Verizon challenges Apple with Vcast app store

Verizon Wireless is taking on Apple in the smartphone application store war with the introduction of its new Vcast application store for smartphones.

Verizon Wireless is jumping on the application store bandwagon and taking on Apple and its App Store with its own Vcast application store, which it announced at its first ever developer conference in San Jose, Calif., Tuesday.

The new Vcast application store will launch in the fourth quarter of 2009. Lowell McAdam, CEO of Verizon Wireless, said it will offer application developers a quick and simple way to distribute and monetize their applications while providing wireless subscribers with an easier way to discover and buy new applications for their smartphones.

Executives from Verizon Wireless--which has been criticized in the past for restricting devices, disabling features and blocking applications from its phones--say they recognize the industry is changing. And the new application store is one way the company can maintain its relevancy in the wireless market while also fostering innovation in the developer community.

"It's a new day (in wireless)," McAdam said in the opening address of the developer conference which was also Webcast. "And our future success is no longer in the walled-garden. Our success is tied to you (developers)."

Unlike device makers such as RIM and Nokia, or operating system software companies like Microsoft and Google (Android), which are all developing their own application stores, Verizon offers something they can't: valuable access to cell phone subscribers and their personal data.

For this reason, Verizon may stand a slightly better chance of creating a successful application storefront than these other companies. But the big question is whether the Verizon Vcast store can match the success of Apple's iTunes-based App Store.

Apple, which launched the App Store just over a year ago, is the hands-down leader in the smartphone application market. It's unclear exactly how much money the company makes from the App Store. But there is no question that the virtual storefront has been a success. In its first year, developers have added more than 50,000 applications and users have downloaded over a billion applications onto iPhones and iPod Touch devices.

And because the service leverages Apple's existing e-commerce platform, iTunes, whatever money Apple generates from selling applications is more than it costs the company to run the service. Bernstein Research analyst Craig Moffett says there are many parallels between how Apple's App Store is affecting the wireless industry and how iTunes has affected the music industry.

"Apple essentially sucked the intellectual property value out of the music business and turned it into a loss leader for selling iPods," he said in a phone interview. "And they're doing it again in wireless. That's a pretty neat trick. And it's a pretty hard trick to pull off, too."

From BREW to new app store
Verizon is no stranger to running and operating an application store. The company has been offering its traditional cell phone subscribers mobile applications from the Qualcomm BREW platform for years. This business alone generates over a billion dollars a year for Verizon Wireless. John Stratton, vice president of marketing for Verizon, said that new Vcast application store will extend this kind of service to smartphone users.

Since news of the Verizon application store started trickling out a few weeks ago, bloggers and others following the industry have speculated on whether the new store would compete with efforts that some of Verizon's partners, such as Research In Motion and Microsoft, have mounted. These companies along with others including Google's Android community and Nokia are developing their own smartphone application stores.

But John Stratton, vice president of marketing for Verizon, emphasized that the Vcast application store is not meant to compete with these other stores. Rather, it's meant to complement them by offering resources and tools to make it easier for wireless users to access the applications.

The ultimate goal he said is to make it as easy as possible for developers to get their applications in the hands of consumers and to create more channels for accessing this content. This means that applications that have already been approved for RIM's App World store will move through the process as quickly as possible and be ported directly to the Vcast store. The goal is to have most applications approved and on the network within 14 days.

The Vcast store is also meant to make it easier for consumers to discover and pay for the applications they want to buy. For example, the company will leverage its existing Verizon Web portal, which is one of the top 26 most visited sites on the Web. It will allow the current 60 million registered users and new users a place where they can search for, rate, and download applications for their smartphones.

The carrier is also creating open APIs to allow developers to hook into Verizon's billing system so that users can purchase applications with one simple click and pay for the device as part of their wireless bill. It will also provide hooks into other subscriber platforms, such as location-based services, presence, and messaging.

"These are great tools that can help open the audience more widely for application developers," Stratton said. "And it will allow subscribers to easily discover, purchase, and manage their applications."

Indeed, today's billing process for many of the new storefronts that are hitting the market require users to register a credit card or use PayPal to purchase applications.

"That is the single highest barrier to consumption of mobile apps," he said. "By hooking into our billing system, it creates a one-click process to buy an app."

A shifting marketplace
Verizon also sees an opportunity to make money and protect its dominance in the wireless market with its application store. The company has also acknowledged that the market is shifting. Smartphones, which now account for over 40 percent of the new handsets the carrier sells, have changed the game and are a very important factor in which carrier customers choose.

"Consumers are thinking more about what they want to do with their devices," Stratton said. "Our concern as we move from the monolithic BREW platform for features phones to one that is pretty wide open for smartphones, is that there is a greater risk of fragmentation. We don't think that Verizon will solve all the challenges of fragmentation, but we do believe we can help."

The Vcast application store also offers a way for Verizon to maintain some control over which applications make it onto its network. And also provides the company some share of revenue. By contrast, Verizon's rival AT&T has given up a lot of control in its deal with Apple to be the exclusive U.S. carrier for the iPhone. While Apple gets 30 percent of all revenue generated from the sale of applications on the Apple App Store, AT&T gets zero.

AT&T claims it benefits from all the App Store activity because it drives sales of the iPhone, which in turn drives sales of its $30 a month data service. But the reality is that the more popular the iPhone applications become and the more bandwidth each application requires, the more AT&T must spend on upgrading its network to ensure the network can handle the traffic load. Meanwhile, Apple sells more iPhones.

Verizon Wireless doesn't want the same thing to happen to it. It is following Apple's lead and is allowing Vcast application store developers to keep 70 percent of the revenue generated from their applications, while it keeps the remaining 30 percent. Device makers, such as RIM, which is partnering with Verizon on the Vcast store, won't get a cut of the revenue. But Jim Balsillie, co-CEO of RIM, who was at the developer conference, doesn't seem to mind.

"We want to make it as easy as possible for our application developers to create and monetize applications for the BlackBerry," he said. "We will support our own application store worldwide and the Vcast store on Verizon, so that we provide more channels for our developers. It's real simple; for this revenue stream to carry on and thrive, the applications need to be adopted so we can drive more BlackBerry sales. And this makes the carrier a strategic partner."

As for competing directly against Apple and the App Store, RIM's Balsillie said that it's not the volume of applications that matter so much as how valuable those applications are to the consumer.

"About 10 years ago there was a well-known PDA company with 40,000 apps and 100,000 developers," he said. "We had just one application, which turned out to be a very good application. And you see what happened."

Balsillie's story alluded to the rise of RIM and the BlackBerry, whose killer app is pushed e-mail, versus the PDA maker Palm, which relied on session pull e-mail. During the discussion at the developer conference, Balsillie predicted that Verizon's efforts and the trend in the market toward more applications in general will benefit Verizon and companies that work to create useful applications.

"Titillation is phase one of the application market," he said, speaking of the thousands of seemingly useless applications in Apple's App Store. "The next phase will be about enabling richer applications. Instead of downloading 30 or 40 applications, the benchmark for success will be the stickiness of the applications."

 

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