Software App Stores And The Implications For eCommerce

For eBusiness leaders, software app stores represent a new and disruptive distribution channel for PC and Mac software.

Three weeks ago, Apple launched its App Store for Macs, following in the footsteps of the hugely successful app store for the iPhone, iPad and iPod touch. With the new Mac app store, Apple is hoping to change the way Mac users discover, download and purchase software. At launch the store contained more than 1,000 apps, and Apple was keen to report an impressive 1 million downloads on the first day. For Mac users it’s a compelling story:

  • A convenient one-stop shop. Users can launch the app store right from the Mac dock, revealing a powerful set of discovery tools to browse and search the library of apps on offer. eCommerce best practices are employed throughout including search, faceted navigation, what’s hot, top sellers, favorites and customer reviews to create an intuitive discovery experience.
  • Frictionless purchase and install experience. Downloading and buying in the app store is a simple one-click process. By linking the checkout and payment process to users' iTunes accounts, Apple is able to streamline the buying process significantly versus a typical multipage checkout process common on software publishers' eCommerce sites. The apps in the Mac store have been packaged to comply with the Mac app install process, making the installation quick and seamless compared to the multistep install process common with most software.
  • Easy updates and quality assurance. Users no longer have to tolerate software update prompts each time they start an application. With the Mac app store, updates can be easily applied to all installed software via a single click and have been vetted, tested and approved by Apple. For the consumer this alleviates security and authenticity fears from the buying process.

Like in many other product categories, Apple is actually following a strategy of early follower rather than first mover. Software app stores for personal computers are not new, and the model has not always resonated with consumers. Some notable forerunners include Microsoft’s Vista Marketplace, Ubuntu’s Software Center and Steam Powered.

For eBusiness leaders, software app stores represent yet another evolution in multichannel commerce. B2C and B2B software and application publishers that have traditionally sold directly online, in retail stores and through wholesale distributors must now consider the opportunity and risks associated with distributing their products through app stores. As software app stores like Steam Powered and Apple’s Mac app store gain popularity with the user community, software publishers will face increasing consumer pressures to offer their products through this vertical.

For small software publishers and platforms that offer free desktop apps (think Evernote or Skype), the software app store is a great way to gain exposure to the user community and increase distribution and usage of their products. Larger software publishers selling costly or professional software (think Microsoft Office in the Mac App Store) may be more wary of stepping onto the app store bandwagon. Those publishers must consider:

  • Pricing. Consumers will expect price parity with other channels (both the publishers' own eCommerce site and re-sellers). Depending on the revenue share model offered by the app store operator, offering price parity with other channels may negatively impact margins.
  • Development costs. Publishers must create specially packaged versions of their programs to comply with the streamlined installation process offered via the app store. This increases in the burden on the product development teams and increases the number of versions that the publisher must support.
  • Channel conflict. Large software publishers may need to contend with channel conflict issues, as resellers and wholesale distribution partners alike see a drop in software sales through traditional distribution channels as consumers shift toward the app store model.
  • Customer experience. Many software publishers have invested heavily in their online channels in an attempt to foster a direct relationship with their customers. Third-party app stores have been viewed as a threat to this relationship; however, software publishers should embrace the social media tools provided by the app store platforms to keep connected with their customers.

Software app stores may not be right for everyone, but publishers of Mac software should carefully consider the Mac app store as an extension of their eCommerce channel.

Allow me to introduce myself: I'm Peter Sheldon, the new eCommerce Technology Analyst for Forrester's eBusiness and Channel Strategy Team. I'm thrilled to have joined Forrester, and I look forward to your comments and questions on this blog post. Forrester clients with questions on how app stores impact your eCommerce strategy, please schedule an inquiry so we can discuss this emerging channel further.

Comments

Re: Software App Stores and eCommerce implications

Hi Peter,

Thanks for the detailed overview of the App Store and some of the implications. I have a few comments:

1. I see this as less disruptive and more a new channel for new players/products. The products produced for desktops and laptops are not likely to be the same ones that are popular on new devices like smart phones and tablet computers.
2. App Store transaction costs significantly higher than direct transaction costs. These app store owners (Apple, FB to a certain extent) are flexing their muscles to require their payment engines be included in apps sold through their platforms. They will make out like bandits while few others will make any meaningful revenue because of my next point:
3. The App Store owners are, of course, promoting their own products heavily in their own stores, thus cutting in on the potential opportunity that others could have. Of course, it is their own store so they can do whatever they like. ;)
4. Every hardware, software and carrier will build an app store and try to put their products in front of customers while also gaining additional revenue from the ancillary 30% that they will charge. Will we see exclusive deals between popular software manufacturers and competing app stores?

I look forward to speaking with you about these items and hearing your thoughts during our upcoming inquiry.

cheers,

craig.