That app discovery is broken isn’t in dispute within the mobile industry. The lack of adequate alternatives to native app store search has catalyzed the existence of a vast secondary market for mobile users; that market has become so competitive that studios without sizable balance sheets are precluded from participating in it. Industry giants are pricing small players out of the market for users and are thus starving them for growth, in some cases even driving them out of business. It’s very unlikely that the dynamics of the mobile industry will be shifted onto a new trajectory in the coming year.
Which begs the question: are the current dynamics of the mobile industry good for the consumer?
Answering this question requires an understanding of who exactly the players in the mobile industry are. From my perspective, four groups exist: app store operators, large developers, small / indie developers, and consumers. Each group is motivated by different interests and pursues a different medium-term strategy.
App Store Operators
The crux of the app store’s broken state is that app store operators only care about selling apps that help them sell more hardware. This chart from Apple’s most recent quarterly earnings report illustrates exactly why: total iTunes Store sales represented only 7% of the company’s revenue in Q1 2013, whereas combined iPhone and iPad sales represented 76%.
The app store operators accomplish this hardware showcasing through “featuring” – tacit promotion of select apps in a prominent, highly-visible position on the front page of the app store. Featuring supersedes everything; if a developer gets its app featured, its marketing problem is solved.
And thus the app store operators are able to implicitly dictate the direction of app development in a way that best showcases their products and platforms. Because featuring has become such an intractable factor in an app’s (and, indeed, a developer’s) success, pursuing featuring is a necessary element of any developer’s launch strategy. This will likely not change in the medium or long term.
Large developers, faced with massive operational overhead, can only remain profitable if their apps appeal to a large potential audience. In this way, the incentives of the large developers and the app store operators are aligned: both want broad appeal and both want to drive device sales (as first-mover advantage in accommodating new technology can reap significant rewards). Large developers are also incentivized to keep the spot price of users on the secondary market high, so as to crowd out potential competitors; thus, they engage in massive acquisition campaigns, keeping constant upward pressure on CPA prices. Large Developers want to reduce the channels to app success to featuring, too: small studios are cheaper to purchase before their apps have reached any appreciable scale.
Indie developers are generally driven to innovative and differentiate, given the size of the app store and the broken state of app discovery. Word of mouth virality, then, is the indie developer’s only realistic means of accessing a large user base (outside of featuring) – which means indie developers are forced to attempt to build radical, disruptive new experiences in pursuit of the extreme level of virality that can overcome a humble marketing budget. Increasingly, for indie app devs, the “Hail Mary” is the only viable launch strategy.
Consumers have fairly straightforward incentives: they want to download apps that fulfill their needs at low price points. They don’t care about the machinations of the app stores or whether a developer is large or small. And the quality of the apps they download doesn’t necessarily impact the amount of money they spend on a regular basis purchasing apps. Consumers have fleeting needs; those needs are capable of being met with disruptive experiences or with generic experiences. Think of a couple going to the movies on a Friday night: how dependent is that binary choice (go or don’t go) on the quality of the movies playing?
The players in this game have disparate incentives. But which incentives set the rules of the game? Obviously those of the consumers: consumers are despots, empowered by the immovable authority of money.
So while app discovery is most certainly broken, the fact that it’s broken likely doesn’t have an effect on the quality of the products that reach consumers. In fact, the rise of the freemium model within the app ecosystem has provided consumers with even more leverage against developers: they now pay for only exactly what they use and can demand minimal functionality for free. App developers still must release high-quality products; the state of the app store simply places a high production tax (sometimes as much as 50%) on the process in the form of marketing spend.
The characteristics of this system speak to why app discovery hasn’t yet been disrupted: consumers don’t care, the app stores don’t care, the big developers would prefer to spend less on marketing but are happy to squeeze the small developers (and have such large product portfolios that cross promotion is a viable launch tactic), and the small developers are either being acquired or taking “hail mary” shots at run-away virality. Any disruption to app store discovery will have to come in the form of a tool that reduces the cost of distribution for developers; direct, consumer-facing solutions will be a tough sell, since consumers aren’t experiencing disruption pain points.