Here comes the App Store ecosystem

John Shinal · August 11, 2008 · Short URL:

Apple's coat tails in mobile software will be worth riding, giving iPhone platform an early boost

Jobs at WWDCWho said Steve Jobs didn't learn a few things from Bill Gates?

Gates' company grew after he turned PC makers into his allies by convincing them his software would make their machines more useful and attractive to buyers.

Jobs, on the other hand, led Apple into the PC market share basement in the 1980s by insisting on going it alone in both hardware and software.

But this decade, Jobs has led Apple back with a more Gates-like approach.  

Jobs has learned to give things away to seed a market (remember Internet Explorer?) and to work with partners to create an ecosystem in which everyone wins.

He did it first with the iPod, convincing music publishers that it was better to charge 99 cents a song rather than have consumers get them for free from illegal download sites. While Apple makes no money from the music, the more than 5 billion downloads from iTunes have helped sustain growth of iPod sales.

Jobs followed the same playbook when he convinced AT&T to subsidize the iPhone in exchange for being an exclusive carrier. The result was a 52% rise in AT&T's wireless data revenue in the second-quarter from a year ago and a strong start for the iPhone.

Based on the figures Jobs shared in a Wall Street Journal interview today regarding the iPhone Apps Store, Apple is also helping smaller players benefit from iPhone mania.

Apple users have been downloading programs from the Apps Store at the rate of 1 million per day, according to Jobs. While most of those are free, enough people paid for apps to generate $30 million in revenue for the first month. 

Jobs said that Apple is making no profit on those sales, with their 30% take covering sales and other costs. The purpose is to drive iPhone sales, and all those great applications are going to attract even more consumers to the device. One analyst estimated that Apple sold 3 million 3G iPhones in the product's first month.

So while Android developers are still waiting for Google and its Open Handset Alliance partners to get their act together, Jobs is putting checks into the pockets of iPhone software makers.

It's true that Jobs hasn't abandoned his old playbook. Apple's laser-like focus on product design and software-hardware integration, once a liability in the PC market, has been key to the success of the iPod and iPhone.

And let's not forget that the Apps Store isn't an open platform like Android. Apple approves the apps and has built in a way to remove ones it doesn't like from consumers' iPhones, a power it hasn't been shy about using.

But that hasn't stopped the device's success , which is already spawning opportunities for startups that can help improve the Apps Store experience for users and developers.

One such company is PinchMedia, which provides real-time analytics for app developers who don't want to wait for Apple to tell them how their apps are doing.

PinchMedia founder Greg Yardley told me that Apple is issuing reports just once a month. Since Apple is making no profit on the apps directly, it makes sense that it wouldn't want to be in the analytics game.

That leaves plenty of room for folks like Yardley, a one-time RightMedia executive who left Yahoo after it acquired his former company.

Pinch Media's analytics have led to better targeting and click through rates on the platform, with click-through rates as high as 2%, Yardley says.

PinchMedia is making its money from the advertising that gets served up along with the iPhone apps. Last month it formed a partnership with mobile ad network Jump Tap to deliver iPhone ads.

And the company's niche is just one area of opportunity that the Apps Store will create. Startup firms that help users discover apps and make it easy to establish identity in a mobile network will also have good shots at building a business, as Richard Wong of Accel Ventures told an audience last month.

Yardley says a lot of the application writers he works with are long-time Mac developers.

"These are great people with lots of pride in making apps that are helpful... ones that are easy to use," he says.

And now Jobs is giving them a fast-growing new device to develop for and allowing them to keep 70% of the take, more than the 50% traditional carriers keep.

While U.S. carriers like T-Mobile USA are just getting around to creating similar stores, and Google's Android platform yet to appear on a phone any a consumer can actually buy, Jobs has captured the early momentum in the market for off-deck mobile platforms in the U.S., where carriers have lagged behind their European and Asian counterparts in embracing the trend.

And as the platform grows, more developers and startups will be working to help Jobs keep that momentum.

(Image of Jobs courtesy of GizModo)

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