iPhone Apps Revenue Model changes; Developers on Board
Apple’s simplicity in maintaining a very easy-to-understand revenue system for its App Store is what has lured many developers to create apps that are in two distinct categories, more than $1 price (expensive) or 99¢ price (cheaper). Developers often used cheaper apps to build their reputation amongst customers and then offer more expensive and sophisticated apps to specific users. Apps that were primarily highlighted for their purpose and clearly defined their target market were expensive apps, primarily examples being productivity apps or apps allowing users to sync with e-mail servers, etc.
However, Apple has changed the revenue model in an effort to retain its experienced developer base and maintain interest in the iPhone app development movement. Apple has allowed apps to have in-app purchases which mean that the apps can be downloaded for free with additional content being charged from users. Akin to some Facebook applications where users can easily buy upgrades for their applications or play the game frequently enough to achieve those same upgrades; Apple believes this will probably help developers establish brand identities amongst its developer base.
Currently the new model is being widely accepted by developers who find it easier to attract users with the concept of free apps and letting them try out the app before purchasing it. From a developer’s viewpoint, it’s better to have a customer try an app out and purchase since the recommendation they will give will be much stronger than being forced to buy the app without any first-hand experience. Although ratings and reviews are the ideal ways of ensuring that prior to purchase, customers are aware of what the app does, etc.
Nonetheless, every individual is unique and preferences themselves are varied as it is. This model lets developers also utilize the growth potential of their long-term successful apps by providing upgrades and patches. Ultimately good news for developers considering the amount of energy and capital invested in app development can be recovered through a successful stream of micro-transactions.
Although this is good news, it may not be so for consumers and Apple itself. Consumers are not fans at all of ads in their content regardless whether it is paid or free. The development of TiVo and its innate ability to ignore commercials is what made it so popular. With Flash support disabled on the iPhone OS; this means that developers are going to develop inventive ways of marketing the upgrades to their apps. Certainly such actions will irritate customers and can cause an app to fail miserably in the app store.
Palm WebOS Development Conference in December 2009
Working overtime to push their smartphone OS into the open market, Palm has decided to organize a conference in December 2009 in an effort to lure developers to its platform and begin developing apps to market on their Open Catalog e-commerce program. A key development of this conference will ultimately be how Palm decides to charge developers and provide a business structure acceptable to all parties concerned. Palm has stated that,
“(It) will offer developers choices for getting their applications to market, as well as a transparency into the process that will help them promote and grow their businesses.” – eWeek
Previously the apps offered at the store were free, however, realizing that the iPhone OS along with Android and RIM’s BlackBerry OS were quickly gaining ground over webOS; Palm decided to increase its marketing and get support for webOS. Currently, Palm’s store had apps for free in their app store, which was a reason for some of the excellent home-brew apps that were available to customers. Secondly, Palm’s strategic decision seems to be changing; currently the webOS was only available on the Pre and the Pixi. Unfortunately the problem with luring developers now is that the profitability factor of the Pre is compromised.
Already Apple has created a competitive situation where it has successfully captured a number of developers. By allowing developers to keep 70% of the profit margin by taking a 30% royalty along with a $99 developer fee, Apple has created a very strong incentive for developers to move to their platform – (Source). Since the success of the app along with the overall marketing push of the app is from the developer side, most of the work is done by the developer and by letting developers retain profits; they market their app themselves. Currently, Nokia, RIM, Symbian, Qualcomm all charge heavily for developers to access their OSs’ and SDKs’; in comparison to the structure offered by Apple, they are rather draconian in nature.
Apple’s commitment to quality is reflected via the total control they exercise over the submission and review of apps. Not only do they maintain a standard for apps, but similar to any licensing authority, they have the ability to screen out potentially malicious developers who could exploit the iPhone SDK and OS. In retrospect, this is probably why there have been very few security breaches on the iPhone while other developers have used financial clout to screen developers. Although in the long run, it will become difficult to screen what could be potentially millions of apps, it will at least ensure that apps available for download are safe.
Coming back to Palm, they are in a key situation where they can clearly see how draconian approaches will result in poor support for webOS or could help lure developers away from a fairly crowded market into a lucrative business venture. This is dependent on two things:
1.Palm creating a development program that provides a similar incentive to Apple’s program while streamlining the overall development process,
2.Marketing the Pre more aggressively and ensuring that consumers start to realize the full potential of the phone.
Although the Pre is exclusive to Sprint’s network, recently Verizon and Google have teamed up to launch Android compatible phones on Verizon’s network. The Pre has some serious competition now in terms of AT&T’s and iPhone alliance along with the Google-Verizon collaboration. It seems like that the Palm team is at a crossroads, a careful long-term strategic decision here can definitely change the path of the Pre and Palm’s profitability or it could doom the Pre to the depths of obscurity.
What do you think? Will Palm emulate Apple’s current market structure or will it follow the routes of RIM, Symbian and Nokia? Leave your thoughts and comments below.
The iPhone OS remains the undisputed champion of smartphone OSs’ however, this phenomenal domination has not remained unchecked, Google’s Android and new WebOS on the Pre are gaining popularity. This data is derived from AdMob’s recent survey into smartphone usage has shown some interesting results. Although iPhone remains the dominant smartphone OS and massive usage coming from the United States, there is still potential for growth in the region.
“The Apple iPhone OS’ share of the smartphone operating system worldwide market grew from 33 percent in February to 40 percent in August, AdMob found. (AdMob noted that it didn’t include the iPod Touch in this ranking because, despite running the Apple OS, it isn’t a phone.)” – AdMob survey
Although the growth in iPhone OS development is impressive, Google’s Android and the WebOS on Palm’s Pre is gaining momentum as well. As previously discussed in our blog, the potential for current boom in Google’s Android is still very relevant and is contributing to the usage of smartphones across the globe. Android’s growth has jumped from 2% to a new high of 7% within 4 months, which is a massive leap considering the ever-strong popularity of the iPhone. Still behind the iPhone by a long margin, the signs are promising in light of Android’s new SDK release and new releases of smartphones that support Android.
A surprising new entrant into the market is Palm’s WebOS for the Pre. Facing significant problems with Apple in regards to its iTunes syncing problems, it still managed to retain a rather respectable 4% market share. This is good news for Palm considering that many consumers feel that it does not live up to the comparisons made with the iPhone.
Surprisingly, the phones that are accessing these platforms are interesting to note as well, even though iPhone does lead the pack, the Pre, the HTC Dream and BlackBerry’s 8300 were also heavily utilized. The spread of phones is interesting to note considering that there seems to be equal representation from Android (HTC Dream), iPhone (Apple) and WebOS (Palm). The only phone with it’s own unique interface is the BlackBerry 8300. The BlackBerry 8300 is linked with RIM’s own branded OS, development for the BlackBerry OS has been slowed down.
“In the United States, judging by ad requests from the OS, the iPhone represented 50 percent of smartphone use, followed by RIM BlackBerrys with 14 percent of the pie and Android devices with 13 percent. In a respectable fourth place came WebOS phones, with 9 percent.” – AdMob survey
It seems that BlackBerry has captured the overall market via its unique marketing channels that offers companies integration through their email exchange servers, however, Android is not far behind along with WebOS.
