How the App Store turned into software development's holy grail

When Apple booted discovery app AppGratis from its App Store in April, it was a sharp reminder to iOS developers: don't mess with Apple's rankings or suffer the consequences.

In this case, the app, which offered a free or discounted app each day on Apple's App Store to 10 million users, reportedly gamed the system by pushing its partners' apps to the top of Apple's charts. Apple cried foul, complaining that the app violated two of its policies, including a newly-minted rule warning that any apps promoting other apps "in a manner similar to or confusing with the App Store will be rejected."

For its part, AppGratis has said it was not doing anything nefarious, but Apple did not budge. AppGratis is no longer in the App Store (it ended up launching an Android app as a result) and the iPhone maker's strict policy is forcing other discovery companies to change their tactics for surfacing apps.

The episode was a stark illustration of Apple's immense power over app creators thanks to the soaring popularity of the App Store. The App Store, which debuted five years ago today, has since acquired make-or-break status as the arbiter of digital taste in our increasingly mobile-centric society. Indeed, Apple has paid app developers more than $10 billion since the App Store opened. But that gross dollar volume tells only part of the story. Not all apps are created equal and only a relative few are raking in the truly big bucks. That's because with over 900,000 applications on the App Store, standing apart from the crowd has become harder than ever. So winning a featured spot in the App Store is the veritable Golden Goose for developers.

Now that the secret is out, how does a company go about making a name for itself on the App Store? It's not easy. Outside of appearing in an Apple commercial, or doing a partnership with a large brand to distribute your app, it's up to the wiles of individual developers to forge relationships with Apple early on.

"At the end of the day, the best way to get discovered is being featured or at the top ranking list,"said Andrew Levy, CEO of Crittercism, a company that helps developers track app performance. "Developers need to start making inroads with Apple from the inception of their app. Every developer wants to be featured. They all want more users. But it is a process. You need to build a relationship with the proper app store manager in your vertical. And, you need to make sure it's high quality and good enough that they would feature you."

The Golden Goose lays
If Apple highlights an app, it gets noticed quickly -- and downloaded. This means a push for the app in rankings, which in turn means more users finding the app and more downloads. This seems to have worked for apps like Angry Birds, which started climbing the charts after Apple featured it in early 2010, according to App Annie's data for the paid version of the app. App Annie is an analytics company that monitors the rankings of 275,000 apps.

Angry Birds then jumped to No. 1 on the charts at the end of April 2010, after being featured on Apple "Highly Addictive Games" category in 89 countries the week before.

It's a similar story for Instagram, which became popular after it was frequently featured in the store. It took the Apple editorial staff about a week to notice the app, which was consistently a popular app in the photo and video category. Instagram was featured in Japan under "New and Noteworthy." Two weeks later, Apple decided to feature Instagram in 14 more countries. The app's overall ranking quickly went from 210 on October 6 to 70 in October 31. On November 2, Apple featured Instagram on it's "What's Hot" category for 86 countries and two days later Instagram was No. 2 in the app store.

Apple did the same for the lesser known photo editing app Moldiv more recently. The app's ranking rose by 1,000 points over a month's time, a jump that happened after Apple featured the app in 120 countries in the first two weeks of May.

To a large degree, placement in the App Store winds up becoming a popularity contest with users getting exposed to the top few thousand most popular apps. That means apps wind up competing for rankings -- great news if you already have brand recognition or marketing firepower; not so great if you don't.

While Apple keeps its algorithms and process secret, download spikes often correlate with being featured in the App Store, according to Marcos Sanchez, VP of Global Corporate Communications for App Annie.

"It's a great way to distinguish yourself and it boils down at this point to great marketing," Sanchez said. "You still need a great UI [user interface], a great product."

It's the difference between being shelved in the back of the supermarket and having a nice display at the front of the store.

The business of discovery

This perception among developers has spawned another type of business built around the App Store -- the discovery of apps. Apple recognized this trend when it bought Chomp, an app search tool in early 2012, although it doesn't seem like the company has done anything with the technology since then. Other services that have popped up include apps like AppGratis, and a smattering of App Store SEO services, in addition to more traditional forms of discovery like advertising, marketing and generating press.

There's some money to be made. There are high margins and AppGratis has boasted in the past that it made more than $9 million in revenue last year using this method and is on track to make $25 million this year.

The goal for any app maker is to land high on Apple's charts right after launching and app discovery services can help apps get higher through installs, said Joe Bayen, the CEO of FreeAppADay, an AppGratis competitor.

"No matter what you do, you need to bring more users to your platform, or to your game," Bayen said. "You initially need a lot of activity. Downloads matter and chart position matter. The higher you are in the charts, the more organic installs you are getting, meaning the cheaper your cost of acquisition is."

Getting featured by Apple means developers can spend less on driving users its app, which can cost between 50 cents for a casual user to $3 for a more invested user, according to Bayen.

And attracting plenty of fans is important to the long-term success of an app, not to mention an opportunity to market new apps to a loyal following. The real work begins after the install, of course. Levy said only about 40 percent of users keep using an app after the first month.

But that doesn't diminish the need for getting those users in the first place. Which is why ways to discover iOS apps aren't going away, despite the AppGratis kerfuffle.

For example, FreeAppADay, which is not in the Google Play store, relied on its relationship with Apple to keep its business running. Apple has let the app remain in the App Store, for now, but the discovery service has created another app, to be launched in the fall, that fits into Apple's rigid guidelines while still providing a marketing tool for apps.

It's a taut tightrope that smaller app developers have learned to navigate. If they want to make money in the App Store, they have to stay in Apple's good graces. Otherwise, it's long road.