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Forget about the Apple's success with the App Store. According to an article by Farhad Manjoo in Fast Company magazine, the app store model may soon hit a "dead end".

That's because, he argues, developers don't need Apple. As Manjoo sees it, "in the age of the Web, developers can get their programs to end users without anyone intervening".

It's a notion that's increasingly promoted, and it's a notion that's as dangerous as it is naive.

When you get right down to it, what is that App Store? It's the digital equivalent of Wal-Mart. Like Wal-Mart, which has more than 100m customers walking its isles every week, Apple has created a one-stop shop for a particular market -- the market for digital entertainment and content. As with Wal-Mart, not every supplier who wants to get in gets in.

But that's the point. How Wal-Mart selects suppliers, and what it requires of them, are two big factors in the company's success. Obviously Wal-Mart can't buy from every supplier that would like its products to line Wal-Mart's shelves. And while Wal-Mart's supplier requirements are epically tough, those tough requirements help ensure that the products Wal-Mart buys will be saleable and available at Wal-Mart scale.

Who benefits from that? The consumer. The one person, ironically, that those who argue against the app store model ignore. Which is sort of problematic.

While I'll gladly admit that there's room for improvement in Apple's relationship with developers and I've argued that it shouldn't treat developers like crap, Apple has leverage because, just like Wal-Mart, it maintains a great relationship with consumers. And for good reason. The App Store experience is wonderful. There's plenty of in-demand content, and it's easy to discover. The purchasing process is simple. And when you download something to your computer or Apple device, you don't really have to worry about the quality, which provides Apple with a trust profile and reputation that most independent developers can only dream of.

So where do developers fit in? They're suppliers. Their content and apps line the shelves of the App Store. They deserve respect, but they also need to know their place in the foodchain. Developers can act like prima donnas and complain about how hard it is to get shelf space and how Apple doesn't give them the treatment they feel they deserve, but the numbers don't lie: Apple delivers buyers. And without those buyers, there's nothing for the suppliers (developers) to supply.

This is not to say that developers should ignore the 'open web'. There's plenty of opportunity there too. But building apps is no different than breaking into, say, the food business. If you develop a secret recipe, for instance, you can build your own restaurant around it (the open web model). When you run a restaurant, you're on your own finding customers. You have to handle the tedious things, like payment processing, and it can be real hard to create the experience you've envisioned. Scaling? Don't even go there.

Alternatively, however, you can decide to focus on building a product around your secret recipe. Once you've got a product, you can try to get it into the hands of someone who can distribute or sell it for you (the app store model). When you go this route, you get to focus exclusively on the product and leave the selling to those who are in the business of selling (a distributor, a major supermarket chain, etc.). Owning a restaurant is certainly easier than this in many respects, and offers an attractive level of control, but the owner of the company who sells to Wal-Mart makes a lot more money.

In the final analysis, pretending that the fundamental economics of the internet are somehow different those in the physical world is foolish. Middlemen, like Apple, grease the wheels of commerce, helping suppliers get their products into the hands of the largest possible number of consumers. Certainly, some who shun middlemen and go direct to the consumer find success, but betting against the app store model is essentially a bet on the idea that all suppliers can and should become distributors. That's not a good bet, and if you need any more reasons why, there's a little company that can give you 2bn of them.

Photo credit: Kenneth Hynek via Flickr.

Patricio Robles

Published 22 January, 2010 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

2393 more posts from this author

Comments (5)

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Nico

The problem is that of monopolisation. Apple controls the productivity tools, distribution and to large extent the POS marketing.

Imagine a world where only websites that are officially endorsed and verified by Google are listed in their search results. It would mean much greater safety and convenience for consumers, but a massive loss in innovation, creativity not to mention business opportunities and loss of power to the wider community. If "apps" could be created to be sold at multiple outlets that were actually competing it would be a different story. But that appears a long way off, and the fragmentation of device capabilities means one "product" is actually many different ones, meaning a very costly distribution environment. Which is why everyone goes for the iPhone app first, further cementing the monopoly.

My bet remains that the Mobile Internet will offer the most vibrant "market places" to launch services (and apps in HTML5/server side), especially since for the emerging markets the mobile Internet already = THE internet.

over 6 years ago

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Steve Ellis

Except the AppStore isn't the equivalent of Walmart.

Walmart's raison d'etre is to sell you products, anyone's products, and make the best margin possible.

The AppStore's raison d'etre is make you want to buy Apple devices.

In essence the model is exactly the same as any other 'OS + partners to add value with apps' model from the past 30+ years (IBM, HP, Microsoft, etc). What changed is the ease and simplicity of distribution of the applications and the enormity of the potential audience of customers.

