers have fraudulently marketed

their wares to underage consumers and deceptively sold content subscriptions to

minors; the end result has been to create an atmosphere of distrust among consumers.

Finally – and perhaps most importantly — while the carrier deck is easily found on

through almost any phone and service provider, third-party retailers face the

substantial hurdle of drawing traffic to their sites.

Meanwhile, developers have long struggled to bring their applications to market for a

variety of reasons. The feature-phone space is dominated by two platforms: Java ME

(Micro Edition) from Sun Microsystems and BREW, a platform built by Qualcomm.

While both enjoy a large footprint (Java ME has especially broad support), each has its

drawbacks. The tightly controlled environment of BREW, which is well-suited for

CDMA networks, allows developers to port their wares across devices fairly easily but

Qualcomm has drawn criticism for the platform’s rigorous and costly requirements for

developers. The open source Java ME, on the other hand, offers free development

tools but is notoriously difficult to deploy across the wide swath of addressable

handsets – often a carrier mandate for certification — leading to sometimes onerous

porting costs.

Developers for smartphone platforms have also faced difficulties. Symbian – which

was owned by a consortium of mobile players until Nokia took it over last year –

boasts the widest footprint of any mobile OS but has developed a reputation for having

a steep learning curve. RIM’s BlackBerry (which leverages a specialized Java

Development Environment) has drawn praise as an ecosystem for developers but,


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until recently, failed to spur innovative, non-business applications. And Windows

Mobile has struggled with fragmentation issues, requiring developers to target specific

devices within the platform itself.

Apple

Apple began to move the needle in mobile data in the summer of 2007 with the release

of the first iPhone. The gadget featured a breakthrough UI (user interface) that proved

an attractive alternative to QWERTY keyboards and traditional 12-key layouts, and

included an innovative, intuitive mobile browser in Safari. Just as importantly, Apple

backed the handset with a media blitz that demonstrated the device’s impressive

capabilities.

But Apple’s truly revolutionary move came a few months later when CEO Steve Jobs

reversed course and said the company would support applications from third-party

developers. The company made good on its promise the following summer with the

launch of its App Store, a branch of its popular iTunes offering dedicated to downloads

for the iPhone and iPod touch. The online and mobile storefront launched with more

than 500 applications, more than double the number Apple expected. And unlike

carrier decks, which rarely offered even free trials, App Store downloads were available

at a variety of price points -- from free to $70.00 -- from brand heavyweights such as

Facebook, MySpace, Major League Baseball and Bank of America.

The App Store was an instant success, delivering more than 60 million downloads and

netting an estimated $1 billion in its first month. By April 2009 – just nine months

after its launch – the App Store delivered 1 billion downloads, with a reach of 77

countries and a library of 50,000 applications.

The success of Apple’s model can be traced to several key factors, including:

• A broad base of addressable handsets and no unnecessary porting

costs. Apple sold as many as 500,000 iPhones during its opening weekend in

the summer of 2007, and the device continues to gain momentum, with iPhone

and iPod touch sales recently topping the 40 million mark. And while carrier


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mandates often require developers to support a wide variety of handsets in

order to gain space on the deck, they can build titles directly for the iPhone

(and the iPod touch, which shares the iPhone platform and general form factor)

without having to create alternative versions for other handsets.

• A low-cost path to market for developers and an attractive revenue-

share model. The iPhone SDK (software development kit) is available free

and the cost of enrollment in the iPhone development program is $99, which is

far more affordable than most carrier-certification costs. Apple keeps 30

percent of download revenues and allows developers to pocket the remaining

70 percent, creating a far more alluring model than traditional carrier

programs.

• A simple, familiar payment system and a cross-platform shopping

experience. Apple’s App Store is integrated with iTunes, which many

consumers view as a trusted storefront through which to consummate digital

transactions. And the App Store allows users to browse the shelves and make

purchases on a computer – providing a superior shopping experience thanks to

the large screen and full keyboard – or on the handset itself.

• Apple’s Safari browser, a touch-screen interface and the

accelerometer. All of which made the device far more user-friendly than

other handsets on the market, and spurred uptake of mobile applications on

the device. The iPhone consistently ranks among the top devices in usage of

both the mobile web and downloadable applications.

• Big-budget marketing campaigns. Apple – in stark contrast to network

operators, who typically spend vast sums to promote network coverage --

continues to invest heavily to promote its mobile devices, illustrating the

iPhone’s capabilities and ease of use. Apple aired television commercials

demonstrating the web browser and App Store, citing a litany of use cases and

nothing, “There’s an app for that.”


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• The iFund. The $100 million capital fund was established by Kleiner Perkins

Caufield & Byers to seed third-party development of iPhone apps.

The App Store is not without its detractors, however. Some developers have bristled at

what they claim to be arbitrary approval policies that, for instance, have barred some

applications of questionable taste while approving a host of flatulence-imitation wares.

