App Stores: Microsoft, Google Follow Apple

Suddenly, the cell-phone app store market is getting crowded. Can rivals grab share from the maker of the iPhone?

By Olga Kharif

When Apple (AAPL) opened its iTunes App Store in July, the idea of a mass-market Web site that sells downloadable games, tools, and other applications for cell phones was a rarity. Handset owners could buy apps from their carriers or the occasional niche site. But these days, the app store concept is becoming commonplace. The question is, does the world need a warren of wireless app stores?

In the coming six months, at least four would-be rivals of Apple will probably open their own online bazaars where developers of all stripes will sell downloadable software applications to make cell phones more fun and useful. Google (GOOG) has already announced its plans, while Microsoft (MSFT), Symbian, and T-Mobile USA are in the likely-to camp.

The appeal of an app store is undeniable. Since the App Store debut, users of Apple's iPhone and iPod Touch have downloaded more than 60 million applications, sampling the more than 3,000 games, calendars, and fitness applications on offer for as much as $10 a pop, though some are available at no charge. Sales averaged $1 million a day in the first month.

Microsoft's Skymarket Is Coming

Microsoft and other owners of competing operating systems want to ensure Apple's popularity doesn't take a toll on their own market share. "People are chasing the iPhone," says Van Baker, an analyst at consultancy Gartner (IT). Microsoft's plans to launch a store were laid bare by job descriptions posted Sept. 2 on job board computerjobs.com. The mobile applications marketplace, to be called Skymarket, may launch in tandem with the next version of Microsoft's cell-phone software, Windows Mobile 7, expected in 2009.

While he wouldn't confirm or deny plans for Skymarket, Scott Rockfeld, group product manager for Microsoft's mobile communications business, says the company ultimately wants to provide a resource, akin to CBS's (CBS) CNET, which includes reviews and customer feedback on products. "They are the trusted adviser to their community," Rockfeld says, though he declines to comment on plans to sell applications other than to say, "We are always innovating on Windows Mobile." The job postings have since been removed. Currently, Microsoft operates Windows Mobile App Catalog and Total Access, which aggregate applications and direct users to third-party sites to make purchases.

On Aug. 28, Google said it will open Android Marketplace, which will offer third-party applications for mobile phones running on a new operating system, called Android, built by a Google-led industry group. Done right, the new stores could create competition for Apple, Baker says. "They could significantly impact the iPhone," Baker says. "If you have an equivalent of iTunes App Store available on multiple handsets, consumers will have more choice. And competition tends to spread the market."

"Wild West Days"

Apple's interest in applications stems from more than just the 30% cut of every sale. The software is also a complement to sales of more expensive, higher-margin hardware. J. Gold Associates analyst Jack Gold figures that the App Store has helped Apple sell 10% to 15% more iPhone 3Gs than the company would have sold otherwise.

Existing retailers such as Handango could suffer as well. Anticipating additional competition, the company is already revamping its site.

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