Apps are the new Singles: Betting on AppStore Revenue

Steve Jobs still hasn’t announced the App Store for Mac.

Referring to the iPhone App Store, analyst Gene Munster at Piper Jaffray estimates that Apple’s App Store could emerge as $1.2B business by 2009. Is that too low? Focusing on revenue per user, his most aggressive estimate looks conservative to me.

Look out, because the App is the new Single.

The apps that have already been shown (and those yet to be developed) are cool. People will want to try many of them before settling on the ones they continue to use. Good thing it will be easy to discover, purchase and install them. $15 in average app revenue per phone seems paltry, even if 70% of iPhone apps are free.

I think analysts missed it with their first estimates for iTunes revenues, too. They had to keeping upping them for years.

It wasn’t obvious from what was happening at the time in the digital music marketplace how ready the public was to buy from a store (and for a device) that got all the pieces right. You needed to talk to consumers in depth to look past business as usual and understand their unmet needs.

iTunes and iPod are literally the text book example of how user experience as strategy changed an industry in ways the number crunching business analysts couldn’t predict.

In the same way, there are thousands of fantastic uses for mobile technology which no one has been able to discover, develop and sell because the platform for it hasn’t been there. From the developer side, there are too many crippling limitations to development and barriers to sales. For consumers, the devices aren’t easy to use to start with, but finding, paying for and installing is a nightmare on more levels than Dante could describe.

iPhone and its AppStore are game changing because they directly address the total user experience for new mobile applications. This is a bigger change for mobile applications than iTunes was for music.

I remember the days when you bought (or copied) stacks of applications for your computer. There are many reasons we don’t still do that. So we don’t think of wanting to buy lots of small applications. Just as we didn’t used to think of buying lots of music as single songs. App Store might make you think differently. You’ll buy lots of these new singles.

I’m be willing to bet on a significantly higher figure for App Store per user average revenue in 2009. Any takers?

UPDATES
16-Jun-08:
San Jose Mercury News ran a great article by John Bourdreau today about the iPhone economy as Application developers swarm to iPhone with many good quotes and stats.

17-Jun-08:
In response to Forbes IPhone Apps Appeal, which raises many issues about usability, security and quality:

Not every release has to be a hit. User ratings and reviews like in iTunes will make it easier to discover the best apps that enhance the iPhone experience, and avoid those that need improvement. The ease with which they can be found, purchased and installed will make it painless to try several and discard any that you don’t automatically hum along with.

The best will become hits, driven by ratings, blog posts, status messages and more — no payola required (though it still has a leveraging effect to make hits even bigger).

This is a dramatic change. For the first time mobile has a viable ecosystem for new applications.

I predict that more revolution will come to the mobile industry (and to how mobile technology impacts people’s lives) through the App Store than came from the introduction of the iPhone itself.

In response to Apps First to Market will win?:
I think apps will work more like music singles. First to market in a given genre will not be an overwhelming advantage. In fact, releases will be inspired by each other and build on each other. There will be no stigma to having a new favorite next week. Ratings from other listeners, as well as what your friends are listening to, reviewers are writing about, etc., will help you decide what to tune in to.

12-Sep-08
iPhone Apps Store Growing Twice as Fast as iTunes Music

Location-Based Services Coming Soon (says a long-time naysayer)

For years, I’ve heard that location-based services are just around the corner. “Later this year.”

For years, I’ve told clients, “Not for years.”

Especially when they want to do marketing by taking advantage of LBS.

Emphasis needs to be on “services” first, providing something the user wants. That has to be in place before there is an opportunity to market through LBS, and even then, privacy and other considerations will dictate the the marketing message delivers real value. The best marketing isn’t a message you want consumers to hear, it’s value you provide in some service, entertainment or education that they want.

Even if it becomes technically possible, I’m never going to want a coupon for a latte to pop up as an ad on my mobile just because I’ve walked by a Starbucks. That’s the kind of thinking that drove carriers to charge per-lookup fees for location, hoping to get revenue streams from both the end-user and from brands.

I might be interested in location giving additional contextual relevance to my search results. There are lots of really cool things I might do with location that no one has thought of yet.

Anyway, Mashable is right to suggest that iPhone 3g is game-changing in LBS.

The new pricing model for the iPhone 3g with GPS along with the forthcoming App Store make for a perfect storm coming. Developers have a great platform and now are freed from old constraints to think first and foremost of what services users will want.

No longer will they be constrained by rather than thinking of how be ad-supported (or how to cut deals with handset manufacturers or carriers).