And the App Store’s vast library can lead to discovery nightmares for consumers, who

– just like on the carrier deck – might have to scroll through endless lists of offerings

to find the desired app.

Competitive Advantages

A drastic head start over its competitors has given Apple time to build a large

developer community that can address a large number of handsets with a single build.

Just as importantly, consumers know and trust iTunes, which offers tens of thousands

of applications and – unlike most App Store competitors -- serves as the sole

distribution channel for the iPhone and iPod touch. Apple’s proprietary iPhone OS

allows the company to control the platform, minimizing fragmentation issues. And

Apple not only takes a healthy 30 percent of download revenues, its App Store

business drives revenues for its lucrative hardware business.

Disadvantages

Apple has drawn criticism from developers for a seemingly arbitrary approval policy

for App Store offerings, and exclusive partnerships have resulted in the iPhone

typically being offered through a single carrier per territory (such as AT&T in the U.S.),

limiting the reach of the handset and the App Store that serves it.

Google

Google followed Apple onto the app-store field in the fall of 2008 with Android and

Android Market, , a platform and supporting app store that while very similar

http://gigaom.com/2009/08/04/the-great-firewall-of-apples-app-store/


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conceptually differed from the iPhone in several crucial ways. True to form, Apple has

maintained a go-it-alone strategy in mobile, partnering only when necessary. Google,

on the other hand, assembled the Open Handset Alliance, a consortium of dozens of

companies across the mobile spectrum including carriers, handset manufacturers,

chip vendors and software developers. The OHA is centered on Android, a Linux-

based software stack that consists of an operating system, middleware, a user interface

and applications. It is supported by Android Market, an application store that

leverages a user rating system and is currently available in eight markets.

T-Mobile USA was the first carrier to introduce a device built on the Android platform.

The G1 (also marketed as the Dream), an HTC-built phone with a slide-out keyboard

and touchscreen, was introduced [DATE]. The carrier shipped its 1 millionth G1 in

April 2009, underperforming the debut of the iPhone, which sold roughly 1.4 million

units in its first four months. (Apple sold 21.4 million iPhones through March 2009.)

But Android is poised to expand aggressively in the coming months: a second HTC

handset, the Magic, has launched in six markets so far this year and reportedly is

slated for a U.S. debut through T-Mobile by the end of the year. (In fact, T-Mobile USA

has vowed to release “multiple” Android handsets from three vendors in 2009.) OHA

member Samsung’s Galaxy will be released in France and Germany in mid-2009

before hitting other regions, and other manufacturers with Android devices in the

works include Motorola, Huawei, Lenovo and Kogan Technologies.

Other differences that underscore the contrasting strategies between Apple and Google

in mobile -- and further sets the playing field for today’s app-store space – include:

• Unlike Apple’s proprietary iPhone OS, Android is an open source

platform based on the Linux OS. While that allows all the players in the

value chain great flexibility in customizing the platform for their own interests

– modifying the user interface, for instance, or tailoring the platform to specific

devices – it risks creating a fragmented environment where some applications

run on some devices (or sub-platforms) but not on others. That danger is only

magnified by the vast number of important players in the Open Handset

Alliance, and could result in a segmented Android Market where a user must


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set parameters for supported applications based on the handsets and/or

carrier.

• Android Market appears to be a surprisingly attractive marketplace

for carriers, while still distributing 70 percent of download

revenues to developers. Google claims the remaining 30 percent goes to

unspecified “operating costs” which presumably include a stake for its carrier

partners. Apple, on the other hand, employs a straight revenue-share model,

keeping 30 percent of the revenues itself, granting developers 70 percent and

leaving carriers out of the loop. So while Android Market has more appeal for

carriers in terms of revenue, developers take the same percentage from both

outlets.

• Google has shown almost no interest in regulating Android Market

applications. Apple closely monitors its App Store, regularly weeding out

applications that users may find offensive or otherwise controversial. Google,

on the other hand, allows developers to upload their wares directly, and

generally has stepped in only to block apps that tethered devices to laptops.

(Google restored tethering apps in most cases, but continues the ban for

customers of T-Mobile USA.) Each strategy has distinct advantages: Apple’s

approval policies sometimes appear inconsistent or even arbitrary, drawing the

ire of developers whose apps are rejected and who have no other avenue of

reaching iPhone users. But Google’s anything-goes stance surely has ruffled the

feathers of some network operators, who often must deal with the costly

proposition of irate customers when an application disappoints or a download

isn’t completed.

Apple enjoys the luxury of leveraging its popular iTunes application as a billing

mechanism, allowing users to establish a single account to pay for mobile downloads,

songs, videos and other content across a host of devices. Android Market faces a

steeper challenge, however, in consummating all transactions through Google

Checkout, which some users are surely unfamiliar with. Google would surely boost


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uptake by employing carrier billing but then would forfeit the 30 percent transaction

fee – its sole revenue play in Android Market.


