Analyst Angle: App Stores: How many apps is enough? : (Do you really need that 79,873th app?)

Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
Today’s article will be unusually short. Two reasons: One, I’m writing it on my netbook from the Qualcomm CEO Summit, and two, it’s a simple argument, but one that needs to be made. Essentially, I think that the wireless data market is overly concerned with this app store ‘spitting’ contest. The reality is that the advantage of having some 85,000 apps is really only one of marketing and perception – important, yes, but not truly relevant to the customer experience.
The impetus to write this today was also stirred by the talk minutes ago by Frank Meehan, the CEO of INQ Mobile. INQ makes feature phones that come in at lower prices than smartphones, yet come bundled with the most popular app categories like Facebook, Skype, Gmail, Last.fm, and Twitter. Frank argued, as I shall, that you can satisfy a very large segment of the market with just the top apps. His next step is to try to meet much of that global demand at a lower price than Apple’s iPhone, whereas my point is that all of this talk of app quantity got boring to me once we passed the 20,000 point. His path is likely to be more profitable.
The economics at hand
App stores follow closely the economic Law of Diminishing Marginal Utility. This law explains how the first apps in the store offer a great deal of value to the ecosystem, but each app that’s added delivers slightly less value than those that came before. Granted, apps are not a pure commodity where they are all alike, but once you get past 10,000, you ARE getting repeat apps, like the 5th Buddy Finder, the 12th Movie Showtimes lookup, etc. It’s a well-known problem that users are swimming in apps at the app store, and the biggest problem Apple’s store faces today is not quantity, but is discovery, or the user’s ability to find the app they might like. How many users make it past the Top 20 lists on Apple’s deck?
Because of the Law, the fact is that newer app stores aren’t so far behind Apple as advertisements and common knowledge would lead you to believe. Yes, “there’s an app for that”, but those apps that most users care about are now, or will soon be available across all the leading platforms: Apple, RIM, Symbian, WinMo, Palm , and definitely Android.
True, WebOS, for example, is still at sub 500 apps, and that is not enough to compete well. Since apps add a great deal of value to the hardware, vendors like Palm need to woo developers to get their numbers up, and make sure they have all of the blockbuster apps on deck. So let’s launch a discussion of how many apps is enough, in the context of mass market consumer smartphone purchase decisions, and long-term satisfaction. Is it 1,000? Probably too low. Is it 10,000? I think diminishing returns have really kicked in by then. Hmmm … 5,000? Seems to me that this should be enough to satisfy – and overwhelm the average user.
I make these arguments with the understanding that the “long tail” remains an important and relevant argument. But I propose that long tail app content is not what sells thousands of smartphones. That is done by the top 100 apps – the ones you see on Apple’s TV ads, for example. Separately, a counter-argument to this is that there are revolutionary apps that don’t follow the Law of Diminishing Returns. True, the new Google Navigation app on Android is a current example. But in this article, we are applying the Law as Diminishing Returns to marginal units based on rank in the app store’s download charts – not date of submission.
Derek Kerton, principal analyst and head of the wireless practice for the Kerton Group, a consulting firm focused on advanced telecom, is also the chairman of the Telecom Council, an association for global telco executives and their ecosystem counterparts. Internationally recognized for his telecom industry insight and consults for companies throughout the telecom value chain (NTT DoCoMo, SKTelecom, Disney, ESPN, Sony…) and the financial community on the telecom market issues (Credit Suisse, Merrill Lynch, Dow Jones, Morgan Stanley…). Mr. Kerton also sits on boards for Aegis Mobility, KeyZap, and envIO, and is frequent chair and moderator in telecom industry conferences globally. Mr. Kerton is quoted, published and interviewed globally on CNN, CNBC, BloombergTV, and Wall Street Radio, with his industry research and analysis available through TechDirt, articles, research reports, white papers and online at http://www.kerton.com.