Ofir Leitner, this weeks Carnival host, has selected a nice mixture of content: App Stores, Mobile Applications (Web 2.0, Browsers-Based ), Application Environments and User Experience and Design.
Check out Carnival of Mobilists #142 at Next Generation of Mobile Content.
Given recent announcements such as T-Mobile’s abandoning of their deck as well as T-Mobile’s much anticipated launch of the HTC Dream running Google’s Android (i.e., the elusive gPhone now called T-Mobile G1), the idea of open devices, networks and markets continues to capture the media’s imagination.Yet, it is the closed application vending environments that have a proven track record to date, most notably Apple’s iPhone / App Store followed by Verizon’s Get It Now built on Qualcomm’s BREW Distribution System (BDS) and then Sprint’s Vending Machine, AT&T’s Media Mall, and the various Smartphone stores (e.g., Handango, Handmark).
I thought it would be useful to look at the types of “app stores”, review the economics, revisit the concept of openness and consider the likely impact on driving application sales, and draw some conclusions.
Pre Apple: Application Storefronts
Starting with NTT DoCoMo’s i-Mode in Japan, the discovery and acquisition of mobile content was conceptualized as virtual convenient stores and vending machines. Similar to purchases made at a convenient store, mobile content was considered to be digital snacks given both the price point and amount of content (duration, size and packaging). In the U.S., the use of virtual vending machines and storefronts have been the dominant paradigm for enabling consumers to find and buy mobile downloadable content and applications.
Carrier-based Vending Machines, Stores & Malls
In 2002, Sprint released the Java Vending Machine with the ability for users to download games, ringtones, screen savers or applications for the Vision-enabled PCS phones. The goal of the vending machine was to make it easy for both the consumer to download rich digital content but also reduce of barrier of entry for developers by being able to easily registering content with Sprint.
In 2002, Verizon announced that there were launching Qualcomm’s Binary Runtime Environment for Wireless (BREW), which enabled consumers to download a “variety of entertainment and productivity applications over the air.” Paul Jacobs claimed, “It’s like having a software store in your hand.” To be clear, Verizon’s Get It Now was the consumer-facing commerce experience but the underlying application environment and content delivery system was and is BREW. Similarly, Cingular’s MEdia Mall was based on underlying platforms provided by Mforma (now Hands-On) and later Motricity.
Although on-deck storefronts have been responsible for driving a majority of the content and applications purchases for mobile phones in the U.S., they have been heavily criticized:
Smartphone Storefronts
There have been a number of smartphone storefronts prior to the launch of the Apple App Store that handled the marketing and distribution and applications for Palm Devices, Microsoft Devices, Symbian and Blackberry’s. These storefronts are powered by companies such as Handango and PocketGear. PocketGear was recently spun out of Motricity and includes PocketGear.com, SymbianGear.com, PalmGear.com and other smartphone-based destinations.
The Apple Effect
To state the obvious, Apple’s App Store for the iPhone has caused a resurgence of interest in Smartphones, applications and application storefronts. Regardless of recent frustrations voiced by application developers towards Apple’s policy for approving applications, the end-to-end experience from discovery to purchase has driven significant demand for applications and creating a significant gap between both the existing Smartphone storefronts as well as the carrier-based storefronts.
Apple managed to solve a number of the problems associated with carrier decks. Early reviews have been glowing:
“Arguably more amazing is how easy it is to install the apps from the iPhone / iPod Touch itself. Assuming you’re connected to a Wi-Fi connection, simply load up the App Store, find the app you want, click on its price, click install, enter your password and in seconds it downloads and install and you’re done.” Full review here.
From an economic perspective, the numbers seem to speak for themselves. On July 11, Apple announced 100 million applications have been downloaded by iPhone and iPod touch users. Apple is arguably on track to generate nearly as much revenue in 2009 as all the carrier-based storefronts combined! This year, according to Nielsen’s Q2 2008 Mobile Media Executive Overview, the size of the on-deck application and game download market was just under $1.6 billion. According to Piper Jaffray, the Apple App Store could become a $1.2 billion market by 2009. Granted that this is world-wide, but even if it hits a third of that number for the U.S., the impact is quite stunning as evident by the stir this has caused in the industry:
Google: From Stores to Marketplaces
In the next couple of weeks, Google’s Android will make its first appearance presumably along with the Android Marketplace. In contrast to the closed storefront model adopted by Apple and the majority of the operators, Google chose a more open approach and used the term “market” rather than “store” to distinguish this less restrictive approach towards distributing applications. According to Techdirt, they have adopted a model along the lines of YouTube.
