App Stores: Microsoft, Google Follow Apple

When Apple (AAPL) opened its iTunes App Store in July, the idea of a mass-market Web site that sells downloadable games, tools, and other applications for cell phones was a rarity. Handset owners could buy apps from their carriers or the occasional niche site. But these days, the app store concept is becoming commonplace. The question is, does the world need a warren of wireless app stores?

In the coming six months, at least four would-be rivals of Apple will probably open their own online bazaars where developers of all stripes will sell downloadable software applications to make cell phones more fun and useful. Google (GOOG) has already announced its plans, while Microsoft (MSFT), Symbian, and T-Mobile USA are in the likely-to camp.

The appeal of an app store is undeniable. Since the App Store debut, users of Apple's iPhone and iPod Touch have downloaded more than 60 million applications, sampling the more than 3,000 games, calendars, and fitness applications on offer for as much as $10 a pop, though some are available at no charge. Sales averaged $1 million a day in the first month.

Microsoft's Skymarket Is Coming
Microsoft and other owners of competing operating systems want to ensure Apple's popularity doesn't take a toll on their own market share. "People are chasing the iPhone," says Van Baker, an analyst at consultancy Gartner (IT). Microsoft's plans to launch a store were laid bare by job descriptions posted Sept. 2 on job board computerjobs.com. The mobile applications marketplace, to be called Skymarket, may launch in tandem with the next version of Microsoft's cell-phone software, Windows Mobile 7, expected in 2009.

While he wouldn't confirm or deny plans for Skymarket, Scott Rockfeld, group product manager for Microsoft's mobile communications business, says the company ultimately wants to provide a resource, akin to CBS's (CBS) CNET, which includes reviews and customer feedback on products. "They are the trusted adviser to their community," Rockfeld says, though he declines to comment on plans to sell applications other than to say, "We are always innovating on Windows Mobile." The job postings have since been removed. Currently, Microsoft operates Windows Mobile App Catalog and Total Access, which aggregate applications and direct users to third-party sites to make purchases.

On Aug. 28, Google said it will open Android Marketplace, which will offer third-party applications for mobile phones running on a new operating system, called Android, built by a Google-led industry group. Done right, the new stores could create competition for Apple, Baker says. "They could significantly impact the iPhone," Baker says. "If you have an equivalent of iTunes App Store available on multiple handsets, consumers will have more choice. And competition tends to spread the market."

"Wild West Days"
Apple's interest in applications stems from more than just the 30% cut of every sale. The software is also a complement to sales of more expensive, higher-margin hardware. J. Gold Associates analyst Jack Gold figures that the App Store has helped Apple sell 10% to 15% more iPhone 3Gs than the company would have sold otherwise.

Existing retailers such as Handango could suffer as well. Anticipating additional competition, the company is already revamping its site.

Due to be launched later this year, the new storefront tracks users' recent searches and purchases and recommends additional software from its portfolio of some 200,000 applications. Handango CEO Bill Stone says the new stores will expand the larger market. "With the market growing so fast, there's plenty of room to operate," he says. Additional stores "can crack the code on awareness."

Still, aping the iTunes App Store won't be easy. "It's all Wild West days compared to the iTunes store," says Richard Doherty, director with consultancy Envisioneering Group. Each new market entrant faces its own, unique challenges in rolling out a store. And there's danger that some of the new stores won't live up to expectations. "There's almost as much downside to this if it's done poorly as an upside," Doherty says.

Google's Open-Door Policy
Take Microsoft, whose Windows Mobile software resides on millions of smartphones. Older Windows Mobile phones may not be upgradable to Windows Mobile 7 and may not be able to take advantage of the new Skymarket store. Other devices may not contain enough built-in memory for their users to download multiple applications.

Google's Android Marketplace faces a different set of challenges. Google will let developers post applications to the store in a matter of minutes, without going through an approval process. "A model like [Google's] really allows people to experiment," says Android developer Jeffrey Sharkey.

But that will make it hard to vet bad, glitchy, or inappropriate applications. To weed out bad apples, the Marketplace "features a feedback and rating system similar to YouTube," according to the official Android developer blog. But users could still unwittingly download software containing viruses or malicious code damaging a phone, or simply buggy applications. Apple takes weeks to vet applications posted to its store, and rejects many.

Programmers Hedging Their Bets
How soon the Android Marketplace will support paid applications is unclear as well. When the first Android phone come out this fall, "at a minimum you can expect support for free (unpaid) applications," according to the official blog. "Soon after launch an update will be provided that supports download of paid content and more features."

T-Mobile USA, owned by Deutsche Telekom (DT), appears to be feverishly revving up its own marketplaces, according to people close to T-Mobile. The carrier's new site for third-party developers states that "in the coming weeks, T-Mobile will be offering new ways to go to market." Unlike Apple, which sells applications for a single brand of handsets. T-Mobile faces the daunting task of offering applications that work with many different handsets, says Moe Tanabian, senior principal at IBB Consulting. T-Mobile declined to comment.

Unsure about how the stores will work, and which of these efforts take off and when, many programmers are hedging their bets, working on apps for a variety of operating systems. Microsoft's Professional Developers Conference, scheduled for October, has been the fastest-selling developer conference in history, according to Rockfeld. Interest in Android is surging. One blog for Android developers, AndroidGuys.com, has seen its traffic rise fivefold, to 10,000 visits a day, from June to August. "Proliferation of these stores can be a benefit for the developers," says Dan Gilmartin, vice-president of marketing at uLocate, which is working on applications for most of these efforts. "We are seeing growth in demand for applications across the board."