Stephen Forte is the Chief Strategy Officer at Telerik and sits on the board of several start-ups including Triton Works. Stephen is also the Microsoft Regional Director for the NY Metro region and speaks regularly at industry conferences around the world. He has written several books on application and database development, including Programming SQL Server 2008 (MS Press). Stephen holds an MBA from the City University of New York. Stephen is a DZone MVB and is not an employee of DZone and has posted 34 posts at DZone. You can read more from them at their website. View Full User Profile

The AppStore Business Model is Dead

09.06.2011
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Back in January, I argued that AppStores are not necessary as mobile economics mature and start to mimic web economics. Why do I need to download Skype from the AppStore when I can just go to Skype.com and do the same?

appstore

Apple changed the rules and suddenly the AppStore looks like it may die a toddler. Back in February, new rules for advertising revenue and media content were implemented by Apple. If your app is in the app store and you generate revenue from a new customer, you have to give Apple 30% of the revenue of everything you sell.  As per Steve Jobs:

"Our philosophy is simple -- when Apple brings a new subscriber to the app, Apple earns a 30% share... When the publisher brings an existing or new subscriber to the app, the publisher keeps 100% and Apple earns nothing."

Talk about a finders fee! Take the Kindle for example. If a new customer downloads the Kindle on the iPad and buys a book for $10, Apples gets $3 from Amazon, killing its margins. The same for the New York Times, Economist, Financial Times, and other magazines. What particularly vexed those publications is that Apple would tell the publisher absolutely nothing about the subscriber (Apple owns that data!), reducing any ability to personalize marketing to their own subscribers!

Content Producers Strike Back

The content producers started to fight back. Amazon was the first to strike with its web based Kindle Cloud Reader. It is a web application that uses web standards (HTML5) to allow users to read (online or offline!) their books. You can install a link on your iPad home screen making it look like an app, but it is not. It is just a web site and you completely bypass the AppStore, allowing Amazon to keep 100% of the revenue and customer data.

Another popular content producer struck an even deeper blow to the AppStore. The Financial Times, the winner of the Apple Design Award in 2010, has done the same as Amazon and released a cloud based version of their popular iPad app. Then in a move that can only be described as insurrection, the Financial Times has pulled its (award winning!) iPad and iPhone apps altogether from the AppStore!

With such moves by industry leaders Amazon and the Financial Times, the floodgates are open for others to follow. Apple can’t block the web in its devices, so it is the end of the AppStore as we know it. Even if Apple comes back and says, “ok ok, we will only take 3%, not 30%”, why would Amazon give Apple 3% when it can keep 100% for itself? Tasting freedom, publishers will never come back.

It was nice knowing you AppStore. RIP.

Published at DZone with permission of Stephen Forte, author and DZone MVB.

(Note: Opinions expressed in this article and its replies are the opinions of their respective authors and not those of DZone, Inc.)

Comments

Ender Orak replied on Thu, 2011/09/08 - 7:44am

I think it's a wrong conclusion to say that Appstore is dead evaluating this case. Personally I found this business model very successful for both application providers and users.

As a user, accessing any application from one trusted point, purchasing them as giving my account information only to one (again, trusted) site, and knowing that applications are controlled and tested before released in Appstore is something that I would want on every platform (including my OS, especially if it's Window$ (thanks God, it's not :) ). It is also a good thing for application providers not to provide a platform for serving the application, handling security issues both for web and purchasing etc.etc. Providing and handling a such platform is something that no (especially single) mobile developer would want to care about.

Actually I also think that this model could (and should) actually be used for operating systems especially for Window$. I think for an os which suffers from viruses so much, providing a platform contains trusted software is essential. Same advantages for users and developers applies too.

This is a special case related with a arguably wrong decision about content providers but I think Appstore will continue to survive as a successful business model as long as Apple does.

Lance Semmens replied on Thu, 2011/09/08 - 4:20am

The AppStore is dead? Yeah... right!

People don't want to be entering their credit card details into a whole lot of systems that they don't know they can trust. Amazon and FT are huge corporations that have built up trust, have budgets for advertising and have credit card handling facilities.

Think of all the smaller corporations that don't have big advertising budgets or credit card handling facilities and might not even have a web presence. To these smaller companies, 30% is a small price to pay for the framework that the app store provides and the potential customers it gives them access to that they could not even dream of if trying to sell directly from their own website.

When you buy a product from a supermarket or department store... do you think that the producer gets 70% of the sale price? I don't think so.

Curly Wurly replied on Thu, 2011/09/08 - 2:43pm

@Lance

Most small companies use an intermediary to handle their payments for them; think PayPal or WorldPay.

However, the app store isn't dead just yet, mainly because you can't install iOS apps from other sites unless you root your phone.

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