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Feb 27

Written by: J. Gerry Purdy

Mobile World Congress 2013 Edition

Wholesale distribution is the mark of a successful, growing market. We see it in just about every major market today:

  • Restaurants don’t get their food from fish boats, farms, meat packing houses or supplies directly from factories. Rather, they get all of their food and supplies from (mostly local) distributors.
  • Likewise, retail stores like Best Buy, Target and Wal-Mart get all of their goods from distributors. Wal-Mart owns their own distribution network, whereas Best Buy gets product from Ingram Micro, TechData and other distributors.
  • Grocery stores get their entire inventory from distributors, some owned by the grocery store chain but mostly from distributors who send trucks out regularly to restock the shelves.
  • Book publishers work with distributors to enable the physical version to reach consumers via retail stores, while other distributors (Amazon, Apple, Google Play) manage the distribution of electronic versions of books.
Distributors get their products directly from the manufacturer that sells their products at a discount (wholesale price) to the distributor who marks up the price and resells it to the retailer who, in turn, marks up the price which you buy at the retail outlet. Sometimes, manufacturers work with distributors and retailers to offer ‘specials’ to boost sales, such as ‘buy one, get one free’ sales you’ll often see in grocery stores.

In most every distribution model, the manufacturer creates demand via advertising and promotions to the consumer but then works sales back through the retailer and distributor.

Even large online stores like Amazon have gigantic distribution warehouses where they receive goods from manufacturers and ship them directly to the consumer on behalf of the online store which is sometimes Amazon or other stores that are part of the Amazon network.

So, if the mobile market is a successful, growing market, where are the distributors to assist in the distribution of mobile apps? To be sure, mobile apps are digital goods (rather than physical goods like a laptop, tablet or smartphone), but there hasn’t been the creation of distributors for mobile apps – but that’s about to change.

Here’s the state of mobile app distribution today: Imagine a book store filled only with John Grisham novels—and a small assortment of “staff picks” books. That’s the way it is with mobile apps. There’s a catalog, but today with hundreds of thousands of apps in many stores, categories yield far too many apps to be considered.

And, there isn’t a centralized way of getting the right apps to the right store. Therefore, stores pay to recruit apps that they don’t want and fail to feature apps that are the right fit but that they don’t know about. Developers miss out on opportunities to improve distribution by landing on new platforms or in new languages or effectively promoting within the already chosen platform.

Today, each app store has its own selection criteria, testing, and payment method. This means that every developer has to first discover all the stores, decide if they are the right fit for selling the app, conform to any of the store requirements, and then wait for payment from a variety of stores, each with its own payout threshold. Developers need a way to efficiently get their apps optimized to all of the stores.

The mobile app market is missing wholesale distribution that makes it easier to allow developers to deal with one or, at most, a few distributors instead of hundreds of app stores. And, correspondingly, app stores are missing wholesale distribution that would provide them tools to more efficiently select and promote mobile apps. As a result, the hidden gems get missed and many users end up not getting apps that might be a big help to them.

When Apple created the App Store, there weren’t any distributors for mobile apps so they created their own distribution network: publishers (developers) would put their apps directly into the App Store and then wait to see if it sold, and when it did, the developer would receive 70% of the sales price with Apple taking 30% for handling distribution. The developer still was responsible for creating demand for the product via advertising and promotions. Through this, Apple has operated similar to Amazon as a distributor of digital goods. See Figure 1.

Now, however, the market has changed substantially. There are literally hundreds of app stores that distribute mobile applications on a number of mobile platforms (iOS, Android, BlackBerry, Windows Phone, etc.) as well as pseudo platforms (e.g. Amazon’s Kindle Fire). There are independent stores, stores by wireless operators, stores via platforms (e.g. Google Play) and stores that are ‘walled gardens’ (e.g. Apple). See how things have changed in Figure 2 and Figure 3.

Each one of these platforms operates in a different manner and each with its own set of challenges:
  • iOS – It’s simple for the developer to upload into the App Store but tough to get users to download. Users find apps through categories and search, but there’s no way to find out which apps are most appropriate since now there are hundreds of thousands of apps in the App Store.
  • Android - Same as iOS, except that there are many more discovery portals. Every mobile network operator (MNO) and virtual mobile network operator (VMNO) has a method for featuring apps. But which ones? No financial incentive exists, so that developers can easily promote apps or stores can easily buy lots of apps at a discount.
  • Nook - Android based, but separate recruitment process from Google Play.
  • Amazon - Android based, but separate recruitment process and pricing from Google Play.
  • HTML5 - Major platforms exist or are being launched, each with a slightly different flavor. (Mozilla OS, Chrome, Tizen). There’s no way for developers or app stores to work through a wholesale network like in other markets.
Now, the mobile application market is (finally) ready for the implementation of wholesale distribution that will help make the mobile apps market more efficient, just like distribution has worked to help other successful markets. Developers are finally able to deal with a few large distributors that will buy their apps. They will receive a discounted price for that convenience or will enter into a relationship to share the resulting sales in a fair manner sometimes with a guarantee to the developer.

Mobile app store distributors are able to work with the hundreds of stores that sell mobile apps in order to get the mobile app downloaded by the consumer. The distributor gets a fee for handling both download promotions by the developer and offers by app stores.

Discovery is still a challenge that’s shared by the developer, distributor and app store. How does the consumer find out about the app in the first place? And, once he or she does find it, what store is best to use? And, on top of this, there’s the additional challenge of mobile apps that are sold to enterprises: they have to work with enterprise IT organizations to ensure the app will comply with the company’s mobile apps policies.

Fortunately, a seed-funded company called appbackr has built the necessary software to operate a wholesale distribution network for mobile apps. It’s called appbackr Xchange, which is a wholesale distribution network to work with both developers and stores to most efficiently distribute mobile apps. See Figure 4.

Through Xchange, distributors get the tools they need to conduct distribution programs with developers as well as stores: See Figure 5.

Xchange manages store offers to arrange pre-purchase apps they think will succeed. This is shown in Figure 6.

Xchange also manages developer’s and publisher’s pre-sales and promotions programs. This is shown in Figure 7.

All major mobile platforms now enable wholesale distribution of apps. Apple recently realized that referral for a sale is good for the App Store. They have opened up the gate over the moat in iOS 6 to allow for referrals. Thus, a distributor can refer a sale to Apple and, thus, consider them one of the stores in the distributor’s network.

Figure 8 shows how revenue is managed between the developer, Xchange and the app stores.

Xchange provides the first complete wholesale distribution system for both app developers and app stores. This is shown in Figure 9.
While the end user may never come in direct contact with Xchange, many developers and app stores will begin using Xchange to conduct a more efficient distribution process for mobile applications.

Developers and stores interested in learning more about Xchange can visit appbackr Xchange or email [email protected].

Written By:

J. Gerry Purdy, Ph.D. 
Principal Analyst
Mobile & Wireless
MobileTrax LLC
Disclosure Statement: From time to time, I may have a direct or indirect equity position in a company that is mentioned in this column. If that situation happens, then I’ll disclose it at that time.


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