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What Apple’s milestone means to app stores

Apple’s iPhone app store is fueling smartphone growth, taking competition to a new level for wireless operators

As the company that often sets the bar for the wireless industry, Apple’s (NASDAQ:APPL) news today that it has achieved more than 2 billion application downloads, just four months after announcing its one billionth download, has implications for the rest of the industry as well. According to Anuj Khanna, CEO of UK-based research and consulting firm Wireless Expertise, the popularity of applications is spurring a shift to paid apps, encouraging the emergence of niche app stores and demanding a competitive response from wireless operators.

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As of today, Apple has more than 85,000 apps from 125,000 developers available on the iPhone and iPod Touch, which combined have sold more than 50 million. Apple achieved 1 billion downloads in just nine months, and more than half a billion apps were downloaded in this quarter alone.The software giant still hasn’t released the mix of paid to free apps in its download history, but Khanna said a mix of 75% free and 25% paid is standard. He is predicting a surge in paid apps as the market moves away from entertainment and infotainment apps and into more enterprise and Internet-driven apps, such as antivirus software or SAP apps – basically a miniaturized version of anything on the PC.

In addition to a broader range of apps, Khanna expects growth in mobile apps to come from a broader range of devices, including low-end mass market smartphones and – longer term – mid- to high-end mass market feature phones. Wireless Expertise forecasts that the global mobile app market will be worth $4.66 billion in 2009, rising to $16.60 billion in 2013.

While Apple is most squarely responsible for reigniting the apps market, it will also face stiff competition in the next 18 to 24 months, Khanna said. This competition will come from mobile operators, independent service providers and competing vendor app portals, most specifically Nokia. Nokia will be very active in the smartphone market, he said, and its biggest advantage over Apple is the ability to offer its Ovi store on a wide range of handsets, including mass-market feature phones.

“I see Apple as a market leader in terms of innovation of applications, but in terms of market share, iPhone has a long way to go,” Khanna said. “The iPhone is growing exponentially in the American market, and might soon be a market leader, but on a worldwide basis, Nokia handsets and Symbian operating systems have a very large share.”

Both Apple and Nokia may soon have another formidable competitor in mobile operators, traditionally their partners. In the face of exclusive agreements and fragmentation, operators are being are being forced to respond on their own to the app store phenomenon, Khanna said. Those that release a mobile Internet API will be best positioned in that they can address fragmentation and help to create a multichannel app services and content environment coupled with integrated billing and payment mechanisms, he said. This will only be successful, however, if they are involved with delivering and charging for apps and if they offer a revenue-share model as high as 90% to developers.

They will also have to adopt a dual app store strategy, Khanna added. They need to use “the now widely accepted app store model in conjunction with a browser-based widget store, to provide the greatest potential for a mass-market proposition,” he said. “These are changes the operators will accept,” Khanna added. “There is no choice; there is no room for followers here. People will have to start changing.”

Some operators are already launching their own app stores, but they won’t have any long-term value in their current forms, Khanna said. Portals from carriers like Verizon Wireless’ Java app store are not market ready, but rather rushed out to make the operator appear competitive. Real integrated storefronts that work well are at least a year away, he said, adding that app store names like O2’s Litmus and Vodafone’s Betavine developer community show that even the carriers know they are just first attempts.

“Operators have traditionally been bad at marketing content,” Khanna said. “For them to change overnight with so many years of bad history behind them will be challenging.”

Discoverability and consumer education will continue to be the biggest impediments, Khanna added. Ease of use will have to be improved for any storefront to be successful, but it will also spur more competition from new independent mobile app stores that specialize in niche content, such as games or location, he said.

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© 2014 Penton Media Inc.

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