The platform has secured support from a broad range of players across the mobile

spectrum, including key operators and handset manufacturers. Developers appreciate

the laissez faire environment of Android Market, which allows them to upload apps

and sell them unencumbered (in contrast to Apple’s App Store). Android Market has

grown to house more than 6,000 apps, and Google Checkout provides a revenue

stream for Google and also allows carriers to share the wealth with developers. While

the overall number of Android handsets on the market is still relatively small, multiple

ODMs and carriers are planning to launch – or expand – Android offerings in coming

months.

Disadvantages

Android’s initial handset – the G1 from T-Mobile USA – received tepid reviews, and

other handset deployments began occurring only a few months ago. And while

Android has widely been praised as a mobile OS, some onlookers have expressed

concern that an open-source platform that isn’t tightly controlled could become

fragmented, resulting in a host of Android versions with different brands and user

interfaces.

The Manufacturers

Handset manufacturers appear to be the strongest players in these early days of mobile

application stores. And while most app stores take a cut of download revenues, the

primary business case for handset makers is slightly more sophisticated than just

shared revenue: By attracting developers and offering compelling applications,

manufacturers hope to gain market share and generate revenues from hardware –

which is a far more lucrative business. The strategy builds on Apple’s iTunes, which

generates modest margins but fuels sales of high-margin iPods, iPhones and other

devices. (Apple isn’t technically an ODM – original device manufacturer – as iPhones


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are assembled by third-party companies. We categorize Apple as a manufacturer in

this report, however, for business-model purposes.) The primary players in this space

include:

Nokia

The Finnish company boasts an enormous base of handsets, claiming a 39 percent

worldwide market share of handsets overall in 2008 and a 41 percent share of the

smartphone space in the fourth quarter of last year. But the company’s dominance in

smartphones – the high-powered devices that are driving mobile application usage – is

fading, with market share eroding by 10 percent in the fourth quarter of 2008. That

trend is likely to continue as new platforms (Android) and handsets (the Palm Pre and

RIM BlackBerry models) gain traction. And while Nokia is the overwhelming

manufacturer of choice in emerging markets – where fixed-line Internet connections

can be scarce – it is losing ground in the Western markets that are fueling app store

growth.

Nokia’s app store play is a component of Ovi, an umbrella brand of mobile Internet

services that includes a host of offerings, from wireless e-mail to music, navigation

applications and social networking features. The Ovi Store launched recently in eight

worldwide markets (a U.S. debut is slated for later this year) with 20,000 items

including free and paid apps, wallpapers, ringtones and podcasts. The store is

supported by an estimated 50 million handsets, and Nokia has struck carrier-billing

deals in some markets. Like Apple, Nokia takes 30 percent of download revenues and

passes the remaining 70 percent to developers, although operators that provide billing

services will generally keep 40 percent off the top before the revenue split kicks in.

As impressive as the Ovi Store is in scope, however, Nokia may have been overly

ambitious in rolling out the service. While the company appears to have addressed the

traffic issues that plagued the launch, users continue to complain of applications that

disappear from menus, user-interface challenges and performance inconsistencies

from market to market. Also, Nokia’s biggest competitive advantage — a huge base of

devices in the hands of consumers — may prove to be a liability if developers fail to

address many models, leading to a potentially splintered app store and a confusing,


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frustrating shopping experience. Meanwhile, Symbian – a 10-year-old smartphone OS

that accounts for 50 percent of the market and was acquired by Nokia last year – has

yet to offer a dedicated app store despite months of widespread rumors.

The biggest hurdle for Nokia in the U.S., however, may prove to be a lack of

cooperation from carriers, who may view Ovi as a threat to mobile-data revenues. Such

deals are critical in the U.S., where prominent on-device placement and hardware

subsidies are necessities for mobile data usage. But Nokia has a history of provoking

carriers with on-device entertainment portals, and has yet to reach a billing agreement

with a stateside operator, potentially forcing would-be buyers to type in credit card

information for every purchase. U.S. carriers are warming to the idea of partnering

(sometimes exclusively) with other players in the space, as demonstrated by tie-ups

such as AT&T/Apple, Sprint/Palm’s Pre and T-Mobile USA/Android. But network

operators are unlikely to forge many such alliances, fearing brand dilution and the risk

of confusing customers. The clock is ticking on Ovi Store’s prospects in the U.S., and

the service may have to gain critical mass in Europe and elsewhere to encourage

American operators to support it. And that’s a very tall order.


Nokia boasts a massive base of addressable handsets, both among smartphones and

feature phones. (Ovi offers apps for both Symbian- and Java-based Nokia handsets.)

The company has a formidable presence in Europe as well as emerging markets, and

its brand is recognized worldwide. Interestingly, a key differentiator for Ovi is the

scope of its offerings – Nokia seeks to become not just an app retailer but a social

networking provider and a cloud-based service provider, among other things.

