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September 23, 2009

The Operators Strike Back: The Next Generation of App Stores

A lot has been written recently regarding virtual “app stores” and the role, or lack thereof, of the mobile operator. Regarding roles, it is not that operators have been unaware, or that they’ve not tried in this space. Every mobile operator has their ‘legacy’ store, and the term walled garden would be an understatement.
 
Ever been to one?
 
What Apple has done with their App Store, and to a lesser extent, Android (News - Alert) with its market, is that they have reset the bar on usability and convenience for the subscriber, as well as ease of development (and thus building a critical mass within the development community).
 
The cat is out of the bag, so to speak, with Apple, but operators still have the chance to play what they consider to be their rightful role. The key to success will be to balance the points mentioned above with their business model, a model different from the OS platform provider. It embraces the notion of an open and dynamic market for applications across platforms, and the role that the operator may play in brokering applications across the various open OSs supported within their network.
 
Verizon (News - Alert) Wireless, based on their announcements, is taking this approach. As reported in Verizon to its smartphones: thou shalt have no other app store before mine (Jul 13, 2009), the operator will handle all billing and will have control over what 3rd-party app stores and applications are made available on the handset out-of-the-box when its V CAST Apps Store launches before the end of 2009. They will revenue share with the application developers, and a subscriber will only need his or her single Verizon account for payments. A customer will still be able to access a 3rd party app store directly but only after taking the initiative to download the specific portal software for the store.
 
In Verizon’s favor, the operator promises a more streamlined application approval process than that for Apple, and is pushing for a set of common standards that would permit application developers to more easily adapt their applications for multiple OSs. Verizon has traditionally maintained more control over the user experience, and this approach seems to align with this.
 
Verizon states that developers will retain 70 percent of the proceeds, which is equal to that of Apple but a change from what mobile operators took in the past. This is acknowledgement that Verizon understands this new world, a world very different from the very limited operator-driven software portals of the past. They understand that they either create a business model and user experience equal to Apple or Google (News - Alert), or get cut out of the equation. In addition, there are larger issues at play. As Shaw Wu in The Wall Street Journal pointed out, an effective app store is also key to facilitating hardware sales. Users are no longer interested in just a static hardware platform. Just like the PC, they expect applications and capabilities to evolve.
 
Telefonica with its planned ‘mstore’ offering is also taking the same approach, leveraging Telefonica’s strong Movistar branding. What is interesting is that they plan to eventually launch across their operating companies, a user base of 200M. This will provide developers with a critical mass for development. They have described the organization structure, application pricing, but have not detailed platforms supported or how mstore will interact with the likes of Microsoft’s (News - Alert) Marketplace or Android’s Market. Much like Verizon, Movistar-branded handsets will have the store application pre-installed.
 
These are just two current examples of operators getting into the game. Others will follow. But what OS platforms will succeed? Where should operators place their efforts? Next time around I’ll look at the operator app store from the perspective of the OS platform, taking guesses on which will succeed based on the strength of their developer communities as opposed to only looking at OS features and hardware.

David Ginsburg (News - Alert) is vide president of marketing at Innopath Software.

Edited by Michael Dinan
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