App Store Fatigue and the Future of Digital Marketplaces

Countless words have been devoted to the subjeCt of digital distribution by game industry publications. What does it mean for game developers and for the medium as a whole? Like any other disruptive innovation, the advent of digital distribution has come with some growing pains, as well as its share of winners and losers.

On the whole, digital distribution has been a boon for gaming. It’s opened up channels for indie developers and those serving niche market fare, enabled new business models, and increased the efficiency of the supply chain, all while providing gamers with convenient access to a wider variety of games across a broader mix of devices and platforms.

The current quintessence of digital distribution is Apple’s App Store, which, together with the iPhone and iPad devices it services, have changed the face of gaming remarkably since their introduction less than three years ago. As a result, iPhone and iPad comprise a game market of significance, with game-derived revenue likely to soon cross the billion-dollar mark. While this is still smaller than the traditional console markets, when viewed from the standpoint of potential profit margin (taking development costs into account), it’s no wonder the App Store is the darling of developers.

Apple’s success has not gone unnoticed by makers of other platforms and services. At CES this year, I counted no less than twenty different “App Store”-like storefront services across countless devices and platforms. There are the smartphone platforms from Microsoft, Motorola, Google, and others; tablets from a large number of companies; smartTVs with

the capability to run games—all are offering their own app stores. If this weren’t confusing enough, add to the mix the aggregators with their catalog-within-the-store type offerings, as well as support within these platforms for remote-gaming approaches from the likes of Onlive and Vudu.
It’s started to feel awful crowded.

App Store FATIGUE
The first assertion I’ll make is that I don’t believe consumers are going to have the trust, patience, or incentive to maintain an ongoing commercial relationship with every electronic device in their household. Even so, it appears that many of those devices are going to go ahead and ask for one anyway.

As a result, there are likely to be winners and losers, as consumers suffer app store fatigue and forgo some stores and services in favor of others. (You can already see a hint of this today: Many readers may already have two or more boxes in their living room that have a Netflix client, though chances are they favor one of these for everyday use.)

The successful app stores are going to be those that best address a number of factors, including offering a critical mass of games, how well suited and/or differentiated the applications are to the platform, how well the store helps users navigate which apps meet their needs and support their device, and which offer the fewest hurdles between them and the cash register (price, ways to pay, simplicity of purchase, and so forth).

Failed app stores are likely to either become either ghost towns (with a lack of a critical mass of offerings) or flea markets (with tons of generic apps, but few that
are noteworthy). These in turn may be less able to court developers. Be wary of those touting an installed base of platforms, but not sales numbers for their app stores.

Those launching app stores will have to think about how to get that customer in the door for the first time, and then how to keep them. I anticipate seeing lots of “Comes bundled with $50 worth of App StoreBux” offers.

App store fatigue will likely plague developers, too, who will be faced with a huge choice of channels. Even with relatively lightweight click-to-accept agreements, most
will not have the bandwidth to launch on every platform and customize for services/devices. This is already occurring, and in some ways is playing out exactly as the PC download casual games market did a few years ago. As it did then, it will likely lead to the following:

Multi-platform development may
mean developing for the lowest common denominator, allowing for titles to go to a wider base of platforms, but decreasing how well-tuned a title is to any given
platform.

There may be a rise of content
aggregator/distributors telling developers “sign with me and I’ll get you on a thousand platforms,” at the expense of a good chunk of developer margin, putting pressure on the critical mass needed for viability.

Many developers will sit on the
sidelines for all but the proven app stores. Those duped into thinking that a platform will be big, if it then isn’t, will potentially complain loudly about it. Unsuccessful app stores have a “content canyon,” with a few mega-hits that are everywhere, and a glut of low-end fare, but nothing in between.

Ultimately, competition is good, though it can be painful. As this competition heats up, gamers and developers will both be watching intently and deciding which platforms and app stores are actually going to be successful. One of the deciding factors here will be developer tools, though not the kind we usually think of.

CRY HAVOC, AND LET SLIP THE DOGS OF … COMMERCE?
In his 2010 GDC keynote, NGMoco’s Neal Young pointed out his view of what it means to couple business models like free-to-play with tools like in-app purchases. He stated “For the first time, the business model is in the hands of the game designers,” adding that this was a fundamental turning point for the industry. It was a prescient observation, and at the time, I thought it was limited to free-to-play, item-based sales business models. In truth, it’s much more broad-reaching.

As app stores compete to woo consumers into a relationship and developers to be their first choice, the winners are going to, in part, be determined by who can offer the best value for consumers while offering developers the greatest ability to extract maximum revenue out of their consumer base. If those seem like conflicting objectives, well, in some respects they are.

Finding the optimal point (or points) between these two goals is going to require the ability to innovate, and doing so requires the ability to experiment. The tools and policies in place for online commerce in these app stores are going to determine the variety and rate of experimentation. For example, can developers try any price point, or are there fixed tiers? Can they set the price, or does the platform owner? Can one do bundles, gifting, giveaways, “golden tickets,” or any other type of promotion? Free with three cereal box tops? How about pre-orders? A/B testing? Platforms will have to balance giving developers the leeway to innovate versus presenting consumers with a confusing mess of business models, offers, and potentially the introduction of risk.

In addition to the tools giving developers the flexibility to innovate, there is an entire category of tools and services to measure the success of those experiments. Billing and reporting tools offer transparency, granularity, and timeliness of the data. What detail can a developer get on sales data? How fresh or stale is the data? What will the store’s position be on the tension between user privacy versus providing developers demographic information? What of their approach to merchandising? Is “shelf space” curated, democratized, or sold to the highest bidder? What payment methods are supported? Can developers see sales data per territory? Over time? Per day? Per hour?

These are the tools with which developers will compete, and platforms that give their developers better tools will have an advantage over those that do not. A complete free-for-all has an adverse effect on the end-user experience, so there’s a balance to strike. Still, one only has to look at the speed at which new business models and promotional experiments are emerging on Apple’s platforms and compare it to the snail’s pace at which traditional consoles have taken in similar experimentation to see the contrast.

STANDING OUT IN A CROWD(ED PLATFORM)
A final element is the degree to which developers can customize and tune their applications to take advantage of platform differentiators. The extent to which apps take advantage of differentiators is going to lead to a fulfilled or broken promise to the end-user from the device manufacturer. For example, if someone offered a tablet today, and differentiated versus iPad by offering dual thumbsticks in addition to a touchscreen, it might be of interest to some gamers. However, if all the games in the device’s app store were ports from the  iPhone/iPad, the takeaway might be “Yeah it has thumbsticks, but no games support them.” On the other hand, features targeting
specific platforms that are push-marketed or store-filtered to users who have those platforms/features could encourage greater co-marketing opportunities for developers and device makers. The apps that best translate a hardware platform’s features into compelling experiences will be promoted by platform vendors.

PICK YOUR WEAPONS
So what’s a developer to do? As usual, the answer is “it depends.” There is no one strategy to rule them all. However, it’s pretty clear that the platforms that provide developers with the ability to differentiate and innovate with their commerce will have an overall advantage. If, as a developer, you feel comfortable making that part of your game design and part of how you do business, then evaluate those tools and policies as part of your approach to the platform. If, on the other hand, you prefer to stick to making a game as a packaged piece of media that someone else markets and sells, then you may want to stick to traditional consoles or other platforms that aren’t moving as quickly in this direction.

Tags: App Store, COMMERCE, Neal Young