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High App Spending Points to iPhone Lock-in

Recently, the technology research firm ABI released a report about U.S. smartphone application purchases. Surveying 235 customers, the company found that 17 percent of users who downloaded applications onto their smartphones spent upwards of $100 in 2008. That’s an astounding figure when you consider the low cost of most smartphone applications. In Apple’s App Store, for instance, most apps sell for $1 to $5, with few costing more than $25. However, these findings don’t represent just Apple’s sales, and applications for other platforms are typically priced between $7 and $25.

But what’s really interesting about this survey’s results is that it shows just why the App Store and a thriving collection of independent developers are absolutely essential to the long-term success of the iPhone. Historically, mobile phone users have been targeted by carrier lock-in – buy a Verizon Wireless subsidized phone, for instance, and you’ll probably end up signing a two-year contract. You can switch to any other phone that works with Verizon Wireless during those two years (often with a contract extension, to boot), but you can’t switch to a different carrier without paying a hefty cancellation fee. That’s led the mobile phone manufacturers to produce a wide range of phones, to keep users continually buying new models while
sticking with the same carrier.

With the iPhone, Apple is changing the game, because carrier lock-in helps AT&T, not Apple, and Apple isn’t content to be just another mobile phone maker subject to the whims of the carriers. Instead, Apple is applying lessons learned from the Macintosh world to the mobile phone industry, and using the App Store and its applications as a way of generating platform lock-in on top of AT&T’s contractual carrier lock-in.

Platform lock-in occurs when a customer becomes committed primarily to the phone’s software, as opposed to its carrier’s service. If you’ve bought $200 worth of applications for your smartphone, you’re much less likely to switch to a different model in the future. In short, high spending on smartphone apps ensures long-term platform loyalty.

This is the genius of the App Store: By creating a thriving marketplace for developers, Apple has created a huge reason for customers to stick with the iPhone no matter what cool new features appear in competing smartphones like the forthcoming Palm Pre.

Following this logic, it’s arguably in Apple’s best interest for developers to do well across the board, since the more apps we buy for our iPhones, the less likely we are to switch to different phones at the end of the two-year AT&T contract. So far, however, Apple hasn’t done all it could to support a wide range of developers, instead setting things up such that a small number of trivial apps tend to rise to the top of the App Store lists, preventing more serious apps from gaining much-needed exposure. A cheap joke app is currently far more likely to make it into the top app lists than a focused productivity app, but joke apps like iBeer or iSteam won’t keep iPhone users loyal to the platform.

Once an app drops out of the top lists, it’s nearly invisible. Imagine spending months and thousands of dollars developing a product, only to have it be utterly lost in a sea of similar apps. James Thomson, developer of the scientific calculator PCalc, has written a bunch about how hard it can be to get iPhone apps noticed. Concerns like this about the effectiveness of the marketplace inform and reflect the platform’s health. The happier developers are with selling their products in the App Store, the more apps are developed for it and sold to users, and the stronger Apple’s platform lock-in becomes.

To go further, Apple has an ace up its sleeve that competing mobile phone platforms won’t be able to beat – Macintosh-savvy developers who make iPhone apps that are useful on their own, but become even more useful in conjunction with Mac software. Look at the task managers Things or OmniFocus, for instance, which enhance the functionality of Things and OmniFocus on the Mac and the loss of which would significantly deter an iPhone user from leaving the fold. Even the free Keyboard Maestro Control falls into that category –
anyone who becomes accustomed to executing macros on the Mac from an iPhone won’t want to give that up for a different phone. Anything Apple can do to encourage such Mac-iPhone connections will pay off down the line.

In addition to making it easier for apps to be noticed in the App Store, Apple would significantly benefit from introducing the concept of the free trial in the App Store. Since users can’t try apps before purchasing them, many people simply won’t purchase an unknown app. That’s led to the rise of innumerable free “lite” versions that effectively act as demos but further clutter the App Store. Worse, when people do purchase an app without having been able to test it first, it’s not uncommon to learn that the app wasn’t appropriate after all, and so it falls into disuse.

Such a behavior pattern ultimately hinders platform lock-in, which should concern Apple. Pinch Media produced a study that confirms the notion that people tend to stop using most apps shortly after purchasing or downloading them. If most apps are used only a couple of times before being abandoned, it means people actually have very little that would be missed were they to switch to a new phone. By helping customers make smarter purchasing decisions via free trials, Apple would likely increase the number of keeper applications on a user’s iPhone. Additionally, the ability to try apps for free would almost certainly result in users finding and purchasing apps they might have
otherwise left unexplored, further increasing the value of the iPhone platform.

At the end of the day, what’s best for the iPhone marketplace is what’s best for Apple. The App Store is a tightly knit ecosystem of needs and wants of developers and customers, but unlike most ecosystems, Apple’s strong control means that the App Store can’t evolve organically. As such, to help guarantee the long term success of the iPhone no matter what competition appears, Apple will have to do its best to ensure the satisfaction of both users and developers.

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