Wednesday, August 13, 2008

Apple's App Store & T-Mobile's Application Store

Both Apple (with App Store) and now T-Mobile (T-Mobile unconfirmed) are launching or are preparing to launch online stores to distribute and sell mobile business and consumer software applications. I have long been involved in the mobile business application markets and can see both the benefits and challenges this model can have. Let me summarize:
  • Online stores promoted by big name companies - this is a good thing. Most mobile business application companies are small companies that can use all the help they can get from a larger company's marketing funds.
  • More visibility to the carrier's network of sales people and reseller channels - again this is good for the small software company producing mobile business applications
  • Sharing 30% of the revenue with the Online Store - this means you are effectively giving up 30% of your revenue as a "cost of sales" or "marketing cost". This would be OK, if you consider the Online Store as a reseller, however, you are still likely to be required to do all of the pre-sales, sales, post-sales and support work anyway. This can get expensive and unprofitable if mishandled.
  • Most mobile business applications consist of many different software components, only a small portion are actually downloadable to the mobile device. So if your multi-component mobile business application only makes a mobile client available on the Online Store, then the remainder could be sold directly by the small mobile business software company in a separate transaction. This is the likely scenario that will work. The Online Store would sell a $19 mobile software client, but the mobile application server, administration component, mobile workflow and device management would be separate applications and fees available directly from the software vendor for another $97,000 (I just made that number up).
  • In effect - the software vendor will just alter their pricing to lower the price of the mobile client - sold through the Online Store, but raise the price of their server, manager, work flow and device management components to meet their revenue model.
  • The net effect to the Online Store is they will make 30% of the $19 mobile client component downloaded from their site, but none of the $97,000 for the rest of the enterprise mobile software platform, consulting and integration fees.
  • The Online Store will not like this model and will tend to promote a monthly service based software package in the SaaS model. The Online Store will see this as getting a larger piece of the entire enterprise mobile solution, not just the small mobile software client.

It will interesting to watch how this model plays out in the market.

- Kevin Benedict