A billion reasons to take the app store route

POSTED BY Global Administrator
We have become accustomed to big numbers being bandied around in association with the iPhone and the App Store – 100,000 SDK downloads in four days last year set the trend – but the latest announcement – that the store has achieved one billion downloads just nine months after opening – still takes the breath away.

No wonder, then, that the world and his dog are now scurrying frantically to get their own storefronts operational. Google, which launched the Android Marketplace with free apps last October, began offering paid applications two months ago, while RIM gave us the App World on April 1. And we’re all geared up for Nokia’s Ovi store, due any day now.

Apps are bigger, and are set to get much bigger – we have forecast that the market for consumer-oriented mobile apps will reach $25 billion by 2014.

While it is unlikely that any of Apple’s competitors will see the scale of growth demonstrated by the App Store, it appears that the app store business model will have a substantial effect both on how mobile entertainment content and services are monetized, and on how revenues – are distributed throughout the mobile ecosystem.

At the present time, the App Store’s revenues are derived from the 30% of the retail price of one-off downloads. However, the iPhone 3.0 update will include amendments to the App Store, including the facility to upsell premium content from within the app itself. This ability to upsell value added content and services from within the app is likely to result in an explosion of “freemium” apps, which are free to the end-user at point of download. This is a crucial development: it enables consumers to try out the app without paying, and then allows them – should they so wish – to subscribe to streamed services, buy virtual items, access new gaming levels, and so forth. And all these services will be billed via Apple, and not the operators, pulling more revenue control away from the traditional gatekeepers.

Hence the fact that many operators are also keen to get in on the act – Orange and O2 have offered beta versions of app stores (respectively, the Orange Application Shop and O2 Litmus) for several months, and others are poised to follow.

However, if the operators really want to accrue maximum benefits from the app store bonanza, their best approach would be to ensure open access. Operators will struggle to compete with the retailing nous that the Apples and Nokias bring to the storefront market: but they have an opportunity to derive substantial revenues from the uplift in data revenues as consumers sharply increase their browsing and application downloads.  But will they take that opportunity?