Disadvantages

Nokia has failed to gain much traction in North America, and its global dominance is

slipping even as the overall smartphone market gains ground. The company’s vision

for Ovi, while impressive, may be overly ambitious in a market where so many players

are rushing simply to get a mobile app store online, and Ovi faces a formidable task in


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creating an app store to address a wide variety of handset models. (That ambition may

have been a factor in Ovi’s inauspicious debut.) While Symbian remains the most

popular smartphone OS on the planet, it has yet to develop the kind of simple, intuitive

user interface that some of Nokia’s competitors have built.

Research In Motion

RIM doesn’t enjoy the smartphone marketshare Nokia claims, but the BlackBerry

maker is closing the gap on the dominant Finnish company in a major way –

particularly among U.S. consumers. RIM’s share of the American market expanded to

19.5 percent in fourth quarter 2008, according to Gartner Research, and BlackBerry

models accounted for three of the top-five selling smartphones in first quarter 2009.

(The BlackBerry Curve claimed the No. 1 spot, ousting several consecutive first-place

performances by the iPhone, thanks largely to an aggressive sales promotion from

Verizon Wireless.)

RIM launched its App World earlier this year and is gradually rolling out the service

worldwide. Developers are charged a $200 registration fee but keep 80 percent of

download revenues, with RIM pocketing the remaining 20 percent; carriers receive

nothing. App World’s library is impressive, with hundreds of applications available for

free or for $3 and up. (Interestingly, App World doesn’t support premium apps priced

less than $3.) Users have complained that App World is heavy on more expensive

applications, however, which seemingly contrasts with Apple’s strategy of offering

thousands of bargain-basement offerings. While the strategy may be an effort to

leverage RIM’s user base of road warriors and high-powered executives with deeper

pockets, it doesn’t appear to be a path to the kind of hockey-stick uptake Apple has

enjoyed.

And the BlackBerry ecosystem has drawn complaints from the developer community.

Five versions of the BlackBerry SDK exist – due to RIM’s relatively long history in the

space – leading to a lowest-common-denominator environment that requires

developers to choose between offering more sophisticated applications or addressing

the widest swath of handsets. (Similarly, developers have complained that earlier


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BlackBerry models suffer from severe memory limitations.) And RIM’s widespread

deployment across operators and networks has led to a host of different network

transports, each of which is implemented as an isolated transport.


RIM’s reputation among enterprise users is iron-clad, and the company is successfully

expanding its audience to include lower-end business users, prosumers and even

consumers without a business need for a smartphone. App World surpassed the

2,000-application mark less than three months after its launch by pent-up demand

from an already-installed user base and developers looking to tap that base. Also, the

company’s phones are offered by a wide variety of carriers with a strong presence in

North America – which is a leading market for mobile apps.

Disadvantages

RIM’s longstanding presence in the space has produced five BlackBerry SDKs, which

in turn has led to a somewhat fragmented environment in which developers must

choose between building simpler apps that are supported by a wide swath of

BlackBerry handsets or more sophisticated offerings that run on fewer models. And

because App World cuts operators out of the revenue chain entirely – eschewing

carrier billing for a PayPal-powered service and sharing download revenues with

developers only – it risks being ignored by wireless service providers such as Verizon,

which has said it won’t sell handsets that have App World embedded on them.

Palm

The venerable manufacturer seems to have regained its relevance with Pre, a

smartphone using Palm’s new Linux-based webOS that was released by Sprint in June

2009. But while the device and platform have garnered positive reviews – and webOS

has been deemed Palm’s most valuable asset – Pre sales have been tepid, due in part to

inventory shortages (that may have been planned in an effort to drum up publicity).

Interestingly, a study found that the Pres sold at launch were purchased by existing

Sprint customers, failing to lure users from other carriers.


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Palm, too, is struggling with developers in the infancy of webOS. The company has yet

to build a substantial app library, with roughly 30 apps available two weeks after the

Pre’s launch. (Pre owners have shown a remarkable hunger for applications, however,

with the phone generating an estimated 1 million downloads in its first two weeks.)

And the portfolio isn’t expected to grow substantially for quite a while: although select

developers have had access to Palm’s new SDK, dubbed Mojo, it won’t be available to

most developers until late this summer at the earliest.

The new device and OS may have suffered due to Palm’s exclusive deal with Sprint,

which has lost substantial ground as AT&T and Verizon Wireless have gained market

share. Sprint has seemingly stanched the bleeding with bargain-basement, all-you-

can-eat data plans, but thus far has declined to back the Pre with an aggressive

marketing campaign. So Palm’s best hope for the Pre likely hinges on support from

competing carriers. Both Palm and Sprint have declined to discuss terms of the

exclusivity, but Verizon has hinted it will carry the Pre beginning early next year. That

move could be a huge boost for the Pre, especially considering Verizon’s proven

success in promoting high-end handsets.


