App stores: A different take on billing

Tony Poulos
09 Jun 2009

It would be fair to say that Apple turned the mobile handset market on its ear with the introduction of the iPhone. As Wall Street Journal journalist, Walt Mossberg, said at MWC in Barcelona earlier this year, it may have captured less than 5% of the market but has changed the way the other 95% thinks and acts.

The biggest impact was not so much by the iPhone itself but what you could do with it thanks to thousands of applications (apps) that its introduction stimulated. Apple not only made it easy for developers to write new applications, it also worked out a way to screen them and make them available to every iPhone user via its own application store. Over one billion apps have been downloaded to date, and many of those have been free. Regardless of this, the App Store still produces an invoice for each and every download, whether it involves a value or not.

Apple had plenty of experience via its iTunes store which, like the App Store, only accepts payment by credit card. The system works seamlessly via a PC or the iPhone itself, complete with advice of charge, confirmation of purchase and delivery, confirmation of payment that is followed by an invoice and receipt delivered by email. The applications are also synchronized on your PC based iTunes and iPhone. This has made Apple an effective and successful seller and biller of mobile content and applications. By establishing a direct financial relationship with thousands of developers, it has also mastered the value-chain that many in the telco world still talk about.

Apple is not stopping there. In the next version of the iPhone OS version 3.0, Apple is introducing support for what it calls \'in-app billing\', which means developers can prompt users to purchase additional content or upgrades from within the application, without having to return to the App Store. These features will be popular with developers as it gives them more flexibility in how they charge for their applications. Apple will need to provide and enforce clear guidelines around what developers are legitimately allowed to charge for to prevent applications becoming spam or worse. The only thing missing in this picture is the mobile operator.

But that may all change if Microsoft has its way. The pending Battle of the App-Stores took an interesting turn with the announcement at CTIA in April that Microsoft would be working closely with the mobile operators on its upcoming Windows Marketplace. This in itself may not sound like such a big deal, but the potential ramifications are enormous and could swing things firmly in favor of Microsoft.

The basic premises of all the other app-store models is to sell applications direct to customers accepting payments via credit card, PayPal or similar mechanisms cutting the network operators out of the money chain. That\'s okay in developed markets where people have the capacity to pay this way, but for 85% of mobile subscribers worldwide using prepaid systems provided by the mobile operators, that is the only means of payment available to them.

The partnership approach by Microsoft is a smart move as it keeps the operator onside, but it raises a whole series of potential problems, not least of which is integration with the many operators\' billing platforms. There is also no mention of what percentage of revenue will be shared with the mobile operators, many of whom take between 50% and 70% of content revenues into their own coffers.

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