Original URL: http://www.theregister.co.uk/2008/08/16/apple_appstore_software_sales/

Apple's AppStore closes in on $500m in software sales

Bonanza for some, kill switch for others

By Faultline

Posted in The Channel, 16th August 2008 08:46 GMT

Analysis Apple is as usual dazzling the market with stunning headline figures that frequently overshadow underlying problems and dissatisfaction with its iconic iPhone and associated services. As bullish analysts say the device is set to sell almost 4.5 million units this quarter on the back of aggressive international expansion, CEO Steve Jobs crowed that the AppStore, launched a month ago with the 3G iPhone, has already processed 60 million downloads and is generating $1m a day in sales of paid-for software, and could crack the half-billion dollar mark within a year of opening.

As of Friday, 8 Aug, there were 1,647 applications officially available for the iPhone. Many downloads are free, but the first month saw $30m in paid-for software sales. The store is having a wider impact on download pricing too. When the store opened in early July the popular market price for a program was $9.99. In the month following the prices have dropped so far that many are now 99 cents, and even popular games are now debuting at this price.

Assuming sales continue at their current pace, by mid-2009 Apple and its developer partners are poised to earn at least $360m in new revenue from the digital storefront.

"This thing's going to crest at half a billion, soon," Jobs told the Wall Street Journal. "Who knows, maybe it will be a $1bn marketplace at some point in time. I've never seen anything like this in my career for software."

Apple takes a 30 per cent cut though after operating costs, AppStore is less of a cash cow than a further incentive for users to buy iPhones and iPod Touches and to purchase content from iTunes. Some developers are however raking it in, according to Jobs, who said the top 10 sellers in the AppStore have made $9m between them since the launch.

All this attests to the power of Apple marketing and brand, and the genuine usability of the iPhone, with its interface that, in the US in particular, has moved the goalposts of the mobile internet user experience. But Apple is in the fickle and rapidly changing mobile market now, and would do well to listen to some of the complaints about its platform, and bear in mind what happened to Motorola only two years after it boasted similarly stunning statistics for its RAZR (still one of the world’s most used phones).

On the one hand, Apple is expanding its sales and brand reach - though potentially damaging its margins - by cutting prices and turning the once exclusive iPhone into a handset for the mid-market. This is a good move for a device that relies primarily on brand and desirability rather than market-beating technical features (in these terms, it has never been a frontrunner, and has been regularly leapfrogged by new products from the Koreans, HTC and others).

More forgiving

Mid-market users will be more forgiving of the iPhone’s failings – this week, complaints have focused on slow boot-up and frequent dropped calls, especially when roaming, and on the iron control that Apple still exerts over software in its store. Power mobile web users will quickly be frustrated by such limitations and will seek the latest gadget to storm the performance barriers – and of course, they are the ones likely to spend the most in the AppStore.

So while physical glitches may be easily addressed, Apple really needs to be wary of its reputation in the web software field. First it had an entirely closed development environment, which is now open though still largely proprietary and under Apple’s control. That is fine – developers can decide whether or not to back it, or go for the ‘real openness’ of Linux, and the sales of the iPhone mean many will opt for Apple. But consumers with heavy usage of mobile web applications may not care about the development platform, but they will resent any attempt to restrict their choices.

In recent weeks, Apple has killed several apps in its store (Macrumours is compiling a master list here.) The vendor also admitted it had a ‘kill switch’ for zapping unwanted programs on the phone. The ‘kill switch’ is not just annoying end users but digital privacy and security experts, who are angry that each iPhone contains code that could theoretically remove software from the device at Apple's discretion. Jobs said it is necessary to deactivate a malicious program, though “hopefully we never have to pull that lever, but we would be irresponsible not to have a lever like that to pull”.

In most ways, all this comes as no surprise. Apple’s level of control of its software is less tight than that of many operators, but is more remarked upon because of the level of publicity it attracts for every move. We all know that the mobile internet cannot be as open as the PC internet because of the networks upon which it runs – and while Verizon Wireless and AT&T preach open access and the right of any developer to put software on their systems, in reality they firmly reserve the right to kill any feature that might harm the network or damage security or performance for customers.