Google will let developers post applications to the store in a matter of minutes, without going through an approval process. But that will make it hard to vet bad, glitchy, or inappropriate applications. To weed out bad apples, the Marketplace “features a feedback and rating system similar to YouTube”
Apple’s Store (closed) versus Android’s Marketplace (open)
In the world of “brick and mortar”, a consumer has the choice of purchasing goods and services from vending machines and retail establishments ranging from the local 7-11 to Walmart. These retail establishments are “closed” in the sense that they control what goods are services are distributed and promoted by a given retail location. In contrast, consumers can go to a flea market or bazaar or buy something via an auction. These exchanges tend to be more open. For the producer of goods, the barrier to entry for a flea market or exchange is much lower than a retail store. But, those producers that get carriage and placement from Walmart will likely generate greater revenue and exposure.
Along these lines, Ted Wugofski has conjectured that “For people building high cost high value applications and services, the Apple model with ‘one click’ purchasing will be very attractive. For people building lower cost lower value applications and services, the Google model with transparent advertising will be very attractive.” Indications from T-Mobile are that free applications will not be able to use advertising. It will be interesting to watch this development and whether it will apply to the upcoming Android phone.
Another distinction is whether Google will be able to control the end-to-end service in the manner that Apple has come to perfect. In his post ‘Do Androids Dream of Killer Apps’, Paul Golding has argued that “it is ‘iPhone ecosystem’ that is the killer. The device, the early adopters (and now hoards of smart followers), the flat-rate tariff, the apps store, the Apple marketing machine, the SDK.”
As noted above, this very iPhone ecosystem, being closed, has created a ground swell of criticism.
Techdirt: “The list of removed App Store downloads include Tetris clones, harmless but expensive novelties, movie listings and useful wireless applications. Although many have sung the praises of the new system, this trend of contingent generativity – Jonathan Zittrain’s term for intermediaries exerting control over new creativity – has some worrying implications. An ecosystem with perfect enforceability of rules will come to preempt the creativity, which comes from the edge (and even piracy).
Open / Closed – The operator’s vantage point
It is quite evident from a recent CTIA panel discussion that the major U.S. mobile operators are focused on different types of openness to make the case that they, as a network, are in fact truly open.
CEO of Sprint Nextel Corp Dan Hesse “The Internet is one of those great things that are still unregulated and people are looking for ways to regulate it … but openness can be defined in three contexts:” open for the end user, open for the developer and open for the device. “Consumers want the whole internet not a walled garden one .. Quite frankly, what the industry did from a brand point of view was ensure that the user experience was a good one [by using walled gardens].” Excerpt from CTIA: Carriers attempt to define “openness.”
CEO of T-Mobile USA Robert Dotson “Being open means unleasing innovation for users” Dotson “T-Mobile USA will advocate an open source operating system through its relationship with Google’s Android OS. Excerpt from Carriers talk “open” network but no clear definition.
Dotson “if you look at just unfettered access in an open world, all of us would probably agree that you probably poor experience at the end of the day.” Excerpt from U.S. carriers hedge open network claims.
CEO of Verizon Lowell McAdam “Openness should go hand in hand with quality experience and security and privacy of the consumer.” McAdam wireless carriers need to “open the doors but protect the network.” Excerpt from Carriers talk “open” network but no clear definition.
Open / Closed – Some further distinctions
Per Hesse’s comments above from CTIA, it is more useful to think of openness in terms of the developer, the end user and the device. I’d argue that “network” is conspicuously missing from his remarks. I find it useful to make further distinctions in the types of openness between devices, networks and developers.
1. Open Devices
Andreas Constantinou from VisionMobile has described in detail a wide range of application environments.
2. Open Networks
3. Openness from the developer viewpoint
This elaboration on types of openness is a continuation from my previous blog posts on Verizon’s Open Development Initiative and Two by Six Degrees of Openness – Apple and Goolge’s impact on the mobile ecosystem.
Some conclusions
Open devices, networks and markets will likely, at a minimum, have the following impact over the next 2-3 years:
However, it is still not clear whether in this time frame, that the various open initiatives and marketplaces will drive the number of purchases for applications, and corresponding revenue for developers, that we will likely continue to see from Apple.
I wanted to thank Wendong Li, a Principal Software Engineer at Nellymoser, for his comments and suggestions for the types of openness from the point of view of the developer.