For the first time in the history of mobile, a significant base of users will have everything needed and developers can take advantage of this to offer new applications and to incorporate location seamlessly. This will open many new possibilities, not all of which we can predict now.

Most of these, we won’t think of as location apps. They’ll just be apps that also take advantage of location.

In the same way, I hope we’ll see innovative LBS marketing that consumers won’t think of as marketing or advertising. Those will be the stand out successes.

Google CEO on mobile search (Why it's different and what to do about it.)

This morning Reuters ran an interview with Google CEO Eric Schmidt reinforcing some of what I know about mobile search and making “do no evil” more concrete.

First, the quote on mobile search and advertising, then some additional info and conclusions on working with mobile search.

Speaking of the emerging market for Web-based advertising on mobile phones, Schmidt said the vast majority of Google searches on mobile phones were done on Apple Inc’s year-old iPhones, which prominently feature a Web browser.

“Mobile looks like it will ultimately be the highest of ad rates,” because ads can be targeted by user location, he said.

Since the iPhone has a small fraction of the market, this tells us that few searches are being done on most other phones. Today, buying Google mobile search ads amounts to targeting iPhone users.

As well, it reminds us that mobile searches are different from web searches in another way — they tend to be more locally focused (and that enhanced targeting can be worth paying extra for).

I recently spoke with a potential client who, even with a small test budget, had trouble finding enough mobile AdWords inventory to buy. It wasn’t the first time I’d heard this complaint, so thanks Eric, for reassuring us about why.

Earlier this week Mobile Marketer ran a good piece on why Search doesn’t play a large role in mobile – yet: Crisp CEO that also reflects his comments:

A surprising finding in the first quarter index is that only 7.51 percent of traffic to the publisher sites in Crisp’s network is driven by search engines.

“Search does not play a large role in mobile yet, and it is not increasing much at all.”

Google accounts for 6.4 percent of the total traffic to the Crisp publisher sites, or an 85.2 percent share of the search engine traffic.

Traffic referred by search trends higher within local properties such as local newspapers and local television.

…local newspapers garnered a 27.36 percent… Local news TV was next, accounting for an 11.75 percent share of traffic from search… Categories such as men/sports, autos, online services, business, national news, magazines, TV and entertainment, women’ lifestyle and youth, in that order, accounted for the rest of the traffic from searches.

Note that what we’re really saying here, is that even on the iPhone (accounting for most current search traffic), people use search differently on mobile than on their computer. This is with the most usable device for the mobile web, the game-changing enabler in that space.

Therefore, it is the mobile context, not the device or dataplans, that accounts for these differences seen in use of the mobile web.

You can expect mobile search to grow as more folks get iPhones (or equivalent), but you can’t expect the mobile context and behaviors to change. Plan for these categories to continue driving most mobile searches, with inventory to match.

This is part of learning to Think Mobile. Users will always treat mobile differently from past media, including the desktop web, no matter how advanced the devices get.

Bonus Quote: On Evil and Changing The World
I’ve always loved the idea of Don’t Be Evil (and the Ten things Google has found to be true). Great to hear how it works in practice.

Even better to hear from one of the world’s most successful companies that making money is a side effect of wanting to change the world, not the other way around.

From the same Reuters article:

When he first joined Google as CEO seven years ago, Schmidt acknowledged thinking the “Don’t be evil” phrase was a “joke” being played on him by founders Larry Page and Sergey Brin.

Schmidt recalled sitting in Google’s offices later in 2001 when an engineer interrupted a strategy discussion over a planned advertising product by saying, “That is evil.”

“It is like a bomb goes off in the room. Everything stopped. Everyone had a moral and ethical conversation, which by the way, stopped the product,” Schmidt said.

“So it is a cultural rule, a way of forcing a conversation, especially in areas which are ambiguous,” he said of how the mission statement works in practice at Google.

Schmidt reaffirmed that the company’s primary goal is not to make money selling ads, whether it is banner ads or ads on Web searches, online video, TV and mobile phones.

“The goal of the company is not to monetize everything, the goal is to change the world … We don’t start from monetization. We start from the perspective of what problems do we have,” he said, referring to big, world-class problems.

iChat for iPhone (text and video)!

When Steve Jobs delivers the WWDC keynote on Monday morning, will iPhone have new instant messenger features?

I’d love to see an upgrade to the desktop iChat and add an iPhone version of iChat so that both handle SMS text messages as well as instant messages from AIM, Gtalk, Yahoo!, etc.