The Pre has drawn very positive reviews from analysts and users, and webOS is an

undeniably attractive platform for both developers and consumers. Just as

importantly, Verizon is set to offer the Pre beginning early next year, which should

drastically expand Palm’s reach.

Disadvantages

Neither Sprint nor Palm has backed the Pre with the kind of big-budget marketing

campaigns that have fueled iPhone sales, and Pre shipments have failed to impress

most analysts. Palm has been slow to release its webOS SDK, which has prevented the

Pre app store from growing its library in the early days of the device.


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Sony Ericsson

The manufacturing joint venture between Ericsson and Sony Corp. is aggressively

expanding PlayNow arena, an app store with roots in the ringtone business. PlayNow

arena currently offers more complex content, including full-track downloads and

movies, and is soliciting apps supported by SE devices running Java and Symbian. The

app store will support 38 handset models at launch – with more expected in short

order – with distribution spanning nearly six dozen markets. SE promises multiple

billing mechanisms, including carrier billing, and developers will keep 70 percent of

net revenues – presumably after carriers take their share – of downloads. While the

store has yet to launch, it appears developers will be able to distribute their wares free

– with no submission, certification or annual charges. The store will also offer content

from GetJar, an independent, UK-based retailer of mobile content.


An impressive worldwide footprint and base of addressable handsets shows promise,

and an apparent lack of any developer fees may lure new apps. The company’s

willingness to employ multiple payment mechanisms provides flexibility in serving

consumers and partnering with others in the value chain, and may help secure carrier-

billing relationships that could prove crucial to its success.

Disadvantages

SE is sure to have trouble supporting such a broad range of handsets in so many

markets, and the storefront may not receive support from network operators unless it

secures carrier-billing agreements. Also, Sony Ericsson has lost market-share in the

overall handset market recently due to its focus on mid-range phones – a costly

mistake at a time when the markets for both high-end smartphones and low-end

models have thrived.

Samsung

The Korean ODM has already launched a beta version of its branded app store,


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focusing primarily on the UK and Germany and supporting a modest 13 handsets – up

from 11 at its January debut – running Symbian and Windows Mobile. The store has

yet to offer carrier billing, requiring users to supply credit-card information or use a

PayPal account, and is accessible only via computer – not from the handset itself. The

relatively small library of apps leans heavily to high-end offerings, with many offerings

priced between $10 and $40. The portfolio will surely expand to include Android

devices in coming months as Samsung begins to offer phones supporting the OS.


Samsung may be wise to dip its toes into the app-store waters by supporting only

several handsets rather than ambitiously targeting dozens of models. Like Sony

Ericsson, Samsung charges no initial costs for app submissions, and developers take

70 percent of download revenues.

Disadvantages

Although it’s been on the market for more than six months – a respectable period in a

space where new storefronts come online every few weeks – Samsung’s app store still

has an experimental feel to it, as if the ODM is hoping only to fill a temporary need

while other app vendors (such as Windows Marketplace and Android Market) gain

traction . Also, until carrier-billing agreements are struck and a mobile storefront

comes online, uptake is sure to be minimal.

New Entrants

While it may seem the app-store space is already crowded, the segment will see a

substantial number of new players before much consolidation occurs. We expect to see

ambitious carrier deployments in the next one to two years, most of which are likely to

be powered by white-label app-store operators such as Qualcomm’s Plaza Retail and

Handango, a longtime smartphone-application vendor that several months ago

announced a white-label solution. A few of the key players expected to launch app

stores in coming months include:


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Microsoft

The software behemoth recently began accepting submissions for Windows

Marketplace for Mobile in support of Windows Mobile, which claims a 12.4 percent

share of the worldwide smartphone market. While Microsoft has yet to divulge details,

it has said it will support both credit-card and operator billing, and the storefront will

be supported by an impressive 30 million devices. The company will wisely try to tap

its enterprise-heavy base with Windows Marketplace Business Center, which will

include apps from business-focused developers – presumably separating the silly,

iFart-type apps from more productive, and lucrative, offerings. And Microsoft hopes to

differentiate its store from Apple’s with a progressive, user-friendly shopping

experience that stresses improved discoverability, multiple platforms and payment

options, and a simple money-back guarantee. Whether the company can actually

deliver on some of those promises has yet to be determined, however.


While the platform remains a primarily business-oriented mobile OS, it maintains a

respectable market share in the smartphone space and Microsoft’s high profile should

not be discounted. Microsoft’s focus on high-end executives is underscored by its fee

structure: $99 buys developers five submissions a year, with additional apps charged

at $99 each. The strategy could serve as a filter, minimizing the number of frivolous

entertainment offerings and maximizing opportunities for more expensive,

productivity apps.

Disadvantages

While some of its competitors gain traction courting more mainstream users,

Microsoft may paint itself into a corner with more enterprise-focused apps. More

importantly, Marketplace for Mobile is tied to the success of Microsoft’s OS, which is

in dire need of an overhaul if it hopes to expand beyond hardcore business types. And

Windows Mobile 7.0 isn’t expected until next year, which will give competitors such as

Android and Palm’s webOS plenty of time to gain market share.