The amazing thing about the AppStore is the size of the margin Apple is able to charge to developers who are fundamentally adding value to the iPhone proposition, and thereby increasing Apple's device sales (and also the data revenues of the carriers).

In traditional partner/app programs, developers had to be wooed and courted onto a platform (to then drive OS or hardware sales). Such is Apple's current momentum they can charge developers a premium for the privilege of helping to sell their devices.

over 6 years ago

Patricio Robles

Patricio Robles, Tech Reporter at Econsultancy

Nico,

Selling apps in an app store is not akin to search.

That aside, I'm a bit confused about this idea that Apple has a 'monopoly'. On one hand, you mention fragmentation and hint at all the options out there when you speak of a "very costly distribution environment". And you note that the internet is already here.

You can't have it both ways. You either have a monopoly or you don't. Apple isn't the Standard Oil of apps. They don't exclusively control the means of production and distribution in the mobile app market. Developers have plenty of options and they don't have to use Apple. They can develop for Android, they can develop their apps on the web, etc.

Steve,

You're right about Apple's raison d'etre. But the consumer doesn't really care about Apple's raison d'etre. And developers don't either. The App Store is still a 'store', just like Wal-Mart. And the developers are suppliers. Sure they're helping Apple sell devices, but that's a moot point. If you want to build an app that you can sell for $1.99 in Apple's store, you have to meet Apple's requirements. Why should the analysis from the perspective of a developer be any more complicated?

As for the idea that developers need to be 'wooed and courted', they are. By the massive number of 'shoppers' who walk the App Store isles and the amount of money successful app developers can actually make.

Finally, I know an businessman whose product is distributed in one of the largest retailers in Latin America. He's never described his relationship with that retailer as being fun or even always pleasant, but he's made lots of money from it. What more should he ask for? He works very hard, jumps through a lot of hoops and is better off for it. That's more often than not what business is about.

over 6 years ago

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Robert Farago

Like any distributor, the Apple App store must add value to the products it sells. Your analysis is spot on: Apple's App store adds safety and security to any and all products sold through their store. Users know their apps will work, and work seamlessly with, Apple products. Apple also adds an easy, secure way to pay. Win, win. Obviously.

I would, however, argue with your contention that the apps are "easy to discover." Unless you know what you're looking for, there might as well be a couple of hundred. (In fact there probably should be.) I am a heavy iPhone app user, but I have less than than fifty apps, all in. Not because I don't want more. Because there's too much choice, and not enough user-interaction/personalization (Genius is a blunt instrument).

The Apple App store is simply too big and clumsy to properly support the majority of their developers. I read recently that they sold three billion downloads of 100,000 apps. That's an average of 3,000 downloads per app. So for every app that sells a million downloads, there's one that sells . . . a lot less. Apple is not adding value to those lost apps---they simply publish 'em all and let the customers sort 'em out. 

Hence the developers' anger and fist-shaking at Apple. And their vow to go it alone. They figure it's bad enough to be subjected to Apple's corporate capriciousness and arrogance and give away margins to the man. But to be buried in the aisles is even worse. Better to go it alone. The upside: you get closer to the customer. You can innovate in all areas of the business: marketing, sales, product development. The downside: if your app lands with a splat in the Apple App store, none.

Given the primacy of user friendliness for iPhone users and the lack of any real competition, it's a change that only cutting edge users and analysts appreciate. It may take a decade or more for the Apple App store to face some genuine competition. But they will. And they will eventually lose. Just as Walmart.com, Amazon.com, Ebay.com and others will lose out to hundreds of thousands of smaller, faster, more focused e-tailers.

over 6 years ago

Patricio Robles

Patricio Robles, Tech Reporter at Econsultancy

Robert, Rob,

You both make some valid points about the importance of marketing. When I say apps are "easy to discover" in the app store, I mean that if I'm looking for a weather app, for instance, I don't need to go out on the web and search for it. I can find and purchase weather-related apps from within the App Store. There may be more of them than I need, but the experience is far better than having to browse 100 websites before coming up with a list of apps that might meet my needs.

Continuing the Wal-Mart analogy, the truth is that the companies that succeed don't sit back and wait for the money to come in once they get shelf space. You can't rely on the major retailers to promote you (they might eventually -- but you need a track record of success). So the most successful companies in Wal-Mart also actively promote their products to consumers directly through television, print, internet, in-store demonstrations, etc. Rob - your article about driving application discovery is really good for developers looking to proactively market their apps. Thanks for sharing!

over 6 years ago

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