I have read a number of articles in the past few weeks that have played down the importance of Apps in the consumer decision-making process for mobile devices. In my opinion, to look one-dimensionally at how important consumers say a particular factor is in their decision is extremely short-sighted and ignores important unarticulated attitudes and motivations that go beyond conscious decision logic. I wrote the following opinion paper in April 2009, and I have yet to see behavioral evidence that contradicts it.
Will App Stores Impact Wireless Device Sales?
In addition to service-revenue generating, to what extent do mobile application stores have the potential to impact consumer behavior and choices for wireless devices? Strategy Analytics believes that those app stores that differentiate themselves in the marketplace and offer exclusive content and a compelling user experience will create the strongest emotional connection to the mobile device by providing a tailored experience to individual members of an increasingly differentiated long-tail customer base. This will ultimately drive much stronger customer loyalty to the device platform than non-tailored offerings.
In some consumer electronics sectors, good software has long been used to up-sell hardware. For example, in the gaming world, Nintendo, Sony, Microsoft and others have for years used exclusive and compelling games titles to sell more consoles and retain existing customers.
Even in the mobile world, for some segments, the availability of third party applications has long been an essential element of the choice of device (or at least the device platform). The availability, or the ability to develop, bespoke productivity tools has traditionally been central to the choice of device/OS in several enterprise application areas.
Windows Mobile smartphones and PDAs that run proprietary workflow applications are an example of where the device choice is secondary to the software platform choice.
However, in mainstream consumer segments, the availability of downloadable mobile applications has until recently been a factor in handset choice for only a very small niche of technophile advanced users.
While the continued viability of application stores such as Handango is testament to the existence of demand for such offerings, Strategy Analytics’ mobile user survey conducted in July 2008 found that less than 1% of respondents had downloaded a single application (e.g. a game) to their mobile device.
Strategy Analytics believes that, even among those with a track record of downloading applications, the availability of downloadable apps has been only one factor among many influencing the handset purchase choice (others being memory and processor performance, form factor and physical interface predominantly).
Clearly the explosion of application stores that are being launched by device OEMs and platform providers has increased (and is also a reaction to) consumer demand for customized applications. This chain of events was largely set in motion by the launch of the Apple Apps Store and the massive level of advertising spending which Apple used to promote its Apps Store. We believe that this effort has substantially raised the interest levels of all consumers in the concept of application extensibility.
When Strategy Analytics undertook a consumer evaluation of the Apple Apps Store, we found that it was compelling to users due to its simplicity, consistency and intuitiveness. However, we believe that the success of the Apple Apps Store in expanding consumer adoption of application downloads is also due in large part to the fact that it integrates with and leverages a wider ecosystem of user experience innovations that Apple has brought to bear.
The initial success of the iPhone in driving data traffic was due, in part, to the fact that accessing network services (e.g. YouTube videos) was as simple on the iPhone as was playing music on the device. This overcame traditional barriers of discoverability which rewarded consumers who trialled these services with successful outcomes. This positive reinforcement encouraged them explore data services further.
The Apps store built upon this success by extending this consistent approach to downloading and installing applications, and by providing a very streamlined mechanism to do this.
By providing a wide portfolio of free applications, consumers were able to experiment with no penalty for failure - the only “cost” of downloading a free application they will not use is the time that they spent since virtually all are accessing the App Store over an unlimited data plan or a WiFi connection. Finding compelling applications reinforced their willingness to download more.
There is little downside to the fact that many of these applications are rarely used after they are downloaded. The device has more than enough memory to cope with the most avid downloader. However, the benefit of this is that it makes the device much more tailored to the needs of the individual owner.
This impacts device choice in at least two ways.
Firstly, it provides many more opportunities to capture niche consumers by providing a relevant and personalized experience. We believe that, as the application store marketplace becomes more crowded, apps stores will begin to compete to offer exclusive applications aimed at small consumer niches. Apps providing exclusive content related to a particular sports team or special interest group will be a way of platform providers capturing the attention of an increasingly differentiated long-tail user base.
Secondly, by meeting the needs of the existing users more closely, it reinforces loyalty. Clearly, if the consumer perceives that the applications they have downloaded will be unavailable on another platform, or difficult to transfer, then this will make them more likely to remain loyal to their existing brand/platform when replacing their device.
We believe that automatic backup and synchronization tools based on network storage solutions will be a key enabler of reinforcing this loyalty by providing a quick and painless means of transferring personal information, content and applications when the user upgrades their handset.
Strategy Analytics believes that the impact of application stores on device loyalty and sales is likely to be greater in the short term among Smartphone owners than feature phone owners.
Owners of devices with a high-level (open) OS have always installed more apps than feature phone owners, and they tend to be more interested in using features on their device beyond basic voice and messaging.
Smartphone owners are also those who say they are most interested in customizing their mobile device in order to make them “stand out from the crowd”. This is a trend we are seeing gain increasing traction.
However, in the medium term, we view the availability of applications (and widgets) as increasingly important to providing an enhanced user-experience on mid-tier feature phones, thereby raising consumer satisfaction and stickiness to device brands as mobile web surfing goes increasingly off-deck.
Our recent research comparing mobile content delivery mechanisms suggests that, if they can discover and install rich connected applications (or if these are pre-installed on the device), then consumers have an enhanced experience, because they can more easily access the services and brands that they are affiliated to.
The INQ-1 Facebook device is a good example of this. By making the process of accessing their favorite social networking site simple and intuitive, it has raised consumer satisfaction levels and, we believe, repeat purchase intention among H3G customers.
Strategy Analytics believes that the principal contribution of application stores to the mobile user experience is the ability to customize and personalize the experience based on the individual needs and preferences of the user. This tailoring of the experience creates an emotional connection between the device and the user, which we believe develops stickiness and customer loyalty.
In our opinion, the fact that most free downloaded mobile applications are rarely used after the first few days (as has been recently reported) is unimportant, since there is no penalty to the user for downloading these apps given abundant smartphone memory and virtually no cost to download (on unlimited data plans or WiFi). We believe that free applications play a vital role in driving eyeballs to application stores, as long as there is a balance with paid-for applications in order to drive revenue.
Exclusivity of applications and the ability to build an extensive personal collection will drive customer loyalty to the device platform since repurchasing and/or porting apps and content collections to another OS will be perceived as time-consuming and expensive by users.