I want a record of all IM and text messages, so sync all IM and text messages in iChat like my photos sync with iPhoto. That way I have an archive on my computer. Make them all searchable.

Let me view text messages on my laptop screen if my phone is within Bluetooth range.

Let me video chat from my phone via 3g or WiFi.

UPDATE 9/16/08:
Steve still hasn’t given me any of these features, but last week at CTIA Yahoo! launched OneConnect which does let me see Email, SMS and IM for a given contact in a a unified view, and gives me a socially connected address book. Pretty cool!

Newly launched startup Xumii.com also looks promising as a way to do something similar through the mobile web rather than an iPhone app.

New iPhone Monday: Winning Combination

One of the great things about new product announcements is that we get to play “second guess the Product Manager” on feature lists.

Fortunately, Apple design is typically more concerned with overall user experience than narrow focus on a feature list, but let that not stop us from enjoying our game.

Current set of tradeoffs in the iPhone contributed to its phenomenal success, and any new version should strike a similar balance. Development resources are limited. An extra chip adds to the price and decreases battery life. A software feature adds interface complexity or affects another desirable feature.

So it’s just not an option to make a list of “all the things missing” and add those to the product. Still, it’s nice to have a wishlist, and this is Monday Morning Quarterbacking, afterall. I’m sure I’ve forgotten some things I’ve wanted over the last year of using an iPhone. What would you add?

  • cut and paste
  • search (the contents of my iPhone)
  • SMS Forwarding
  • instant messaging
  • 3G
  • GPS
  • MMS
  • video capture
  • stereo Bluetooth
  • bookmark something to browse on my desktop when I next sync (it’s flash or too long or otherwise desirable to have there)
  • allow allocating more memory to store text messages or email
  • make it easier to send things to my desktop via Bluetooth (like a URL or photo)
  • wireless sync’ing

Some I just don’t get. I often want to forward an SMS, and it seems like that would be a fairly trivial feature to add, and something long available on other handsets.

Others, like cut and paste, solve many problems, but certainly present interesting interface challenges. It may have been a reasonable strategy to intentionally introduce the simplest iPhone first and then to introduce new gestures with future releases.

Many of them, while folks say they want them and the geeks clamor for them, I wonder if they’re really worth the costs. GPS, for example.

The location feature using triangulation with cell towers offers something that is good enough for many uses, but without the expense, size and battery issues GPS might add. If I had to choose between 3G support and GPS support, you can guess which one I’d take. Do you need to break out GPS into separate devices and pricepoints targetted to different markets? Or does it need to be available on all devices to grow the market for location-based applications?

Other features, you need one or the other, but can live without both. My biggest problem with no MMS support is when someone sends me a photo from their phone. I get a text message like this, created by AT&T but delivered from the sender:

I sent you a multimedia message. You can view my message w/in the next 7 days via the web at http://www.viewmymessage.com using MSG ID pn0otzx Password jans8move

If I had cut and paste, it wouldn’t be so painful, but as it is now, I have to write down the ID and password before browsing to the link, or try to remember to do it when I next sit down at my computer.

Or, how much do I really need to be able to search the contents of my email if I can only store 200 messages on my phone? Instead, I browse to Gmail online and search there. But I’d love to use the memory on my phone for messages rather than music, and if I could do that, search would become incredibly useful (it’d be nice if it searched my text and IMs as well).

Aside from design and engineering tradeoffs, how do you get the best information about the market in regards to features? How do you find out from users and potential customers about their wishlist items and what mix and what experience are going to sell the most upgrades and new phones?

If you go to existing iPhone users like me, you get a great list of new features that I think might make my life easier. The problem is, I already bought one of these. Are any of those new features ones that would have gotten someone new to buy one? For that matter, how much am I willing to pay to upgrade for my desired features?

After we’ve talked about the features in isolation, you may pick the mixes that you’ll have me try out in mockups and prototypes to get a better sense for how they all work together. Each combination requires so much investment in design work that you can’t try them all.

I’d love to know how Apple has worked over the last year to solve these problems, or even to hear more about the research and design that went into the original release.

I think one of the reasons that so few companies do a good job of designing an overall user experience is that it is so much more difficult than the business task of picking features. Apple keeps showing the business win for going to that extra effort, and I look forward to seeing their latest effort on Monday.

Jobs announces Mac App Store?

At MacWorld in January, Jobs had announced iPhone AppStore, movie rental for iTunes and then the MacBook Air. He went on to explain how the Air didn’t need many ports or a DVD drive because you could do everything over the network, even watching movies.

I felt sure I knew what “and one more thing” would be.

