More on the iPhone Opportunity
As expected, Apple’s announcement of the new 3G iPhone, and the new AppStore, has the press aflutter. I have heard predictions of Apple selling 60 million units or more over the next year, and the AppStore becoming a major revenue generator for the company. Its easy to come to this conclusion, as people point to iTunes as a model to follow. There is one important difference though. Music is not the same as software.
Despite the break down of the music industry’s distribution channels, the reality is that most people still consume what gets pumped and promoted through promotional channels. A consumer is less likely to go searching for unknown music, as the means to discover what you might like are not effective. Additionally, music is an artistic endeavour, and in my opinion, quality music is a scarce resource.
Software is an entirely different matter. As we have seen with shareware, open source, and the myriad of social network applications through Facebook, etc, there never seems to be a shortgage of software. In fact, this abundance often drives the price of software to free, as software authors struggle to gain adoption. In almost all cases (except high-end games), I see this happening with iPhone software. First, the discovery process is much more efficient with software than music. If you want a game, you can get an idea whether it fits basically what you are looking for through descriptions and user ratings. So this will help even the playing field among the many applications that are made available through AppStore. Second, the form factor of the phone and how consumers use the device will, by nature, limit the complexity of applications. Second, many people with visions of being the next software millionaire will churn out their own copies of wildly popular applications. This competition put pressure on pricing. Last, software authors will move towards advertising, both because it provides a recurring revenue opportunity, but also as it lowers the adoption barrier.
So I see the AppStore being a success for Apple mostly for games produced mainly by traditional game publishers (EA, etc). Beyond that, I see the AppStore as being a clearinghouse for free software that uses advertising as a means towards monetization.
Edit: This post was in response to this article, where an analyst predicts AppStore producing $1.2B in revenue for Apple by next year.