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Life Before Apps Stores

Posted on Saturday, Aug 8th 2009

By Guest Author Saad Fazil

While the iPhone and Android platforms and their ilk have certainly opened up the playing field to a long tail of developers, they are by no means cash machines. In fact, if you had planned on quitting your job to get rich developing apps for these platforms, you might want to reconsider — the chances of your making enough money to build a sustainable business or even survive are slim (see my earlier article on iPhone apps). Barriers to entry are extremely low, making it difficult for businesses to differentiate themselves and flourish. When apps stores were not that prevalent, selling directly to consumers was neither easy nor common. Barriers to entry were higher, and the smaller number of companies that were in business had fundamentally different business models: they would sell to operators and device manufacturers rather than consumers. Let’s look at a few companies that are still primarily built around this model.

Ontela

Ontela lets users sync pictures from their phones to computers. Setup is generally required one time, after which synchronization is almost automatic and quite seamless. Rather than selling apps to end consumers, Ontela works with cell phone carriers and device manufacturers to provide photo-syncing solutions. Selling to carriers rather than consumers is a conscious choice and obviously requires very different skill set. Ontela hasn’t developed applications for the iPhone thus far because of some of the drawbacks I mentioned in an earlier article, including the platform’s inability to run background apps and the difficulty in learning it. Ontela shares revenue with the mobile operators it sells to.

Funambol

Funambol provides opens source syncing solutions for several platforms. It competes with solutions such as Apple’s MobileMe and Google Synch. It provides a free app to users but makes money from mobile operators. In the US, where mobile operators are much stronger compared to other players, Funambol’s primary customers are, not surprisingly, mobile operators to whom the company provides white-label solutions. For example, it could sell a Funambol server to T-Mobile. Although Funambol claims to provide the best syncing solution, it will have a hard time competing against free services such as Google Synch.

GLU Mobile

GLU Mobile specializes in game development across several platforms. It has more than 150 partners all over the world. Its scale (in 2008 revenue was around $90 million) and experience have allowed it to reduce the porting costs per handset to about $250 for a particular platform. Ninety percent of its revenue comes from mobile operators. Its revenue from the iPhone is still a drop in the bucket and in fact, it sells more games on the BlackBerry platform in the US than it does on the iPhone.

Handango

Handango has a very interesting product: its own apps store! It began providing apps store platform before many known apps stores came onto the market, and it provides stores for almost all known platforms except the iPhone and the Palm Pre. It supports several forms and models of payments but does not yet support micro transactions. With tons of apps stores being launched by mobile OS vendors (Apple, Google, Microsoft, Palm, RIM) and mobile operators (Vodafone), it will likely be extremely hard for Handango to compete and survive.

All of these examples are a stark reminder of how little revenue the iPhone actually generates for developers. There are roughly 25 million BlackBerry; one million Android; 350,000 Palm Pre; 45 million iPhone (or iPod Touch); and several hundred million Symbian handsets on the market! Combine that with the short shelf life of iPhone apps and other shortcomings of the iPhone platform (limited payment solutions, harder to learn platform, inability to run third party apps in background, etc.), and you can understand why the iPhone is not the primary platform for many developers. Another interesting fact about the above companies is that almost all market their products to mobile operators and handset manufacturers, unlike many mobile apps companies that essentially market their products to consumers.

I am by no means suggesting that successful businesses can’t be built around the iPhone or Android platforms. Nor am I suggesting that building a platform company (rather than an apps company) is better or easier. I am merely pointing to the fact that there are several successful business models, and developing apps for the iPhone or Android-powered phones and selling directly to consumers is not the only (or even better) way of building a successful mobile software company.

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I would argue that your conclusion is wrong. Selling apps through iPhone’s App Store, or Android’s Market directly to consumers is a better way of building successful mobile software companies.

The reason is simple; No other channel has ever in a such successful rate turned the promise of “potential customers” into “actual customers”.

Fredrik Olsson Saturday, August 8, 2009 at 1:52 PM PT

I didn’t make that conclusion; I merely mentioned pros and cons with each approach.

“No other channel has ever in a such successful rate turned the promise of “potential customers” into “actual customers””

This is a potential challenge in itself that there are tons of developers/businesses to compete against.

saadfazil Saturday, August 8, 2009 at 3:34 PM PT

I think that your conclusion is correct: it’s hard to make money from mobile apps. But the examples you chose don’t support the conclusion.

If _these_ companies have a hard time making money, that’s because they are trying to offer an alternative to the apps that already exist on the phone, or are available as trivial updates under the same brand and customer experience: @me.com. If anyone is trying to top that, they have to be significantly better, which costs money.

Here are some business apps that don’t try to compete with Apple, are available in the app store, support an urgent use case and therefore might make it: http://bit.ly/2w1bfZ

Again, I don’t want to attack your conclusion. It’s just the examples that put me off.

Two other articles that I’ve enjoyed on the topic:
http://bit.ly/Dlt6K
http://bit.ly/17ue3c

Petteri Hiisila Sunday, August 9, 2009 at 3:10 AM PT

I agree with your view: the mobile business models are varied and making money is hard when you’re trying to compete in a market that is not open to competition. The gates of iTunes App Store are closely guarded by Apple and AT&T against competitors. For example, Funambol is prevented to access and sync calendar items or to run in the background to receive push notifications (as it would compete with @me services). Google Voice was kicked out of the App Store by AT&T.

But Funambol is not making money selling to end users, as you correctly noticed. The main differentiator between Funambol and Google Sync, MobileMe and others is that Funambol is cross platform and network agnostic. You can setup and run your own Funambol sync and push service from your private mobile cloud and to any phone.

Stefano Maffulli Monday, August 10, 2009 at 2:29 AM PT