Has the competitive advantage of the Mobile Apps Store been over valued?

I was reading Sam Brodie’s post on the challenges he is facing as a brand architect operating within Nokia and it has left me wondering if we are now over estimating the value of the “ubiquitous” App and the “prerequisite” App Store in the increasingly “Me2” mobile phone manufacturing sector.

“From a consumer perspective, [mobile phone] consumers now feel the same sense of bewilderment felt amongst rows of comparable wine when visiting app stores with hundreds of thousands of apps with incremental differences… The bottom line? Imitation and commoditization are the most pressing strategic challenges that you will face for the duration of  this decade.” – Sam Brodie Welcome to commodity hell. The  perils of copycat economy.

Let’s begin this discussion by observing that there is an ongoing debate over the Open Vs. Closed Mobile Eco-Systems with Apple, Google, RIM, Microsoft and Nokia all taking divergent paths in their efforts to secure market leadership.

“In reality, we think the open versus closed argument is just a smokescreen to try to hide the real issue, which is what’s best for the customer: Fragmented versus integrated,” Mr. Jobs said. “We think Android is very, very fragmented and getting more fragmented by the day…. When selling to users who want their devices to just work, we believe integrated will trump fragmented every time.” – NY Times

In some ways I tend to think the discussion is actually more complex as the Handset, OS and the Apps represent discrete components in the Open vs. Closed debate. For example with Apple and RIM we have a Closed:Closed:Closed ecosystem; Google is Open:Open:Open; Nokia is Closed:Open:Closed; Microsoft is Open:Closed:Open; and any handset manufacturer adopting the Android OS (Think Samsung or Sony Ericsson) Closed:Open:Open.

The question is not so much which strategy is best for the consumer but which strategy is the most likely to secure market leadership.

As this chart from Business Insider’s illustrates the iPhone is now almost half of Apple’s revenues and one of the key assumptions in the market today is the App Store is Apple’s competitive advantage in the smart phone market. After all 99.4% of all smart phone app downloads in 2009 were made from Apple’s app store.

SAI Chart of the Day: Apple's Revenue Breakdown October 2010

But is that assumption correct?

Let’s ask the question – Has the competitive advantage of the Mobile Apps Store been over valued? – and let’s see what we discover.

This first chart is from Distimo and it previously appeared in VentureBeat’s October 2010 post 84 percent of Nokia Ovi store app developers say Apple’s store is better. It illustrates the growth in Mobile App Publishers across each of the App Stores for the period 6 month period leading up to September 2010.

As you can Apple has easily the largest number of publishers but Nokia, Android and RIM’s contributors are growing more rapidly off much smaller bases. With Nokia displaying the most growth in % terms. They are of course playing catch up to Apple’s “ground breaking” App Store strategy.

Distimo: US Mobile App Publishers 2010

This second chart from Business Insider illustrates how Android App Store is growing 166% faster than Apple’s. Even so Apple’s App Store increased by 115,000 Apps compared to Androids 70,000 Apps over the 6 Month period.

SAI Chart of the Day App Stores by Number of Apps October 2010

Now compare those trends with this graph posted by Nielsen in the same month: Android Most Popular Operating System in U.S. Among Recent Smartphone Buyers. As you can although Apple has the biggest App Store and the largest number of publishers its share of new business fell by 7% over this period. As did RIM (8%) and – although not on this chart – Nokia. On the other hand Android grew by 18% – clearly doubling its market share – even though it still has less than one-third of the publishers of Apple and a significantly smaller App Store.

Nielsen: US Smartphone Acquirers 2010

This would suggest the correlation between Apps and Smart Phone sales has been over stated. After all Apple’s ability to reach new smartphone buyers has fared little better than RIM who have an App Store that is a mere fraction of the size of Apple’s.

So could there be some other factor in play here? Could it be Androids Apps are free while Apple’s cost money?

Certainly this graphic from the August 2010 post on Android vs iPhone Apps by Royal Pingdom suggests that the economics of the Android App Store Market is mostly free. However we have previously proven the same economics for the Apple App Store ecosystem – See Yes, Apple continues to dine out on free lunches and Watch out! iPhones have long tails too.

Royal Pingdom: iOS vs Android Free vs Paid Mobile Apps

We also know from earlier in the year that GigaOm published sales figures for December 2009 that suggested the iPhone/iTouch’s 56 million + users downloaded just under 1 paid App each with the Apps priced at 0.99 making up 50 % of those sales. Paid apps represent just 25% of all downloads. (See The Apple App Store Economy)

So there may well be more paid apps in the Apple store but most of the downloaded Apps are free. So if Free Apps is not the differential that is fueling Android’s growth what is it?

The simple fact is Android handsets are everywhere, on every carrier and at every price point.

It’s not that Apps are no longer a market differentiator it’s simply the fact they are but one of many considerations customers make when selecting a new phone.

As I have said before mobile phones are first and foremost fashion accessories. (See What Lady Gaga can teach Google about the Mobile Phone Business and Media Platform or Fashion Statement?)

Customers buy phones that help them to express their personality.The Apps are just an exotic form of “Bling” that allows the handset owner to enhance that personalization experience. So while the iPhone is an expression of a very narrow range of personality types (i.e. Young at heart and Creative) and RIM (i.e. Corporate Power User) the Android OS allows device manufacturers to keep doing what they do best. Applying industrial design principles to create a broad range of mobile fashion accessories that target a wide range of personality types.

Most industry observers believe that Apps have revolutionized the Mobile Phone industry. They are wrong. They have just provided the industrial designers with another fashionable dimension to explore. Apple has successfully explored one facet of this dimension. There are many other Device:OS:Apps combinations that will prove to be just as fashionable, and no doubt just as profitable, over the next decade.

This is because – or at least I suspect – the open and closed discussion surrounding Devices, OS and Apps is now the “Hemline” of the mobile device “Fashion” industry.


One thought on “Has the competitive advantage of the Mobile Apps Store been over valued?

  1. I think you missed one step in your analysis — when you jumped to Nielsen’s sales data you neglected to remove the corporate compelled purchase of RIM devices from the overall stats… Nielsen’s own published data on which OS buyers want shows that RIM is just over 10% of the market… suggesting that the delta between desirability and actual is driven by a factor other than consumer choice.

    Correcting for this defect you could perhaps draw more causality between availability of applications and the desirability of a particular smart phone — of course this is all still at the level of inference!

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