Yesterday’s announcement that Apple will open an OS X “App Store” in 90 days is a total game changer. Consumers will be the obvious winners. App developers also stand to benefit, despite Apple’s hefty 30% cut of revenue. What looks like another smart move by Apple to leverage its dominance in the smart device, mobile app, and music distribution markets is actually part of a larger strategy. Their “end-to-end system” thinking and desire to expand into other markets will have a profound effect on content distribution channels of all types.
Big software shops
Adobe, if they didn’t hate Apple, would love to distribute their products to consumers at a cost of 30% of the sales price; as would AutoCAD, FileMaker, and perhaps even Microsoft. The costs to package, distribute, and sell their current products probably exceeds 30% already. Their decision to put products in the Apple Store, however, will be a protracted one. Initially, they will find ways to have a presence in the store with lower cost or free offerings that encourage consumers to purchase upgrades. Ultimately, competition will drive them to place all of their products there or face losing market share.
Developers with products like Pixelmator and other software programs marketed directly to the consumer or through distributors like MacHeist will also jump at the chance to be in the store. A 30% fee is lower than what they pay through third-party distributors or using their internal sales and marketing channels. The App Store’s high profile will increase visibility and position the products of direct-to-consumer companies as alternatives to the more expensive and well-known brands. Customer ratings and reviews will play a huge role in driving the sales of lesser-known products.
With the App Store, direct to consumer shops will save huge sums of money by eliminating the need for infrastructure to distribute products, accept payment, and manage licensing (because Apple will apply DRM). Plus, fewer pirated copies will come into existence. To a large degree, developers will be able to reduce advertising costs and return to focusing on their core strengths (software development), while having access to the same distribution channel as the big brands.
Independents and startups
Independent or new-to-market developers will be thrilled with the low barrier to market entry presented by the App Store. They won’t need payment gateways, distribution servers, license management, advertising, sales engines, or an infrastructure that costs as much to operate as it does to develop their products. The “If we build it, they will come” strategy will work in the beginning when the market is wide open and a flood of apps (some junk) head over to the store. Over time, the survivors will evolve products that effectively compete head-to-head with larger brands and many of the big brand names will be unseated. The independents don’t have legacy issues and will iteratively build great form and fit into their apps. They will live and die by reviews so they won’t be able to peddle junk. As they gain market share and generate larger profits, they will be able to continue the evolution of their products.
Winners and losers
Third-party app distributors will lose when Apple takes over their turf. If they haven’t already begun thinking about alternative business models, they will soon. Even Google and Microsoft will be hard-pressed to compete against Apple with the kind of momentum the company has now.
Consumers will win with the streamlined all-in-one-place shopping experience. As the software becomes less expensive and much easier to purchase, install, and update, Apple customers will soon learn that Apple products have a much lower total cost of ownership. The perception that Apple computers cost more will vanish and the company’s products will be viewed as the most cost effective solutions for individuals and businesses.
Apple will win in some obvious ways. Less obvious is the effect the OS X and (later) Apple TV App Stores will have on the control and distribution of content traditionally distributed by television, cable TV, newspapers, magazines, books, movie theaters, and other channels. As Apple completes it plans for an end-to-end content consumption organism, ESPN, Desperate Housewives, and The New York Times will be one click away with a universal app that runs on all Apple devices. Apple is one step closer to replacing the distribution channel for all consumer content including text, audio, and video while positioning itself as the go-to advertising agency for the content ecosystem. The OS X App Store is just the beginning.