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Verizon Wireless

The nation’s No. 1 carrier will launch its V Cast application store in the fourth quarter

of 2009, promising developers a 14-day time-to-market and, like many competitors,

70 percent of download revenues. The store will support free apps in an effort to

encourage new users to consume mobile offerings, and Verizon vowed to include APIs

(application programming interfaces) to help developers leverage assets including

location, messaging, presence and billing information.


Network-specific information such as location and messaging could give Verizon a

huge edge in helping developers build compelling applications, and the ability to

embed an app store on handsets before the point of sale cannot be overstated –

especially for the nation’s largest carrier. Also, Verizon has developed an impressive

ability to market its wares in the era of the smartphone, as evidenced by its role in

helping the BlackBerry Curve outsell the iPhone in the U.S. in the first quarter of 2009.

Disadvantages

Verizon is taking a substantial risk in forcing consumers to actively download

competing app stores such as Android Market and RIM’s App World onto their

handsets, rather than allowing them to come pre-installed. Verizon also has a

decidedly unimpressive record when it comes to retailing its own mobile data services,

as evidenced by disappointing uptake of entertainment offerings such as full-track

download offerings and V Cast Video.

Primary Challenges in the App-Store Space

Discoverability of Applications

While the cross-platform nature of most app stores has made searching for

applications easier than traditional carrier decks, finding a specific app or genre can be

still be difficult – especially in Apple’s App Store, which boasts 65,000 titles. User-

rating systems such as those employed by Android and Apple’s App Store can be


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helpful but also tend to serve as self-fulfilling prophecies where offerings remain

popular for popularity’s sake. So a disconnect remains between developers – who find

it increasingly difficult to draw attention to their app – and users.

Potential Solutions for App Retailers

• A combination of user reviews and recommendation engines that can

lead users to applications they are particularly inclined to appreciate. Such

systems have boosted the popularity of online vendors and services like

Amazon.com and Netflix.

• Promotion of specific apps through traditional media (such as Apple’s

“There’s an App for That” television commercial) and social networking sites.

• Better user interfaces and cleanly organized stores. Genres should

expand beyond simply “entertainment,” “productivity” and “lifestyle” to include

a host of possibilities such as music, video, location and exercise. And vendors

should tailor mobile storefronts for the constraints of the device, providing a

cleaner and simpler user interface than their computer-centric counterparts.

Potential Solutions for Developers

• Brand your apps wisely and market them effectively. Fund an ad

campaign, if possible, specifically targeting users who are most likely to be

interested in your app. Use social networks such as LinkedIn and Facebook to

promote the offering and encourage (and possibility incent) users to

recommend the app to friends. Post a video on YouTube to demonstrate the

software, and try to work with app stores to optimize product placement.

• Offer free, stripped-down versions to introduce users to premium

apps. iShoot, a $3 tank game for the iPhone, gained tepid uptake when it was

released last fall but sales soared after a free “Lite” version was released a few

months later.

• Make sure bloggers and key media people get a chance to play with

and write about your app, especially at launch time or soon thereafter.

• Move quickly to fix bugs or other hang-ups. Engage with users online,


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through message boards, and install in-app “tell-a-friend” features.

• Consider building franchises of successful apps by creating sequels under

the same brand.

Discoverability of the App Store Itself

This has yet to be a substantial problem, as the few app stores that have been on the

market for any considerable period of time (Apple’s App Store and Android Market,

most notably) have enjoyed both substantial marketing campaigns and the luxury of

being embedded on handsets at the point of sale. As other outlets come to market,

though, drawing users will become more of a challenge.

Potential Solutions for App Retailers

• Carrier relationships. Nothing can draw eyes like having prominent

placement on the handset itself.

• Cross-platform promotion and marketing. Team with handset

manufacturers, media companies and other high-profile players to lure users to

your storefront. More specifically, identify and target your audience: RIM

might do well to advertise App World on mobile sites from Bloomberg and

CNN, for instance, while Android could leverage its relationship with Google to

deliver search ads related to mobile entertainment.

Payment Mechanisms

Apple effectively addressed the issue by making its App Store a component of iTunes,

which has a broad user base and has earned a reputation as a reputable mechanism for

digital transactions, but other vendors have several factors to consider. Carrier billing

provides the path of least resistance for consumers but can be prohibitively costly for

developers. However, customers are often hesitant to enter credit card information via

a mobile device for both security and practical reasons – especially if the input is

required for every purchase.


