Most app stores are going to fail – page 2

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Instead of the carriers launching an all-out counter-attack they worsened the situation in two big ways. First, they cut down the size of their own staff to recognize the reduced revenue of mobile content. Second, and this is much worse, they started shifting operational costs onto the publishers and re-negotiated their rev shares downward. They also applied pressure to publishers in other ways that ultimately added costs and squeezed margins.

It's gotten bad enough that we are now watching publishers walk away from previous title acceptances. (In other words, publishers have accepted games/apps by the carriers but then choose not to build and deploy because they've lost confidence in harvesting a financial return for their efforts.)

If the carriers want to save the mobile content business, they need to attack both the cost and the revenue side of the ROI equation. Here's how:

1. Dump the multi-handset rule: For years, carriers have required that publishers support a minimum number of handsets to launch a title. That's 20, 30 or even 40 handsets, even though only a handful of them produce 80 percent of the downloads. It's way too risky to spend the money to port to that many devices without a market test. Often, the game/app doesn't work well on the older phones, so a disproportionately high amount of money goes into supporting them.

2. Abolish certification costs: Two of the big four domestic carriers have exclusive agreements with testing houses that charge for product certification (quality assurance). What a rip-off. Carrier 3 is essentially doing the same now but not formally, and rumor has it that Carrier 4 is considering the same. This adds thousands of dollars to the launch of any title on the carrier deck. I understand that QA is important, but why not bring testing in-house to reduce costs or at least provide a multi-vendor strategy to promote price competition?

3. Market the deck: The number of people who purchase mobile content is stunningly low on a percentage basis (9 percent or less). The carriers cannot give up on raising that number. All customers should get their first game, ringtone and wallpaper for free as an incentive to learn how the mobile content storefront works--risk free. Instead, the carriers have handset OEMs pre-load games and free content onto the phone. That's a great way to make games like Snake and BrickBreaker super-successful, but doesn't do much in the way of producing first-time buyers. And now that the majority of users are skipping the carrier storefront button altogether in favor of the Internet browsing button as I explained earlier, the carriers need to begin advertising their storefront on the mobile Internet to bring them back. The cows are out of the barn!

4. Keep subscriptions: There's a move underway amongst some of the carriers to abolish subscriptions, as if somehow they produce a negative customer experience. Wrong. It's not that subscriptions are inherently bad, it's that subscriptions have been promoted as a creative financing technique instead of a pricing strategy for content that has recurring value. In other words, take a platformer game that should sell for $7.99 and offer it for $2.99 per month just because $2.99 sounds cheaper than $7.99. Go back to enforcing subscriptions instead of eliminating them altogether and take a hard look at my next related point.

5. Monitor the deck: The sheer amount of content that is live on the carrier decks today that simply DOES NOT RUN would astound you. Ringtones sound awful, wallpapers don't fit, videos don't play, games don't load and apps crash. You think I'm making this up? Every day, thousands and thousands of returns, because of garbage that either got through the system or, and this is more interesting, games/apps that were somehow changed AFTER they were certified. Servers go down, certificates expire, IP addresses un-whitelisted. The users don't know who to call and don't care enough to chase it so they simply cancel their subscription or get a refund. Incidentally, I don't think anyone is monitoring Apple's deck either, so every time one of those 50,000 apps update themselves, they're no longer what Apple approved a month ago. Who knows what you're gonna get?

6. Fix the damn store: There's no excuse for how awful the carrier mobile storefronts look. I don't think they look any better than when they launched on the black and white phones years ago. The user interface is so first-generation and the number of clicks and wait time to do anything is ridiculous. For the BREW carriers, it's better, but it's not really "awesome" either. Compare any carrier's BlackBerry storefront against the BlackBerry App World storefront, and you can't help but be shocked at the difference. And that's RIM's first try!

Why the OEM app stores are going to fail

Back to the three fundamental requirements: discoverability, billing and ROI. I'm not going to weigh in on each individual initiative here, but here's what's going to go wrong in the collective:

1. Billing. If you think that telephone companies are clueless when it comes to content, what makes you think that handset OEMs would be any better? But that's not the worst of it, handset OEMs are B2B companies. They don't have consumer relationships past their warranty cards and support websites and most importantly, they don't have end-user billing relationships. So these app stores need to use indirect billing methods (credit card, PayPal, etc.) I think adoption will be slow.

2. Discovery. How will the end-users find out about the app store? Well, simple, right? The app store will be a link on the phone's menu. But wait a minute--I just got done explaining how the carriers were losing their discoverability because users are bypassing the store button and going straight to the web. Why wouldn't the users bypass the OEM storefront button too? Further, we're not talking about an installed base of millions of users here, we're talking about connecting storefront buttons to brand new phone releases. And incidentally, the carriers need to be on-board with those since THEY are the ones who buy the phones for resale. Ask Nokia about that. Unless the handset OEMs are going to start selling phones from their own retail stores, they need to rely on the carrier sales force to educate customers. Good luck with that.

3. ROI. Connected directly to the two points above, the ROI for publishers is a little shaky. Storefronts basically soft-launch with a zero user base, an uncertain billing system (that probably doesn't support subscriptions), a new developer portal that just might not be perfected yet and a new SDK needed to exploit all the cool features of the device. Oh, and by the way, 90 percent of the product downloads in the store will be free so that the users get a chance to, you know, have some risk-free fun. I think publishers will adopt a wait-and-see attitude.

Finally, for all of you that are convinced I'm an idiot because I've forgotten about iPhone's success, let me say that the reason Apple is succeeding is because they solved all three problems.

1. Billing. Credit card, yes, but look at how it's done. First of all, the concept of attaching a credit card is already embedded into the iTunes culture. Second, it's literally part of the product registration process. Third, Apple licensed the one-click patent from Amazon (you can see it right there in the registration terms and conditions). It was flawless execution.

2. Discovery. Steve Jobs, done.

3. ROI. Millions of units supported by a single SDK, a single handset purchase for development, no certification costs, no porting costs, global market access. Deployment costs are ridiculously low compared to carrier launches.

Now, I did point out in my last article that Apple is a facing a publisher ROI problem due to the unsustainability of the apps-to-customers ratio, the proliferation of free content, and the sheer number of market players. But even with all that, you can launch 10 iPhone apps for the cost of one carrier-distributed app, so most publishers are going to keep on trying for a hit. In other words, at least for the moment, they still "believe."

The bottom line? I predict that Apple's success is unique to Apple, and not a blueprint for other handset OEMs to copy. I predict that most handset OEM storefronts will fail due primarily to their inability to solve the billing problem. I predict that the carriers will follow only a portion of my advice and eventually realign their place in the content ecosystem as the dominant billing intermediary.

Finally, I predict that the mobile content publishers who survive will take matters into their own hands, and begin to create their own direct customer relationships. They will market and advertise their way out of this uncertainty, which will be the focus of my next article.

Konny Zsigo is a 20-year veteran of the wireless data industry. His company, the WirelessDeveloper Agency, creates and executes mobile Web marketing campaigns to directly increase content sales and drive users to action. WDA also supports mobile publishers with North American distribution, licensing and production of mobile content (video, games, apps, ringtones, wallpapers, themes and more).

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