The Mobile App Ecosystem Enters the 2000’s
If a business wants to command a powerful position, it should become the gateway by which others can access traffic and users. Google did this with search. Their dominance in search translated to a stranglehold on traffic. Facebook has accomplished the same thing within their platform – not just the ad inventory on site where those wanting traffic must play within their rules. Facebook also
controls a different ecosystem, their application ecosystem. Apps that run afoul can and have found themselves cut off from all new growth. Neither company, Google nor Facebook was first in their field but they enjoy a commanding position today. A select handful of other companies also join Google and Facebook in this new digital frontier. What is amazing and continues to amaze us is that one of the most important has a value greater than these two combined and isn’t even historically a digital company. It is a hardware company – Apple.
Apple has made no shortage of headlines, and it has no shortage of admirers either. Many like to praise the technology of apple – its sleek designs, the UI, and the features they roll out first like touch screens. Looking at Apple in the context of Google and Facebook, we have Apple the media company. That is what fascinates us the most. Unlike the other media giants, it was Apples hardware prowess that enabled it to become a media company. If it didn’t have the iPods it wouldn’t have had all of the iTunes installs. That they even got users to understand and make it the hub of their music and movies is a miracle. Were they not able to do that their media status might not have worked out. With it though every other connected device, most notably the iPhone leveraged it.
Much like Facebook, the iEmpire began with one thing but cemented itself with another, in this case beginning with music and the iPod but evolving to apps and the iPhone. Music gave them ubiquity but following in Facebook’s footsteps and allowing the same process to work for non-music content gave them supremacy. And it is this combination of non-music content and the mobile phone as the new laptop that gave Apple such media relevance. If you want to reach consumers, you need to reach them on their mobile phone and if you want to reach them on the mobile phone that means going through Apple.
Much like the music ecosystem, the app ecosystem involves a discovery and download process. Both rely on social proof, namely what other users buy. As there were no pre-existing popularity rankings, it fell upon Apple to come up with their version of the Billboard Top 40. Unlike the music ecosystem, those in the artists of the app ecosystem found a way to influence the charts. They realized that a form of arbitrage existed. It wasn’t unlike those buying pop-ups in 1999. At that time, all that mattered was how much traffic a site received. That X10 ranked in the top 10 of traffic seemed reasonable until those following the traffic ranking realized that the company seemed to spend so much money buying traffic. Was it really fair to count all the visitors that they received from purchased media equivalent to the earned media of others? Ultimately, the answer became no, but until them, the company benefited heavily from their high rankings. It was exactly the same with the app ecosystem.
The benefits of being on the top of the app charts mirrored being on top of the music charts or the NYTimes best seller list. It meant exposure, and exposure meant more sales. If you’ve walked into an airport book store, they carry a modicum of titles but they promote those in the top 40. The iTunes music store carries tons of titles, but the most popular are the easiest to find. Get there, and a virtuous cycle of more sales occurred. The only difference between the music / book charts and the app chart was that you could effectively buy your way onto the app chart. It was just like X10, except being on top of the traffic charts for websites in the late 1990’s didn’t attract more users to a site; it did, however, attract a higher advertiser price which was almost as good.
Two months ago, Apple put the developer world on notice. They said in effect that they knew the games being played were going to put an end to it. Although, doing so meant a major shift in their app ecosystem. They had game developers who engineered games to include incentivized downloads (the process by which other apps could buy traffic). Take away any Top 40 chart benefits and those buying paid users will drop. That means those making games will earn less. The circle jerk of traffic and revenue was now interrupted, impacting developers and the ad networks who made these incentivized actions possible. As for Apple, they don’t really care. Much like Google or Facebook, they purposefully allowed this biased behavior to happen because the net gain was a more vibrant ecosystem. With hundreds of thousands of apps and no shortage of new funds flowing into the game ecosystem, they no longer had to rely on the early adopters. They could now take actions to remove behavior they didn’t want to see continuing.
That Apple changed their policies is not major news to a large number of people, but it did interrupt a multi-hundred million dollar per year ad ecosystem. The major ad network and incentivized download provider in this ecosystem is (un)fortunately used to adapting to platform changes, having gone through this already with Facebook. The changes did stop this company from raising yet another round of capital as well. In this case, it seems that their success has less to do with a truly sustainable advantage and more to do with just being able to hang on to the bull ride which is Apple. Both they and their closest competitor, though, have already figured out the next quasi-loop hole which will allow them to take money from apps with more money than product. For Apple, this is just the welcome to the cat and mouse world of being the gatekeeper to traffic and users.
