The end of the honeymoon for the iPhone App Store

The end of the honeymoon for the iPhone App Store

By Develop

June 9th 2009 at 9:00AM

Appleâ??s App Store has been a tremendous success. Launched on July 10th last year, the iPhone software storefront hosts more than 25,000 third-party applications.

Not long ago Apple celebrated over one billion individual downloads, proving huge traction for the service in the space of just nine months.

True, expectations in certain quarters were so optimistic that some projections will have been missed. Early talk of $25 games soon looked silly, with even $10 games now a rarity. The most popular paid-for games cost $5 or less; the most popular apps are free.

Price deflation hasn’t been the only hiccup. Congestion in the marketplace has led to calls for everything from a revamp of the store’s categorisation and listings to premium sections and a ban on free or Lite software. More pragmatic iPhone developers have explored off-store marketing to drive App Store sales, as well as giving games away for free, though such approaches clearly have implications for margins.

But those companies who have been smart, fast or lucky have prospered – and not only the headline grabbing start-up developers with their $500,000-grossing debuts. Gameloft, for instance, has embraced the platform. The mobile game giant still makes most of its money via traditional operator portals, but it’s off to a great start on iPhone, releasing more than two dozen titles and selling millions.

For iPhone owners, it’s all good. Cheaper prices and more choice have no downside for them, at least in the short-term, and iPhone users love their phones. Apple has in ten months done what the mobile industry failed to do in ten years – training its customers to repeatedly download and buy software over the air, and turning them into enthusiastic evangelists for mobile content.

THE HARD WORK BEGINS

2009 will throw up several new challenges for the App Store ecosystem, however.

1. Platform fragmentation
Everyone expected a new iPhone this summer. Currently the differences between the three iPhones and two iPod Touches can all be handled by one SKU, but this can’t continue forever. Anything that meaningfully changes the technical specs – a higher screen resolution, or much faster hardware – will provide opportunities for those who exploit its features, but will also usher in the era of multiple SKUs. Developers may feel doing two (or three, or four) iPhone versions is straightforward compared to other mobile platforms, but how will different versions be designated in the App Store, and will gamers understand what they’re getting?

2. iPhone OS 3.0
The introduction of cut-and-paste made the headlines, but games developers are busy exploring other upcoming advances. Peer-to-peer support will open up local gameplay, and support for subscriptions and (much-requested) micro-transactions will enable new revenue models for iPhone developers. But educating consumers as to what they’re paying for is vital – confusion over mobile subscriptions became mainstream news a few years ago, and stifled the then-burgeoning mobile content business.

3. Saturation
Thought of an amazing iPhone application? Chances are it’s been done. The next 25,000 iPhone apps will mainly be glitzier, cheaper or functionally superior versions of existing applications. This is to be expected, but nobody has yet handled such a digital market with very few barriers to entry before, so who knows how sustainable it is. The danger is that consumers are unable to find the best content and are disappointed by what they do buy, or that they give up in the face of overwhelming choice.

4. Pricing and App Store positioning
The App Store is already hit driven, and pricing is trending towards free. Subscriptions and micropayments may offer a replacement revenue stream, but if Apple and its third-parties want to grow the business beyond the expanding iPhone user base, a solution that helps more costly or ambitious projects reach their consumers and stand distinct from free, low-end or novelty offerings would be desirable.

Given that the App Store owes much of its success to its simplicity, it will be interesting to see how both consumers and Apple handle the increasing complexity of the iPhone universe – whether you’re a telecoms rival, a game developer, or one of the many Develop readers who wishes to go on loving your iPhone.