Apple offered the same reasons for not opening its developer platform at once, and now for vetoing certain applications, and in many ways its justifications are reasonable. But the fact remains that the perception of the most active mobile web user base is that Apple is restrictive, while on a Nokia device, anything goes. Whether this is true or not, Apple has made its success on perception more than reality – the notion that the iPhone is a technological frontrunner, for example – and it will make its failures in the same way, far more than a less flashily marketed, and less closely observed, vendor like Nokia.

Nokia never manages to generate the level of headlines that Apple does, even though the forthcoming Tube has gained quite a high profile, but it is scoring points with developers because of its more open applications policy, and consumers are starting to notice that they have greater choice and fewer restrictions on a Nokia mediaphone than an iPhone.

Although Apple released a developers’ kit earlier this year and attracted huge numbers of programs to its AppStore, launched with the 3G iPhone, it is still showing many signs of control freakery, which are starting to annoy users and even provoked criticism from the Washington Post. So let's take a look at three of the applications pulled from the store.

Net Don't Share

One of these was NetShare, and the reason for Apple’s hostility is obvious – it effectively turns the phone into a Wi-Fi hotspot. However, such facilities are becoming wildly popular on mobile phones, and many major operators have had, reluctantly, to support them, in order not to lose customers. Apple – or more likely, its carrier partners, which stand to lose business for their Wi-Fi / broadband services - have not yet learned this lesson.

The second vetoed app was ‘I Am Rich’ – which was jokily priced at $999, and was presumably removed because some consumers didn’t realize they actually could be charged the fee if they clicked.

The removal of the third is less easy to explain – BoxOffice lets customers look for and buy movie tickets. The only obvious reason was that, in the US, it undercut a ticketing service from iPhone carrier AT&T. This highlights the downside of Apple’s old-fashioned exclusive and closed deals with operators – without the freedom to work with other carriers, it has to go along with the cellco’s wishes even if these reduce the effectiveness of its own AppStore.

Nokia’s huge market share and wide range of devices mean it has far greater power over the carriers, to the extent that it has launched its own Ovi range of web services, which can compete directly with the operators’ own internet offerings.

Nokia has no restrictions on what can be downloaded to its smartphones – this is one of the many reasons why it is regarded with suspicion by US mobile operators, but something that its carrier partners in Europe accept. For instance, Nokia users can download Joikusoft, an app that turns the phone into a Wi-Fi hotspot and also allows it to share the connection with multiple devices.

Some carriers that do not have iPhone deals are looking to advertise this openness more aggressively in order to win subscribers from iPhone rivals like O2 in the UK, a marketing ploy that will also benefit Nokia. Nokia says Apple has raised awareness of what a smartphone can do, but now users are looking for more open platforms without carrier tie-ins.

Music for librarians

A forthcoming Apple software update could enable iPhone and iPod Touch users to access their home computer's entire iTunes media library remotely without traditional synchronization, according to a new patent filing uncovered by AppleInsider.

The 24-page filing notes that at present, downloading media items from a computer to a media player is a time consuming process limited by the device's storage capacity. But new versions of iTunes and the iPhone software propose to eliminate the problem by synchronizing only the metadata, not the content itself, from iTunes to the device. The metadata would translate on iPhones and iPods as ‘virtual media items’ representing playlists, videos, photos and mobile games. Instead of accessing the files directly from the device, the iPhone or iPod would employ a wired, Wi-Fi or cellular connection to access and retrieve the media items from a user's Mac or PC.

"As a result, the user perceives that the virtual media items may be available on [the media player]," the Apple filing notes. "In this manner, the virtual capacity of an electronic device may be increased."

Apple still plans to roll out the iPhone 3G in 70 countries by the end of the year, with 20 new territories to come onstream on August 22. Among these will be Telefonica, launching in eight Latin American countries: Argentina, Chile, Colombia, Ecuador, El Salvador, Guatemala, Peru and Uruguay. Bharti and Vodafone should go live in India by the end of August.

Eastern Europe is another hotbed - O2 is adding the Czech Republic, TeliaSonera subsidiary EMT will launch in Estonia, Orange and Era will both offer the iPhone in Poland and Orange also in Romania, and T-Mobile will launch in Hungary. Further afield, Globe Telecom is going live in the Philippines, while Singapore is also expected to get the iPhone.

Copyright © 2008, Faultline

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