In a few years time Apple [AAPL] will face a handful of competitors in thesmartphone space as fierce competition within the industry drives an inevitable wave of consolidation between handset manufacturers, platform developers, carriers and app store providers.
Over seven billion apps have already been downloaded from the App Store, making it the leading app store for any mobile platform worldwide.
Competitors don't believe Apple will be able to hang onto this crown.
App purchases are driving some growth in the market, while ads payments (and iAds) are driving another form of profit-taking.
However, it is possible that in-app payments will be the big money earner in the future mobile industry.
Mobile billing and analytics firm, Bango expects in-app purchasing will grow600 percent in 2011 to account for almost one third of all mobile app payments.
Reports today detail some of the pitfalls of in-app purchases -- confirming the bottom line that parental controls of mobile device purchasing permissions aren't there to be ignored.
Invaders of the last app
This isn't just about Apple, though it holds a lead position within a market that's diversifying rapidly as Nokia, BlackBerry, Android and Windows devices get ever more app smart.
Orange this week launched a new mobile apps hub which will let developers submit their software once for sale in all international markets.
This will launch with Android app support with BlackBerry and Java apps to follow. The Android Market now has 100,000 apps vying for attention.
Independent app store GetJar (which offers apps to unlocked iPhones alongside those for other platforms) has seen over 1 billion downloads to date.
All this evidence suggests that outside Apple's App universe, there's a growing number of app stores appearing, including those from hardware makers, some software platforms, carriers and independence.
There is too much repetition in such a fragmented and diverse market.
In any case, a recent interview confirms Android isn't as much fun to develop for:
Android Police: Do you like developing for iPhone or Android better, and why?
Max Howell: iPhone honestly. The development tools for Android are raw and relatively unloved which can lead to frustration. Debug cycles on Android take half a minute at least. On iPhone you can be testing new code in seconds. And it takes less effort to make beautiful software on iPhone, and ultimately all that matters is: is my software gorgeous? Does it feel amazing to use? Because if it doesn't your app will not take off.
Consolidation is inevitable
HP's recent acquisition of Palm (recently characterized as predicated by the handset maker's inability to scale its business on financial grounds) is a case in point.
Other recent examples:
- The oft-reported rumor claiming Microsoft has discussed purchasing RIM.
- Apple's failed attempt to purchase Palm.
- Orange and T-Mobile's decision to merge operations in the UK.
As above, so below. As hardware makers find new partnerships, so too will app store providers:
"In five years only six major app store players will make it," GetJar explains, predicting that only two or three app stores will have significant business by 2020.
- I'd argue that Apple will eventually face competition from one, perhaps two Android-focused stores.
- Microsoft will eventually begin to make some critical acquisitions in order to maintain itself in the race (Microsoft has the money to remain in the race even if it isn't a prime player).
- Nokia is unlikely to withdraw.
- RIM is unlikely to remain independent, in a sense the best acquisition fit for the Canadian firm might be Nokia. A partnership between these two could benefit both.
- HP's position in the future remains to be seen.
This makes it likely that Apple will face two Android stores; a Microsoft store; HP/webOS; and (pure speculation) RIM/Nokia, that's by 2014.
Being an independent app store, GetJar believes that, "all closed app systems will need to open up or fail," arguing that "Closed ecosystems make it harder for developers to get their apps discovered, shared and monetized."
In December 2009, Apple saw $250 million in sales generated by 280 million app downloads (according to Flurry.com.)
GetJar estimates that the money made will continue to grow, with some app companies generating over $100 million in revenue in 2011. That's revenue ten times that of the leading firms in 2010, the company argues.
GetJar has a few interesting predictions to make regarding branding on the apps:
"Brands that understand and advertise on the mobile market today will have a competitive advantage in reaching consumers tomorrow - It took ten years for the Internet to attract ten per cent of its advertising capacity and mobile ad dollars will likely follow a similar pattern. As virtually all consumers young and old have a phone, and as smart phones in the US outpace feature phones in 2011, brands that understand and advertise on mobile platforms will reach those younger consumers while brands that don't, loose out."
The tablet market is also set to see intense competition, though I disagree with GetJar's assesment that the iPad is an "expensive, niche device" -- mostly I find expensive niche devices don't sell two million units each month.
I also question GetJar's claim that "tablets that leverage Android as an operating system...will benefit from lower price points, open platform, and widespread availability from common retailers."
I'm keen to see what kind of bang consumers will eventually get from a low-cost tablet buck.
I'm also aware of anecdotal reports that Samsung Galaxy Tab sales have seen retailers cutting prices and upgrading memory on the device in an attempt to woo consumers. As yet Apple has not had to engage in this kind of practice.
Where GetJar sees the opportunity for third party manufacturers in the Android ecosystem, I see they face a future threat. Android seems on trajectory to become the dominant mobile OS.
- However, products implementing that OS are manufactured by competing firms.
- Ultimately they will each possess small marketshares while engaged in battle in a value and price conscious industry.
- This is a situation that leads inexorably to consolidation between device makers.
While relative market share may change, Apple will not be touched by these problems. Also, given its software development leadership, existing mind share, and that it leads where the rest of the industry follows, Apple is already in position to dictate to its own competition.
It only has to reduce its profit margins if it wants to accelerate that inevitable consolidation between its competitors. It can sustain lower per-device profits far more than those battling it for market share.
This story, "Why Apple's Enemies Will Feel More Pain" was originally published by Computerworld.