Making money with mobile apps

Developers of apps for iPhones, Android phones and Windows Phone 7 devices have a lot of hurdles to jump.

To many companies and independent developers -- not just software publishers -- mobile apps represent something even more powerful and important than a brand-new platform to deploy apps on. It's a new and dynamic source of revenue, one with a lot of room to grow. And given how tough it can be to make money selling software at all, especially in this world of open-source and free Web apps, any proven way to make money in that field can become a magnet.

Just like there's more than one way to deliver software in general, there's more than one way to monetize mobile applications. The various strategies aren't conflicting, but complementary. Each app can use the business model -- or models -- best suited to it.

The line at the register

With mobile apps, the purchasing process varies wildly, depending on which operating system you're dealing with. On the iPhone, everything's done through one interface: the App Store in iTunes. Windows Phone 7 supports direct payment via credit cards and third-party billing of the customer's service provider. Purchasing through a service provider is convenient, but I imagine people might still opt for credit cards to avoid the possibility of spurious charges on their phone bills.

But with Android, the dreaded "F" word -- fragmentation -- comes into the picture. The main way to pay for apps through the Android Market is via Google Checkout, widely criticized for its bad end-user experiences. You can also pay the app merchant directly and there are a number of other merchant mechanisms ... all different. (PayPal has also recently been added to the mix.)

What's most lacking in Android right now is a single, consistent interface for payments. The most seamless solution would be an API that allows app purchases to be added to the carrier's bill (with user consent, of course), which would make the process of purchasing an application all but frictionless. This hasn't happened yet, but Patrick Mork, vice president of marketing for GetJar, a cross-platform mobile app store, claims that it is "right around the corner" and that Google has made no secret of its negotiations with the various carriers to make this possible. Integration with PayPal is also a step in the right direction, even if not everyone uses it.

Less clear is whether such a sea change will require a new version of Android -- meaning those stuck on older handsets that aren't being updated to newer editions of the OS would be left behind. Because Apple and Microsoft both have ecosystems where the purchasing system is already pretty seamless, Android runs the risk of falling behind unless the vast majority of its existing installed base can be brought up to speed when new merchant mechanisms arrive. And because of the way Android is delivered to the end user -- by the handset maker rather than by Google alone, and with any number of gratuitous changes -- a good chunk of the existing generation of Android phones might remain stuck on the old-school merchant systems.

The need to make app purchasing as convenient as possible will only become more important over time, to both the people buying and selling them. Smartphones have become increasingly prevalent among consumers as well as business people; many new users have no experience with buying an app and don't want the experience to be more complex than a click or two. "Many apps are currently purchased on an impulse," says Ric Ferraro, founder of mobile start-up GeoMe. "People crave apps in the same way [as candy bars], and the longer it takes to buy the app, the less likely it is that the purchase will be completed."

Mork puts it another way: "The best purchasing experience is probably the one where you never have to leave the app."

Standing out from the crowd

Along with ease of purchase, discoverability -- how easily you can find a given app and pick it out from its competition -- will also become increasingly important. I've read more than a few comments to the effect that one drawback of the Android app stores is a proliferation of me-too apps that duplicate functionality to the point of redundancy.

From this comes the argument that an app store with a more carefully curated selection of products is more genuinely useful -- like the iTunes app store, for instance. But it's also possible to make an argument that the size of the store is not as important as the interface used to query it. Few people complain about the size of Amazon.com's catalog, in part because it's relatively easy to drill down and narrow the scope of a search.

Another possible solution would be a universal app catalog -- "a single store or a single set of standards which can be accessed independent of the type of mobile device or OS it is running," as Ferraro describes it. "Some initiatives are being set up to attempt this -- for example, the Wholesale Applications Community initiative sponsored by the GSM Association could go a long way in setting unified standards and creating a single platform."

That wouldn't make things much easier for developers, who would still have to produce and test variations of a given app for different platforms -- but the app market is driven by consumers and not developers alone, and where the consumers go, the developers inevitably must follow.

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