Apple’s App Store as a model for telematics

In January, Horace Dediu, principal of Asymco, estimated that Apple has paid over $2 billion to app developers since its launch in 2008, with downloads ramping up quickly over the last year. IHS iSuppli forecasts revenues from major mobile app stores will grow 77.7 percent to $3.8 billion in 2011, with the Apple App Store expected to hoover up 76 percent of that.

That's a nice chunk of change for Apple. Although the automotive app marketplace will remain a fraction of that for years to come, automakers are eyeing the app store concept. In June, Ford expanded its AppLink program to include factory installation on 10 vehicles, while many other OEMs are testing the waters. With the Apple App Store getting kudos from developers and customers, OEMs wanting to create their own app stores may not have to reinvent the wheel.

 

Apples to apples

 

There are strong similarities between Apple and automotive OEMs that make it instructive to consider Apple App Store as a model. Both manufacture and sell the mobile device on which apps run. Both sell directly to consumers. Unlike Android and other mobile operating systems, both make available a limited number of models. Both work with one or more preferred connectivity providers. Both have brands that are heavily invested in apps that perform well. Both have international reach.

The difference, of course, is that when a smartphone app crashes, it's unlikely anyone will die.

This ups the stakes for makers of automotive devices, but it's worth noting that Apple is notorious for keeping an iron grip on what runs on its devices and for dictating the terms as though it were a matter of life and death.

"Apple created an app ecosystem that makes it super easy for any software developer, big or small, to distribute their app to millions of users on millions of iOS devices," says Gregg Weiss, CEO of Blue Whale Apps, a company that makes free and paid apps, including the Porsche Club of America iPhone app.

Weiss says that the most important aspect of the Apple App Store's success is its simplicity. "I don't need to get a merchant account,” he says. “I pay $99 a year for an Apple merchant developer account. All I do is submit the app, and if it gets approved by Apple, it's in the store. Every month you get a check from Apple."

It's noteworthy that Apple checks every app, and that's millions of apps. The difficulty of checking and validating applications is usually cited as a barrier to the creation of connected-car apps. Developers pay a steep price for this ease and consistency: 30 percent of every sale. Weiss would love to see that reduced to 10 or 15 percent. On the other hand, Apple lets him price apps however he wants and offers the ability to change it at any time.

Updates are considered another barrier for automotive app stores. Apple demands that developers resubmit apps when they update or enhance them. (For more on apps, see Telematics and in-car apps: Making infotainment cost-effective, Telematics: The demand for in-car apps and Telematics and enhanced consumer usability.)

 

Not a multiplayer game

 

With the auto telematics industry all het up about ecosystems for apps and their delivery, the Apple App Store model does have one weak point. Word is that it's strictly a two-way revenue split between the app developer and Apple. (No one with specific knowledge of these deals would comment.) Wireless telcos, TSPs and platform providers are all angling to be the switching station for apps, and they all want a slice of the pie.

It's not a technical challenge to create an app store that includes the ability to calculate and deliver revenue shares. For example, wireless network operators already do this. Apple recently launched a new subscription service for publishers of content-based apps on the App Store, a model that was applauded by the publishers and could entice mobile app developers into the much-smaller automotive apps marketplace. Apple rejects apps that include a buy button or link to an outside sales site, forcing publishers to sign up subscribers from within the app—and to ante up the 30 percent fee for every sub.

But now, subscribers are allowed to access content through the app downloaded from the App Store even if they signed up—and paid—outside the app, although they must offer the same pricing or better within the app. Publishers provide their own authentication process inside the app for subscribers who have signed up outside of the app.

Automotive app stores, including Continental AutoLinq and BMW Apps, use the brought-in approach, relying on drivers' smartphones for connectivity and running applications. Right now, this pretty much cuts out the OEM from any revenue share, unless it is able to negotiate an agreement with the app developer. A system like Apple's subscriptions could allow OEMs to promote and sell subscriptions to third-party apps from the carmaker's website or via dealers, with authentication shared by developer and OEM.

So, what's the hang up? It's not the technology, nor the business model. It's simply getting these deals done.

 

Susan Kuchinskas is a regular contributor to TU.

 

For more all the latest telematics trends, join the sector’s other key players at Telematics Munich 2011on November 9-10 and Content & Apps for Automotive USA 2011 on Nov 29-30 in San Diego.

For exclusive business insights into the telematics market, read TU’s reports In-Vehicle Smartphone Integration Report and Smart Vehicle Technology: The Future of Insurance Telematics.


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