So you want to open an “app store”? : What does the plethora of app store announcements mean to the world of smartphone content distribution?

Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.
By far and away, the most popular question I was asked at CTIA earlier this month by media, analysts, developers, big companies, small companies, etc., was “Bill, what do you think about Apple, Google, and potentially Microsoft all getting into the smartphone content distribution business?” While time will tell if these and other companies will succeed or fail, I do see a few themes emerging.
1) Learn from history – indirect and direct distribution will co-exist.
I remember when I started in wireless in 1991 and wireless distribution was almost 100% indirect. In other words, master agents in the US and Japan (or service providers in Europe and Australia) were the primary route to market. As the penetration of wireless grew throughout the mid-90’s, the industry began seeing shifts in distribution. Operators began building stores aggressively, service providers co-existed or were purchased as the market grew, and big box retailers entered the market in a larger capacity.
Fast-forward to 2008 and you now see indirect and direct distribution co-existing. In the U.S. and Europe, customer additions are fairly evenly split 50/50 between the two. The lesson for mobile content? Some customers want deep expertise from one place and are very loyal to purchasing from them and other customers want the freedom of choice and would rather have convenience, expertise across multiple options or trust from buying at an indirect retailer because they have purchased from them before.
I see the same happening in mobile content. Today, we are still in the early days for mobile content (the 1991 of wireless) where distribution is primarily through indirect (i.e., not from OS provider) means, and the distribution is just starting to grow as the market for smartphones explodes. In the future, just as customers have four or five choices of carriers, customers will have 4 or 5 choices of OS providers as customers upgrade devices and switch between Windows Mobile, Symbian, Blackberry, etc. Just as in wireless, some customers will choose to purchase their content direct from the OS provider and some will purchase from other multi-platform stores like the carrier, handset OEM, retailer, etc.
2) Operators are AN important part of the value chain but not THE only part.
Historically, the two primary ways to distribute mobile content have been
either selling through the carrier’s “on-deck” storefront or via an off-deck model reliant upon premium SMS (and hence the carrier as well).
Going forward, we will continue to see operators and off-deck providers selling content but we will also see big box retailers, handset makers, handset distributors, online portals, and of course, OS providers all able to distribute content to the customer without touching the carrier. The iPhone does this today.
The carriers are going to focus their business on their competency doing things that stimulate more airtime revenue (e.g., building good networks) since this is where the bulk of their revenue is derived. Content distribution is something they will still provide but if a major carrier has tens of billions of dollars in annual revenue and $10 billion of that is data, the actual percentage that is mobile content, and specifically smartphone content, is fairly small in the scheme of their overall revenue. Even if they could double or triple their smartphone content revenue, it is likely to be a very small percentage of their total company revenue. Thus, more choice and more stores will help them sell more airtime and data plans.
3) It is hard.
Managing developer ecosystems, paying royalties, ingesting content, porting apps to different devices, merchandizing, pricing, creating promotions, managing thousands of contracts, and so forth are all things that are all “table stakes” to be in the business. Not for the faint of heart and the commitment has to be there.
4) Single vs. multi-platform matters.
The app store launches, and those rumored to be launched, have been focused on a single OS. For Apple, there is one OS, one device, and one operator in the U.S. This really simplifies their app store offering. The complexities of running stores increase significantly with the fragmentation of carriers and device OEMs and exponential complexity is added when factored across multiple OS.
5) Build, lease, or buy?
Companies thinking about entering this space are going to have to determine whether they should build the functionality from the ground up, lease it from companies currently in the space, or just buy the capability outright. With smartphones growing from 100 million today to over 500 million in 2010 and mobile content expected to grow 22%, many corporate industry strategists are busy analyzing the best approach for their company. The opportunity is there. The question is how to best exploit it.
6) Educating the consumer.cracking the toughest nut.
The most difficult part of smartphone content distribution is that the vast majority of customers do not know they can upload software onto their device.
These companies are now spending large amounts of money to educate the market on the fact that their smartphones are more like their PCs, not their former Motorola RAZR (or the like), which is “locked down” by the carrier. Educating consumers that they have the ability to put whatever apps on their device they want to improve the experience (and how to do it) is the single biggest barrier to the smartphone content market taking off.
As the broader wireless industry is now maturing into adulthood, it is exciting to see the nascent smartphone content market now move into adolescence with these announcements.
Write to RCR Wireless News at [email protected].