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Possible Solutions for App Vendors

• Carrier billing. Partnerships wherein the network operator bills for

application are ideal for the consumer, eliminating issues of trust and

impracticality. And – perhaps most importantly – operators still determine

whether app stores are embedded on handsets before the point of sale or,

alternatively, must be downloaded by consumers post-purchase. Verizon

Wireless, for instance, recently drew considerable flak for announcing it will

not embed Android Market or RIM’s App World on its smartphones, opting to

package handsets only with its own branded app store. The stance is sure to

negatively affect downloads from the two stores, as some Verizon subscribers –

particularly less tech-savvy users – will choose to buy from the embedded

storefront instead of downloading a retail offering the may not even know

exists.

• While companies such as Bango have gained traction serving as a transaction

middleman between content providers and operators, carrier billing systems

continue to suffer from “leakage” – lost revenue due to charge-backs,

improperly delivered downloads, etc. Further, operators – who are likely to

remain the primary customer-service contact for disgruntled users – typically

demand some control over app-store management in an effort to reduce

customer-care costs. More importantly, carriers generally charge 30 percent or

more of download revenues for billing services.

• Third-party transaction providers. PayPal (which handles billing for

RIM’s App World) has earned its reputation as a trustworthy third-party

digital-transaction company, but it has yet to truly gain mass-market

acceptance: the company manages 183 million accounts, but only 73 million of

those are active. So while many consumers are aware of PayPal, app stores

looking to employ the service will be asking many customers to establish

accounts through the company – which may prove difficult.


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• Single-entry, stored credit card accounts. Apple has built its iTunes

business on users’ existing credit cards, requiring them to use credit accounts

to purchase digital goods. But consumer confidence is still difficult to win for

newcomers to the app-store space. There are distinct advantages to creating a

single-entry, stored credit card system similar to those employed by Amazon,

Apple and PayPal, among many others. But building a storefront that makes it

easy and comfortable for consumers to share their credit card information is

still a major hurdle.

Application Quality and Availability

The very brief history of app stores teems with success stories from developers who

have struck gold with novelty apps that replicate the sound of flatulence or cover an

iPhone’s screen in virtual steam. Such offerings are often available for a dollar or two

and sell in impressive numbers to consumers who use them for a few days before they

are forgotten. But their success has also served to crowd stores with imitators, making

it that much harder for more practical apps to find an audience and resulting in lower

ROI for developers of practical apps.

Potential Solutions for App Stores

• Create specific genres of useful apps that are likely to be accessed time and time

again. Possibilities include navigation offerings, financial apps (both personal

and professional) and personalized news feeds.

• Work with developers to build and market practical applications that fill

specific needs.

• Establish subscription models for applications that are particularly well-suited

for consistent, repeated use. Apple has generated substantial revenues with

one-off sales, but app stores that couple subscription models with compelling

apps that demand repeated use on a regular basis – an enterprise-focused

package-tracking app, for instance, as opposed to a fart simulator -- could


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create a strong new stream of recurring revenues.


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Summary Table

Android BlackBerry iPhone Symbian webOS Windows Mobile

CompanyGoogle (supported by the Open Handset Alliance)

Research In Motion Apple

Nokia, via the nonprofit Symbian Foundation

Palm Microsoft

Addressable handsets

Expected to reach 5-8M by end of 2009

20M 21M 50M 500,000 30M

Developers page URL

LINK LINK LINK LINK LINK LINK

Store available on phone/desktop?

Yes/No Yes/Yes Yes/Yes Yes/NoYes/TBD

Yes/TBD

Exclusive app store? (Other vendors)

No. (Handango and OnlyAndroid)

No. (Handango, Handmark, Verizon Wireless)

Yes/Yes No. (Handango) TBDNo. (Handango, Handmark, MobiHand, Pocketland)

Storefront URL/download page

LINK LINK iTunes LINK N/A LINK

Submission requirements

$25 reg. fee$200 for reg. and app submission (refundable).

$99 standard reg. fee; $299 for companies with > 499 employees creating proprietary, in-house apps

$0-200 annually N/A

$99 per app; fee is waived for first 5 apps/developer before Jan 1., 2010

Submission limits Unlimited Unlimited10 apps; $200 buys 10 more

Unlimited N/A Unlimited

Approval policies None

Must be approved by RIM, which can reject apps based on controversial content or other issues.

Must be approved by Apple, which can reject apps based on controversial content or other issues.

Must be Symbian signed

N/AExtensive, and detailed here

Payment mechanism

Google Checkout PayPal Credit card No N/ACredit card; carrier billing

Continued on following page

http://developer.windowsmobile.com/resources/en-us/MarketplaceProhibitedApplicationTypes.pdf

http://www.microsoft.com/windowsmobile/catalog/cataloghome.aspx

https://store.ovi.com/

http://www.apple.com/itunes/download/

http://appworld.blackberry.com/webstore/

http://www.android.com/market/

http://developer.windowsmobile.com/

http://developer.palm.com/

http://developer.symbian.com/main/index.jsp

http://developer.apple.com/iphone/index.action

http://na.blackberry.com/eng/developers/javaappdev/javadevenv.jsp

http://developer.android.com/sdk/1.5_r2/index.html


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Android BlackBerry iPhone Symbian webOSWindows Mobile

Revenue split

70% to developers; 30% Google and carriers (unspecified)

80% to developers; 20% to RIM; nothing to carriers

70% to developers; 30% to Apple; nothing to carriers

70% developer; 30% Symbian. Allowances for carrier billing come from developer's share

70% developers; 30% Palm; nothing to carriers

70% developer; 30% Microsoft; nothing to carriers

App-genre specialties?

