Shopping The Mobile Mall

Sat, 02/28/2009 - 6:13pm
Andrew Berg


A proliferation of mobile application stores presents opportunities,
but is the complexity of the environment preventing developers from making more money?

At a recent CES session, Nick Montes, president of Viva! Vision, noted that people want three things from their cell phones. "They want to communicate, and they want to save time and kill time," he said.

The Mobile MallIt's probably not a coincidence that nearly every mobile application available can neatly fit into one of those categories. Whether consumers want to communicate with their friends via Facebook Mobile, save time by checking traffic with TeleNav or kill time with an iBeer, these and many other applications are available through a growing list of mobile application vendors. The question developers are undoubtedly asking is: Are they making as much money as they should be?

The world of mobile application stores is an increasingly fragmented one. Apple offers the App Store. Google has the Android Market. Nokia unveiled the Ovi Store. Microsoft will offer the Windows Marketplace. Palm's Pre store is in the works, and BlackBerry maker Research In Motion (RIM) is building its inventory.

The fact that Handango advertises support for 1,000 devices and eight different platforms should suggest the complexity of the mobile applications market. The proliferation of new platforms and devices certainly doesn't make anyone's job easier.

"It's so inefficient," says Roger Entner, head of Telecom Research for The Nielsen Company. "I mean, there's a reason why retail has a lot of department stores and very few manufacturer stores. Ultimately, you hope device manufacturers and carriers will realize the value in having a more centralized application store."

Alex Bloom
Myriad platforms spell opportunity for Handango.

But some see diversity as the driving force behind evolution. "The more functionality a device has and the more platforms there are, the more we can offer with our applications," says Alex Bloom, CEO and president of the mobile application store Handango.

Mobile application vendors and smartphone manufacturers enjoy a unique brand of reciprocity. An application store gets more breadth of product from a larger scope of smartphone functionality, and smartphones get a boost as the growing catalog of applications draws attention to device capability. The definition of a smartphone expands as developers release increasingly varied applications. Browse any of the current application stores and it becomes evident that mobile apps are literally transforming the smartphone into the Swiss Army knife of the Digital Age.

However, one of the challenges of diversity is it costs a lot more to distribute and support an application across not only multiple platforms, but thousands of different devices. Compatibility creates reach problems for small developers; it's simply not feasible for a garage developer to produce 100 different versions of a simple application. Larger developers feel the pinch too, as they put huge sums into R&D in an effort to reach as many platform and device variants as possible.

Handango carries 69 versions of the mobile Tetris game across all platforms. Entner has heard estimates that reach into the thousands for some applications.

Roger Entner
Entner: One Apple advantage is the App Store is easy to find.

"Look, you have thousands of devices, a number of different platforms, multiply that by all the different carriers… the numbers are staggering."

For developers, the world of mobile apps can be feast or famine, with luck playing a big part in any success. Marketing an application as a single title in libraries that range from Apple's 15,000 titles to Handango's 140,000 can seem like an exercise in futility. Presently, developers are basically left to fend for themselves when it comes to getting the word out about their products.

David Barnard, founder of the niche application developer AppCubby, has been experimenting with a number of different advertising strategies, which he documents on his blog. From AdMob to free press, Barnard has tried it all. Yet he still insists that luck and timing play a big role.

"The closest thing I've seen to a ‘business model' for marketing iPhone apps is to advertise like crazy until you get into the top 50 and once you're there, the top 50 list will start generating its own buzz ... But that's not a business model, that's like rolling the dice at a casino," wrote Barnard in a recent blog entry.

Although rags to riches success stories are coming out of the App Store (iFart has reportedly sold 350,000 copies), Barnard recently reported that App Cubby only broke even, with $65,000 in revenue and $65,000 in expenses. Still, he's excited about being a part of the App Store and thinks that an open discourse about the store's strengths and flaws can mean better apps as well as better devices. "Besides," adds Barnard, "I never got into this to become a millionaire. What I'm really excited about is that the App Store has allowed me to run an international, sustainable business out of my home. Not to mention, I love doing it."

However, Barnard is realistic about his company's relationship with Apple. He says the App Store doesn't hold any rights to his code, but Apple does wrap all of its applications in digital rights management (DRM) so its applications are essentially locked to the App Store. This puts something of a strain on the developer/vendor relationship. "Being locked to the App Store means developers are in the uncomfortable position of having to work within the confines dictated by a company that, at the end of the day, is more interested in selling devices than helping developers sell software," Barnard says.

Revenue/Sales Gas Cubby
The graph shows revenue and sales for David Barnard's app, Gas Cubby,
during its run as a Featured App at the Apple App Store. Gas Cubby
tracks gas mileage and vehicle maintenance.
Source: App Cubby

Getting approval can be another point of contention for developers that work within a walled garden like Apple's. "Apple's approval process is still shrouded in mystery, as is most of the iPhone developer program," Barnard says. "I recently had an app rejected for the use of a button that was implemented exactly the same as in the two other applications already in the store." Barnard adds that a lack of communication between developers and those doing the approving is frustrating.

But even the wide open format of Google's Android Market has its drawbacks for developers. The Android Market takes all comers. Developers simply need to pay a one-time registration fee of $25 and download the SDK at the Android Web site. After that, anything goes. The site works like YouTube – the developer just uploads the content and lets natural selection take its course.

The Android Market is still maturing. It's essentially the Wild West of the application division. Initially, all applications available at Android Market were free, but Google opened it up to paid applications last month. Unlike Apple, it does not take a share of the revenue. As of late February, more than 1,000 free apps were available in the Android catalog, according to a Google spokesperson.

Milen Nakov, developer at another small, multi-platform applications company, Odesys, says there's not much difference between the two seemingly opposing strategies. "Well, we're just starting with Android, but from my point of view, I think they're all very similar. To a very large extent the customer decides what sells and what doesn't."

Who decides what a successful app is worth? There's much to be said on the subject. Every developer, carrier and application vendor has a different opinion. Some would say it's free market economics where the cream rises to the top, but Barnard thinks otherwise.

"Many developers are not pricing their apps at a sustainable price, or even a fair value for their app. They are using price as a marketing tool," wrote Barnard in his blog at AppCubby. Barnard conducted a pricing experiment at the App Store. For a limited time, his company offered all three of its applications for just 99 cents with a request that customers pay whatever they felt the product was worth. At the end of the pricing experiment, Barnard found that his apps did better at their original prices. "In the end, I've decided to embrace what I am. I'm a developer of high-quality niche applications," says Barnard, and his experiment seems to prove that consumers are willing to pay for quality and utility.

To be sure, a lot of developers are putting their efforts into Apple's bucket because they see opportunities. "Apple has three things going for it," Entner said. "They have the most advanced devices. They have seamlessly integrated to the user and it's very easy to find the App Store." Those three traits have come together to produce some impressive figures.

After only six months in the mobile applications market, Apple's App Store announced 500 million downloads. Although Apple refused to comment on its average paid price per download, it undoubtedly falls short of Handango's $20.

Twenty dollars is a healthy price point for applications. Apple has received some flak recently because of the growing number of free apps in the App Store. Analysts speculate that all those freebies are driving down the value of mobile applications. A little more than half a percent of Handango's applications are free, too few to really bring down the value of the rest of its applications.

But does the sheer volume being reported by Apple trump even the high average paid price per application at Handango? It's probably simplistic to say that only time will tell, but time is exactly what it's going to take for the application market to define itself. Undoubtedly, platforms, stores and devices will all come and go, leaving consumer preferences and dollars to thin the herd.


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