I have had the opportunity to meet a lot of iPhone-related companies lately. Many of them have really cool products shipping or about to be released, and I wholeheartedly agree with my friends at the iFund that the next generation of applications is going to be amazing.
I've also been playing around with the App Store. From a technical point of view, it's amazing. You just install app after app after app, and it just works. My home screen is a giant mess, because installing apps is just so much fun.
But from a customer experience point of view, I'm not yet sold. Figuring out which apps are going to be any good is almost impossible. Even with only a few months of development, third parties have crammed every single category in the store full of apps. Most of my time in the store is spent scrolling through endless lists. And what distinguishes a good app? I can't really tell. All I see is a name, an icon, a price, the developer's name, and a review star-rating. The reviews are all over the map. When I choose to read them, it seems totally random what I'll find. But even clicking through to see a screenshot and some reviews is incredibly time consuming, given the hundreds of apps in most categories. Most of the time, I have no idea if I'm going to like the app after I install it.
So how's a normal person to choose? I think this is a major challenge for companies that hope to build dominance in some category on the iPhone. Today, the fact that the store is open and has almost no barriers to entry is great for the companies I meet, because they can get their first versions in front of customers quickly, and start iterating fast. But if they are lucky enough to have success, the store is going to become a nightmare, because it will give all of their competitors easy access to their customers and an opportunity to compete with them on an even playing field. The app store is not set up to allow anyone to achieve a durable advantage.
Browsing the app store is an awful lot like shopping in a retail grocery store. You see row after row of tiny boxes, each vying for your attention. They can't present much information, unless you take the box off the shelf and look at it. They rely on impressions, branding and price to try and get you to do that. The store determines which products sit on which shelves, and which yours sits next to. Of course, for a few extra dollars, the right people can get their products on more shelves, or in premium locations, or in giant promotional stands.
Sound familiar? In a world where competition is based on brief looks in predefined categories, it's hard to just "build a better mousetrap" and hope for the best. This is what brand marketers and consumer packaged goods companies have been studying and refining for years: how to win the battle in your mind before you ever set foot in the store. Once you have come to think of Crest as the #1 toothpaste, and, more importantly, your toothpaste, it's unlikely you're going to pay attention to the other boxes on the shelf, no matter how shiny they are.
There are other models, in other distribution channels. On Facebook, viral distribution has proved decisive. Those companies who have learned to build apps that optimize the viral loop dominate in every category where they compete. Not many customers ever browse the app directory or search for specific apps - they don't have to, they find out about apps by being invited by a friend. If you sell an online service that solves a defined problem, you can compete in SEO or SEM. If your site is consistently ranked #1 for a given search term, you can make it very hard for someone else to compete for new customers. In other markets, he who controls the directory has the power, like Download.com in the world of windows shareware.
Word of mouth is a powerful force multiplier in all of these models. If everyone I know is using a specific product, in most markets that's a heavy influence. And in some markets it's decisive, because of well-known network effects (as happened with Microsoft, eBay, and many others). But if your product category doesn't have strong network effects, word of mouth alone is not usually enough to fend off a competitor who also has a quality product.
So what model will prevail on the iPhone? So far, I don't see any apps that have much in the way of viral distribution. Do any apps really cause my friends to sign up, as a natural side-effect of my using the app? I haven't found any yet. And I don't see much searching for apps going on. Do most people know what kind of app they want? And how can they tell the best app for a given search? For example, I did a search for "taxi" in the app store. I got 4 results, 3 free, one for $0.99. I downloaded and tried all four of them (because I had time to kill) - and I'm still not sure which one was the best. Back when I was staring at the search screen, it really was a crapshoot.
So unless someone cracks the code on one of these other models, I think we may revert to the retail model, where good positioning and good branding will win. When I'm scrolling through the endless list of games in that category, the icon that I've come to associate with "that company that makes amazing iPhone games" is going to get a disproportionate share of my attention. Does that mean existing brands have the advantage? I'm not sure. For a lot of brands, their iPhone products will run into the line-extension trap (see The 22 Immutable Laws of Marketing). That looked to me like what's happening with EA's iPhone offerings. So there is an opportunity to build new brands with attributes like "the most amazing mobile apps" but I think building a company around that strategy means really thinking through how to do it. Just bringing a good app to market isn't going to be enough.
So for those who are thinking of starting a new company to build iPhone apps, here's the question I would be pondering. After I've built my first successful app, and all kinds of competitors have copied me and have similar apps right next to mine in the store, how will I continue to get new customers? How will new customers know that my apps are superior?