Few victors seen in "me too" App Store race

HELSINKI Fri May 22, 2009 2:50pm EDT

Patrick Morse shows off his new Apple iPhone 3G after spending the night in line outside an Apple Store in Boston, Massachusetts July 11, 2008. REUTERS/Brian Snyder

Patrick Morse shows off his new Apple iPhone 3G after spending the night in line outside an Apple Store in Boston, Massachusetts July 11, 2008.

Credit: Reuters/Brian Snyder

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HELSINKI (Reuters) - Mobile firms could struggle to match the success of Apple's App Store when creating their own online software supermarket, hampered by technical issues, a lack of applications and increased competition.

The Apple App store has proved extremely popular, with one billion applications downloaded in less than a year, and operators and technology firms including Vodafone Nokia and Microsoft now want a piece of the pie.

In their rush to catch up, however, some may be setting themselves up for a fall.

"There are too many people investing too much money into something they do not understand," said John Strand, chief executive of Strand Consult.

"They are all using the me-too strategy, not focusing on consumers - these guys don't read numbers, they read media."

Apple's store has made headlines around the world - lifting consumer interest in wireless software usage - but analysts say its direct financial boost to Apple is likely negligible.

There are no official data available, but analysts say the vast majority of software is distributed for free, and from sold applications, many of which are priced at just $0.99, from which Apple takes a 30 percent cut.

On the flip side, however, the store has boosted Apple's 'coolness' factor amongst its followers and helped build brand loyalty amongst users, helping boost sales of its other products.

DEJA VU

For industry watchers this is something of a case of deja vu.

After Apple introduced the iPhone in 2007, handset vendor rivals all focused their efforts on building similar, sleek devices with large touch screens -- a situation that is being repeated in 2009 in the rush to build a rival App Store.

"They are all desperately following but they are chasing it with all their own legacy issues," Frank Meehan, chief executive of INQ Mobile, the maker of Facebook- and Skype phones, said at the Reuters Global Technology summit in Paris.

One of the first followers, Research in Motion, opened its store in April this year and offers around 1,000 applications, but this places it far behind Apple's App Store, which offers tens of thousands of applications.

Legacy issues affecting RIM's store include its longer load and download time and, while Apple iPhones come loaded with memory, most of RIM's Blackberry devices require users to purchase additional memory if they want to load more than a few applications.

"An App Store will get a customer to buy your phone only if it's better than Apple's," INQ's Meehan said.

Nokia is set to open its software store, the Ovi store, imminently. The store will combine its legacy software distribution channels such as the Download! service, which has been pre-installed on more than 200 million phones.

However, only a fraction of those phones have ever been used to buy a program through the service, which was only lightly advertised by Nokia.

"It's probably one of the biggest marketing mistakes in the mobile industry," said Lee Williams, a former Nokia executive who runs the Symbian Foundation, a consortium of companies involved in the development of Symbian, the world's most popular smartphone operating system.

Another difference is in the billing. While Apple takes care of the billing itself, Nokia wants to also offer customers the option of charging their purchase to their phone bill.

Apple's method of billing always gives developers a 70 percent cut of the sales price, while only Nokia's direct payment option offers developers 70 percent.

Nokia says operator billing could double the amount of sold applications, but, with the operators taking their usual 40 percent cut, this means developers are left with just 0.36 euros from the sale of a 1.00 euro application sold that way.

In late April, Nokia said it would have operator billing in place in eight countries for its launch, but dropped an earlier goal of including the key U.S. market from the start.

Attracting developers -- who focus on return on investment -- could therefore be hampered by the potentially lower reward on offer and the limitations of Nokia's Symbian software, which many in the industry consider more difficult to work with.

OPERATOR CHALLENGE

Handset makers, however, are not the only aspirants to the App Store crown.

Many operators are also now looking to create their own software stores, with the aim of generating more data traffic from clients and avoiding customer turnover.

"It's going to be a big battle between equipment makers and operators," said Alex Bloom, chief executive of mobile software distributor Handango. "It's an interesting battle as carriers are equipment makers' biggest customers."

France Telecom Chief Financial Officer Gervais Pellissier said operators have an advantage in the race as they control the customer billing process and can make the application purchase procedure much smoother for customers.

Whoever enters the race, all will be forced to compete for developers in an attempt to get hit products into their stores, as developers have to write different versions of programs for different systems - something which could easily double their development costs.

(Additional reporting by Sinead Carew in New York; editing by Simon Jessop)

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