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Wireless operators: App store owners or shoppers?

Application store launches were one of the lynchpins of this year’s Mobile World Congress, which wrapped up last week in Barcelona. Nokia, Microsoft and Samsung were among the companies jumping into the app store market, joining Palm, Research In Motion and, of course, Apple and Google. Along with this host of new storefronts came another slew of app store-enablers, including operations/business support systems companies Amdocs and Comverse and traditional on-device portal player SurfKitchen. These companies all were angling to help wireless operators gain footing in this crowded market, but given the host of options already available, the question was whether operators should even want in.

Service providers are no strangers to launching applications on their own, but putting them in a unified, self-managed storefront would be a leap. So far, operator app store launches have been limited and outside the U.S. Last week, China Mobile announced plans to launch its own app store in two phases in 2009, O2 confirmed storefront plans, and Orange said it would extend its existing app store to support more operating systems.

It’s clear where the interest stems from. Apple showed how lucrative app stores can be on the iPhone. For the smartphone market in total, more than 16% of U.S. users who installed apps on their devices in 2008 spent between $100 and $499, according to ABI Research. Considering that most apps cost only a few dollars, that’s pretty significant. If done correctly, other benefits come from increased data traffic, revenue from premium apps and even potentially shared revenue from ad-funded free apps.

Despite the return on investment, research firm Ovum calls app stores a risky bet. For most operators, running their own competitive app store is a bad idea, said principal analysts Eden Zoller and Michele Mackenzie. They pointed out that deploying an app store is about creating a whole ecosystem to support, develop and provision apps both online and at the device level, including discovery. Operators such as Orange that already have developer forums established could handle this, but few other operators would achieve the scale and reach necessary to make it work. That said, they may already have a better option at their disposal.

“When you look more closely, a lot of operators’ application store efforts are in fact an evolution of their old mobile portals, and this kind of refresh makes sense,” Zoller and Mackenzie said in a research note. “In this context the application store tag is window dressing.”

For example, T-Mobile’s web2go essentially is T-Zones revamped with an app store element, but it is only one aspect of a wider package that includes search from Media Systems and Yahoo!. This essentially is the path that SurfKitchen was pushing at MWC, too. Dave Evans, its chief technology officer, said that operators want a service that is independent of a consumer’s device so they can focus on driving value for the overall lifetime of that consumer, making apps just one of many content options.

“We are taking it beyond just apps, looking at widgets, Web services, Web pages, and premium content and [short message services] — trying to move beyond the technology layers and to what need the user is using the service to meet,” he said.

While the general industry consensus is that the traditional on-device portal has died, having given way to Web browsing, it may actually be the case that it’s now turning into an app store variation to drive revenues for wireless operators. If this is true, it could — and would have to — coexist, rather than compete with, the multitude of app stores out there. In the face of so many options for both consumers and developers, the challenge of starting entirely from scratch likely will outweigh the benefits for telcos. In that respect, making an app store simply window dressing on an operator’s portal could actually make the most sense.