Entertainment apps currently dominate, but likely to expand into web-based and location apps, among other types.

Enterprise-related productivity and lifestyle apps.

Entertainment, social networking, mapping, lifestyle.

Uncertain, but likely entertainment, social networking and mapping.

Entertainment and lifestyle, similar to Apple's App Store.

Enterprise and casual, single-user games.

Promotional/marketing support

Relatively strong with help from Google, carriers and ODMs

Strong from RIM; we expect to see some help from it's many carrier partners

Apple continues to effectively promote its hardware and App Store

Weak traditional marketing efforts, but strong viral support.

Fair efforts from Palm; little support from Sprint. Again, Verizon could help immensely.

Weak

Key vulnerabilitiesRelatively few handsets, potential fragmentation

Dependence on a single ODM

Single distribution channel; backlash among developers and users

Weak carrier relations; mediocre user interface; unimpressive shopping experience

Very small number of supporting handsets; mediocre debut with a flagging carrier (Sprint); small library

Clumsy, unintuitive user interface with no major overhaul due until second half of 2010; perceived by consumers as a business-only platform.


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Conclusion

A number of entrenched app stores continue to compete in the space with varying

degrees of success. GetJar, for instance, is differentiating itself by offering a vast

library of content and applications across multiple platforms, including Java, Symbian,

BlackBerry, Palm, Windows Mobile and Flash Lite. And Handango and Handmark

continue to serve long-time customers who’ve grown accustomed to shopping for apps

on their sites.

We believe most of the venerable players in the space will lose ground to the

newcomers, though, for several reasons. High-profile, easily recognizable app stores

are becoming a major driver of hardware sales as users increasingly purchase phones

as much for the available software as for the devices themselves. Also, smartphones

will increasingly be sold with pre-installed app store software from either platform

developers or carriers, allowing users to establish accounts and download offerings

with just a few clicks. While GetJar may continue to thrive as a channel for less-

sophisticated handsets and software, we believe third-party vendors of smartphone

apps are likely to become even more niche, providing apps for specific use cases but

losing out on the broader – and more lucrative – consumer market.

Meanwhile, carriers will choose whether to embrace specific app stores or – as Verizon

Wireless has opted to do – to compete with them. While we believe Verizon’s strategy

to be short-sighted – perhaps even serving as a speed bump to the industry at large –

the channel may gain substantial ground among less tech-savvy consumers who may

not even be aware of competing app stores.

And while there has been much talk about web-based apps vs. downloadable offerings,

we see little indication that Internet-based mobile products will threaten their

downloadable counterparts anytime soon. Web-based apps require a constant

connection to the network, of course, eliminating the ability to access them on a plane,

subway or in rural areas, and network latencies can still make for an unsatisfactory

user experience on the mobile web. We believe the long-term future for web-based


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apps is bright, and usage will ramp up dramatically in several years when handsets

become more sophisticated and network speeds increase dramatically. For the next

few years, though, we believe the space will be dominated by downloadable apps.

Apple has a dramatic head start on its competitors, but there is plenty of room for

opportunity for those who can improve the quality of the app store – and deliver the

goods to gotta-have devices.


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About Colin Gibbs

Colin Gibbs, the Mobile curator for GigaOM Pro, cut his teeth in tech journalism

during a five-year stint at the trade pub RCR Wireless News, where he covered mobile

content, applications, marketing and advertising. During that time he co-founded the

Denver chapter of Mobile Media Mondays, a networking group designed to connect

members of the wireless community. His work has been cited by the New York Times,

among other mainstream publications, and he’s been quoted in outlets including the

New York Daily News. Prior to the RCR gig, he spent several years as a general

assignment reporter with The Denver Daily News, an independent publication, and as

a freelance sports reporter with The Denver Post.

Contact him through GigaOM Pro:

http://pro.gigaom.com/members/colingibbs/profile

About GigaOM Pro

GigaOM Pro gives you insider access to expert industry insights on emerging markets.

Focused on delivering highly relevant and timely research to the people who need it

most, our analysis, reports and original research come from the most respected voices

in the industry. Whether you’re beginning to learn about a new market or are an

industry insider, GigaOM Pro addresses the need for relevant, illuminating insights

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Please visit us at http://pro.gigaom.com/

http://pro.gigaom.com/

http://pro.gigaom.com/members/colingibbs/profile

Documents

Surveying the Mobile App Store Landscape