Wednesday, October 13, 2010

The New App Stores Economy. Resuscitation of the American Dream on a Global Scale.

One of the interesting aspect of being part of the new mobile apps business is that the business model is not just an evolution of standard global business practices but a whole new kind of economy. App stores and markets take creators and consumers, two parties that have traditionally been separated by layers of cubicle based work and make them closer than they have ever been. This creates an exciting new cyberland of opportunity for consumers, engineers, artists and creators in general.

Large global media businesses are being replaced with smaller ones that rely on a thin layer of web based automated business processes. This results in smaller more efficient teams and more cozy relationships all around even to the point where consumers have access to leaders inside the businesses through online commenting, forums, blogs, twitter and e-mail. It's the friendly family outlet on a global scale.

Just the other day, I was setting up an account. I was having a bit of trouble getting it to recognize Canadian banks so I clicked on the live online help button. Twenty seconds later, I was chatting away with Jessica Mah founder and CEO of the company.

This is not the most novel part of this new economy. Web technologies have enabled incredible changes in the ways everyone communicates for the past 10 years. What mobile app stores bring in addition to that is the use of these same web technologies to streamline not just communications but the whole task of doing international business. A lot of business support personnel and middlemen are being replaced with technology.

From the perspective of us creators, things are simplified a lot. The marketing and the accounting tasks of selling creations are reduced significantly such that we can manage it ourselves with very little help. This means, for example, that a 14 year old kid with a knack at coding stuff up can sell his work in the same stores as the big multinational companies and if he is good, it might have as much visibility and sell just as well. Very little capital and no investors are required to do a startup. Creators simply need to build great products. In my experience, the stores' mechanisms give a fair amount of visibility at a price much lower than anything available through traditional marketing mediums.

The smallness of the teams can be extreme. As an iPhone and Android developer, I am the engineer, the designer and artist for my products. I don't need a CEO, I don't need a conventional marketing department, I don't need a finance department. Everything is automated. There is no manual work to do transactions even internationally. If I was to employ another body, it would probably be another creator, not a business support person.

On top of all this, if creators need more help, they can use the same kind of low overhead online stores that they use to sell their creations for hiring employees that will gladly implement the more tedious parts of their vision. It's very easy to start relationships with artists, developers or assistants from lower cost countries such as Russia, Eastern Europe, India or the Philippines through sites such as Elance.

From the perspective of the consumer, it's good too. The first obvious benefit is lower prices, e.g. $.99 apps. Since overhead is very low, pricing can be lower. This effect is multiplied by the fact that markets are international and profits come from huge volumes on small markups. They also get a more personal and personalized products because of the cozy customer-creator relationship.

Another benefit is the reduced reliance on advertisement for visibility. Instead of learning about new apps trough ads, potential customers go to the store which will suggest the most popular and the newest apps and even make recommendations based on their own profile and past purchases. These recommendations will more likely match what they want instead of what advertisers are trying to push on them.

Of course, there are downsides for those who used to profit from inefficiencies in the legacy system. It's probably not a good time to have a pure business background in the tech sector. A lot of these skills are being commoditized and replaced by technology.

From the customer's perspective, the downside might be that the downward pressure on price and risk can prevent the more capital intensive projects from happening or else these projects are designed to constantly squeeze out money from them through things like in app purchases.

Tens to hundreds of millions of dollars are sometimes spent on creating console games, no one in their right mind would spend that kind of money if they didn't know they had the insider knowledge and contacts to have visibility and a good spot in the distribution channels or if they couldn't get the necessary margins to pay for huge marketing campaigns.

I don't think most developers want to spend millions when they have to compete for their spot in the app stores with $.99 apps that can cost less than twenty grands to make. The more grandiose projects may be at a disadvantage. If this is what you prefer as a customer, you might be disappointed in the selection in this new economy. In the new apps stores, we see that a lot of the apps that would be more costly to develop are actually remakes of old classics that are cheaper to make and likely to sell well.

There is cultural aspects to all this. Humans are social animals. People want to listen to the same music, play the same games and watch the same screen shows as their friends. Things that become culture are natural monopolies. They can be tautologically popular, popular because they are popular. People often won't even admit they like something if it's not popular enough. Large media companies used to make sure that when they spent huge amounts to create something, they could fill the distribution channels enough for cultural movements to form around their products. When this status was reached, it wouldn't matter if there were more enjoyable or less costly competitors out there. This is why control of the distribution channels by a few big players was important. As anyone who has witnessed the effect of being featured in a store, it's not the inherent value in the good being sold that carries the highest monetary value, it's having the most visible spot. The book you see going into a book store is the one that's going to sell even if there is a better one hidden in the back.

With the new app stores, creators are playing in a more democratic playground where algorithms often decide who wins. This means more control to the people. People actually chose who wins, but it also means that big original projects may never come to be.

Overall I think this new economy is positive as it brings more diversity, more choices, more opportunities at lower costs. There is tremendous business efficiency in this system. There's less waste, barrier to entry is diminished, old is replaced by new more quickly and there is less opportunity for monopolies to form. In a way, it's capitalism at its best an I'm excited to be part of it.


  1. You should check out Appsaurus as a discoverability app for the App Store.

  2. I have to agree it's a very exciting time and it is capitalism at its best. It's amazing the opportunities that have opened up due to changes in technology. To think the books that were made available were based on the decisions made by a few who had a lot riding on those books. Now people have a way to go around the publishers so easily that it probably means the publishers will simply disappear. We'll see.