Apple reinvented the distribution of products and services on mobile phones, opening up direct-to-consumer opportunities for nontelecom companies. The numbers look impressive — more than 5 billion downloads and $1 billion paid to developers in the two years since the launch of the Apple App Store.

However, it also generated $429 million for Apple itself in two years. These revenues are not meaningful to Apple’s core revenues. Due to the limited number of paid apps and their significant concentration among games and navigation apps, it is likely that a significant number of independent developers have not recouped their investments via the current revenue-sharing model. The recent launch of iAd is a way for Apple to maintain the attractiveness of its platform, allowing third parties that provide free apps to develop sustainable business models.

But, despite all the hype around apps, only a minority of consumers download them monthly. A recent Forrester survey of more than 25,000 European adults shows that only 4% of all mobile users and 15% of smartphone users report downloading apps at least once per month. However, the fact that 21% of all European mobile users consider apps to be an important feature when choosing a new mobile handset highlights the large gap between today’s limited usage of apps and consumer awareness and interest.

The application store market is still nascent, but it is evolving quickly. However, in the longer run, few players will be able to address the key factors that will make them a success:

• Offering reach and being explicit about the addressable audience. Expect the concept of app stores to expand to other connected devices and platforms.
• Creating a viable business model for third parties and developers. Expect mobile affiliation and cost-per-download models to become more frequent.
• Providing third parties with marketing and merchandizing tools. Expect the market to structure the support for third parties beyond just the small independent developers that jumped on the Apple bandwagon.
• Offering a wide choice of payment and pricing options. Expect in-application billing, operator billing, and subscriptions models to emerge — and don’t forget that there is a life outside credit cards and PayPal.
• Facilitating the discovery of a large and locally relevant content catalog. Expect mobile search’s relevance to increase and the delivery of more contextualized results.
• Looking at sources of inspiration other than Apple to provide a unique user experience. Expect successful players to look at Amazon.com and Facebook, which provide open platforms with unique social, personalization, and recommendation features, rather than to copy and paste Apple’s model.

What does that mean for your consumers? Well — not much. The subtle differences between widgets, Web apps, native apps, Java apps, and optimized mobile Web sites don’t make much sense to your end users. As long as they have an icon that acts as a touchpoint to access content and services that are relevant to them, it won’t matter. The challenge for you is to make sure that your core target audience has your icon on their home screen, so that they engage with your company and not your competition.

Before succumbing to application hype and increasing costs by porting their services to many platforms, you need to define your mobile road map. This means defining a mobile business model, anticipating technology evolution, and taking a step back before putting all your eggs in the downloadable app basket. My new report on The Future Of Application Stores (available to Forrester clients here) discusses these issues and more, and provides actionable advice for consumer product strategy professionals who are working on their company’s mobile road map. What challenges have you encountered in working with app stores or in developing apps? I’d love to hear your experiences.