Getting to the next 5 billion App Store downloads

It's hard to remember the iPhone without the App Store.

With 250,000 applications cumulatively downloaded more than 5 billion times to date, it's easy to forget that the App Store didn't come along until a year after the iPhone debuted in 2007. But in a relatively short time, Apple has not only inspired many copycat mobile-app platforms, but made it unthinkable for any smartphone maker with serious aspirations to not have access to an app store. Google, Nokia, Microsoft, Research In Motion, Palm, Hewlett-Packard, LG, and plenty of others all have developed similar mobile stores through which users can browse and buy games and applications via their mobile devices.

When the App Store turns 2 years old on Saturday, it will still stand as the undisputed king of the consumer mobile-applications world. Major content providers, and mobile-developer studios large and small, make applications for Apple's platform before any other.

But that doesn't mean Apple can ignore some serious challenges to its throne, some of which have been brought on by its own success and others from rivals such as Google that have figured out the app store game.

Google, which was late to the app store party, is emerging as Apple's biggest foil. The Android Market now has almost 60,000 apps, and carriers say they are activating 150,000 Android phones per day. While that pales in comparison to the popularity of Apple's App Store, that's some serious momentum.

There are plenty of things to like about Android: To develop for Android is free, which is a surefire way to lure small developer studios or individuals to the platform. Plus, it's open: While Apple is known as much for its rules--no Flash, no programming languages that make one app run on multiple platforms, no porn, plus the nebulous ban on "anything that degrades the core experience of the iPhone"--development for the Android platform is much more lax.

Still, Apple's App Store numbers are irrefutably impressive: a quarter million applications, available from a store that's been open for two years, have access to almost 100 million devices, including the iPhone, iPod Touch, and iPad.

A good illustration of mobile developers' gravitation toward the platform was seen when the iPad debuted. Apple said in late January that while iPhone apps would work on the iPad, developers might want to think about modifying them to fit the iPad's larger screen. When the iPad went on sale two months later, more than 3,000 iPad-specific apps had been put up for sale by third-party developers. By early June, Apple reported that there were 8,500.

And yet with all those milestones, the App Store still presents an almost insignificant presence on the company's balance sheet. The estimated $189 million Apple has profited makes up a minuscule portion of the $2 billion to $3 billion it adds to its bottom line every quarter. But the App Store has been the iPhone's primary momentum driver, leading directly to the device becoming Apple's most important business.

Overall, Apple has done a lot of things right with the App Store, but challenges remain in attracting its next 250,000 apps. The company would benefit from prioritizing the following:

Keeping developers happy
At WWDC this year, Steve Jobs made an extended pitch to his developers. He took the time to point out how much money he's collectively made them so far through their app sales ($1 billion), how many devices can use their apps (100 million by August), and how many credit cards are hooked up to the App Store (150 million).

It was clear that Jobs sees a threat from competing platforms. Although Apple hasn't been as open with developers from the beginning--it took more than a year (and an FCC letter) before Apple publicly addressed how the submission-and-approval process works--it's done better. And the cacophony of complaints from disgruntled developers has become much quieter in recent months.

Surface the good stuff
Keeping developers happy and productive in part means getting customers to continue to buy their apps. And that means making it easy for App Store users to find new stuff to download. Surfacing new applications is one of Apple's biggest challenges. It's not easy to sift through 250,000 items. Apple has tried to make the search process less overwhelming, with new category types, and lists like "new and noteworthy" and "what's hot."

But as often happens, that move didn't satisfy everyone. Some complained that when this was rolled out for the iPad part of the App Store, it actually made it harder to search. On the other end of those transactions, the ability to manage apps via iTunes and folders has gone a long way toward helping customers keep track of what they already own.

Figure out a way to automate approvals
It's going to be interesting to see how Apple continues to handle App Store submissions. The company has constructed the store in classic Apple style, controlling almost every aspect of it. The result is that customers don't need to worry about buggy apps stuffed with malicious code or apps that are misnamed--a human has looked them over.

But Apple has also created an unsustainable situation. Having humans personally approve the 8,500 apps submitted every week proved untenable last year. Apple seems to have brought it under control, though it's unclear if it simply hired more people. There's still the odd goof-up--Mark Fiore comes to mind--but to keep wooing developers, enticing them to make more games and apps for the App Store, and to update their current ones, the approval process is still going to require an incredible time investment and employee resources on Apple's part.

Making the developers money
Jobs told developers at WWDC that Apple had paid them $1 billion collectively thus far--this was his way of telling them to stick with the winning team. But he also tacitly admitted that they could do better, when he said Apple is trying to put even more dollars in their pockets via iAds.

The verdict on iAds isn't in yet. It rolled out just last week to devices running its iOS 4 mobile operating system. Apple is betting that the tightly controlled, sophisticated, interactive ads embedded within apps will be tolerated by users because they are not kicked out of their app, if they click on an ad. It is also hoping that developers will be keen to use them because the ad system is built directly into their software developer kit.

But beyond making nice with developers, iAds is a way to play defense against Apple's biggest rival when it comes to applications. Developers--especially ones in small developer shops with few employees--are unlikely to develop for every single app store out there. Apple is doing everything it can to be a one-stop shop for developers.

Expand the platform's reach
Apple has something its emerging rivals don't: an app store for more than phones. iOS is growing, and that means developers can sell not just to iPhone owners, but also to iPad owners and iPod Touch owners. There's even speculation that iOS will be extended to Apple TV one day.

As Apple looks ahead, it's about "the addressable market of iOS devices," analyst Michael Gartenberg of the Altimeter Group said. "That's something that Google is going to need to come back with an answer for...They don't have a media player. Right now, Android seems to be going in the (tablet) direction, but can they build out an effective ecosystem that goes beyond phones?"