Instead, he ended that keynote without “one more thing.”

Will he announce it in his keynote this time at the Apple WWDC Monday?

The one thing you can’t still do with an Air without a DVD drive somewhere is to install most commercial applications. I need to do that on my Air just like I need to do it on my iPhone.

A perfect “and one more thing” would be to announce that iTunes would support application sales for Mac and Windows.

iTunes struck compromises that revolutionized the business of promoting, distributing and selling music. It wasn’t perfect, but it solved enough of the problems of labels, artists and listeners to build with iPod into a perfect storm. It could do the same for applications.

  • iTunes made it easy to find all the music you want in one place.
  • Made it easy to buy, even at $.99 price point — owning a song is just a click away.
  • With iTunes Digital Rights Management (DRM), you could share, but only so far, and you could authorize and de-authorize computers as needed.

This sounds like what I need with my software applications. A way to get them all from one place, instantly, easy to buy at any pricepoint, and no hassles figuring out what computers I’m allowed to use them on.

Likewise, publishers of smaller applications have difficulties marketing and collecting relatively small payments. Larger applications will have problems distributing their wares if Air starts a trend to more diskless machines. Both have issues of wanting to protect their software against unauthorized copying, and the kind of universal system and compromises in iTunes could work with software.

Can I rent software like I can rent a movie? It may not make sense when a single publisher tries to do it, but if it were supported universally from one interface, perhaps there are applications that I only need for a week at a time.

What about software in the cloud? Many web apps can only monitize themselves through ad-supported models. What if I could pay $.99 and up (one time or monthly) for Software as a Service? I’d use iTunes to find and rate apps, the iTunes payment system to start an account, and to manage my subscriptions.

Would you like to buy and sell software over the air? Would iTunes/App Store make a good model?

UPDATE 12-Jun-08: Apps are the New Singles: Betting on AppStore Revenue.

Thunder vs. iPhone: Experience not Features

The Wall Street Journal Reports that RIM is launching a new touch-screen BlackBerry, Thunder, in the third quarter, to be sold exclusively by Verizon, “answering the challenge posed by the popularity of Apple Inc.’s iPhone.”

They go on to say, “The iPhone’s sophisticated touch-screen was one feature that made Apple’s device a big hit.”

There is no list of features that made the iPhone a big hit.

The experience of buying, activating, and using iPhone made it a hit.

How easy it was to show the experience of using it made it a big hit.

Isn’t that the same thing that has already made the BlackBerry a hit in its target market? Show a roadwarrior in need of a workhorse how you scroll through emails with the thumbwheel, then do the same to select and dial a contact from the phonebook. Enter a quick email from the keyboard. You’ve just made a sale.

BlackBerry has less penetration to other markets not only because the features they use are different (in fact, many are the same), but the whole context is different. Who they are, what they use it for, when and where they use it. I haven’t seen the Thunder, but hopefully for RIM they’ll develop the kind of understanding and insight they brought to the roadwarrior, creating experiences for a new market, not just adding features for it.

Interviewed when the iPhone came out, I told Reuters that it wasn’t about the features. In fact, I was surprised in the first few hours with several “missing” features I might have expected, but these surprises didn’t meaningfully diminish my experience. They’d carefully selected features to leave out (or leave for later) as much as features to leave in.

[UPDATE 6/18: Wired ran a great article about Japanese market handsets competing on feature lists: “The manufacturers, who realize the absurdity of piling on features that don’t work well…. The average person only uses 5 to 10 percent of the functions available on their handsets. “]

Before iPhone, you had to do things the phone company’s way and the device’s way. It was all about learning how to deal calls to their support, calls to select plans, learning how to navigate the maze of device features. Even to me it seemed like a constant chore of dealing in arcane lore, and I like tech stuff.

The iPhone “felt like a living sculpture in my hands” because the whole experience was about the system fitting me instead of me finding a way to work with the system. The pieces fit together in a seamless whole. Every part was beautiful, from the box it came in to the physical device to the icons on the screen. My actions and the flowing animation and movement on screen at every step blended together as one and looked pretty.

I said elsewhere, “The iPhone really points out how unpleasant other interfaces are, how ugly and unwieldy. The iPhone responds immediately with rich and beautiful feedback to everything you ask it to do, making it beautiful to look at and a beautiful experience to use it….. When other companies are forced to bring as much attention to design to their devices, and pulling together as many features seamlessly, hopefully the bar will keep being raised for all.”

I didn’t have to struggle with the phone company or the device. For once, I could smile most every time I reached in my pocket.