App Store Marketing 2011

App Stores other than Apple's may be smaller, but they are growing faster.

The whole App Store idea is growing and changing. First off, the phrase "App Store" is the subject of a fight, as Apple's trademark application for the term (filed in 2008) is under attack by Microsoft. Not unreasonably, Microsoft is arguing that the term App Store is generic, like "shoe store", and should be available to all. As you might expect, Apple disagrees. You'd expect Apple to want the term reserved for themselves. It's amusing, though, how fast technology has forced the progression of language. Why, back in the Twentieth Century it could take decades for a company's trademarked term like Kleenex or Xerox to become generic. Now it happens so fast the trademark hasn't even been granted before the term becomes generic.

Anyway, regardless of what you call it, stores that sell Apps have been growing and changing. Here's some interesting data on on various App Stores have been growing in the last year. Blackberry, Android and Ovi app stores have been adding apps at a tremendous rate far outstripping Apple's. Of course, they have far further to travel since they are smaller. And Blackberry and Ovi desperately need apps to compete with Apple and Android, though this seems like a rearguard action that will do little to delay the outcome of the war.

Something entirely different is coming up with the Android app market. One of the interesting things about the Android Market is that Google has always said other companies are free to create Android app markets of their own, unlike Apple who assiduously tries to keep it all to themselves (though Cydia offers some interesting capabilities to those willing to jailbreak their iPhones). Now Amazon is about to take them up on it... and Amazon is planning to change the way apps are priced.

Typically, app developers set their prices and the app store takes a 30% cut, passing 70% of the revenue on to the developer. Simple, straightforward, no muss, no fuss. Amazon, though, has invested a lot of effort into figuring out how to maximize revenue from pricing. Amazon has engaged in dynamic pricing in the past in an effort to maximize revenue. So Amazon is setting up their Android App Market to allow them to do that with Android apps.

Here's how it will work: The developer sets a Manufacturer's Suggested Retail Price (MSRP) for their app; this MSRP has to be less than or equal to the lowest price of the app as listed anywhere else. Amazon will pay the developer 70% of whatever Amazon sells the app for, or 20% of the MSRP, whichever is greater. So Amazon can put the app on sale, or give it away for free if they like. If the developer lists an MSRP of $5, Amazon will pay the developer $1 if Amazon gives the app away for free. If Amazon sells the app for $2, the developer gets $1.40. It may well turn out that the developer will make more money overall by Amazon selling the app for $2 than at the MSRP of $5. (For instance, if Amazon sells 100,000 copies at $2, versus the developer selling 1,000 copies at $5, the lower price is clearly better for everybody.)

Developers may be annoyed at the idea that they won't have control of their price, but clearly Amazon's interested in finding the maximum revenue, which is good for the developer as well as Amazon. Pricing digital goods is not the same at all as pricing physical goods. I think Amazon's going to be very successful with this idea... if developers will get past their prejudices and put apps into the Amazon app store despite losing total pricing control.