Why the Mac App Store Changes Everything

By: Tim Baker

Apple finally launched their much-hyped App Store for Mac today and in one system update instantly revolutionized the software industry forever.

For anyone that doubts that the Mac App Store is a game changer, I implore you to look at the success of the App store on iOS. Developers of all makes and sizes have found a viable way to distribute software and compete against the industry behemoths on an almost-level playing field. (I say “almost” because the Electronic Arts of the world have the money to clout to feature their big name apps on the storefront when launched or discounted.)

When the App store first made it’s debut on the iPhone & iPod Touch, it was a goldmine for developers – many of them earning small fortunes on the success of their apps with relatively limited competition. Fast-forward to 2011 and the App Store is overcrowded with software of all types and quality; it’s  a lot harder for new apps to stand out from all the noise. Still, an entire community of bloggers and other taste makers have made it their goal to find and share new, quality apps with interested readers and with the right amount of promotion, these innovative apps are being consumed by the masses.

When the iPad launched last year, the second gold rush occurred with developers racing to market with iPad-optimized apps, although this time, many wanted to earn more than they were on the iPhone and charged an “iPad premium.” An iPhone app priced at 99¢ would have it’s “HD” iPad-optimized counterpart priced much higher, say $4.99. There was a big backlash by bloggers against this practice with many feeling they were being ripped off; while the practice still goes on today, I personally see it much less, and the price differential between iPhone and iPad app is usually not as enormous a gap.

The Mac App Store will be no different with developers rushing to get their software into this store while the competition relatively low. Today’s launch includes 1,000 apps and will continue to grow every day. That being said, there is a huge difference between the App store on Mac versus the mobile store – one doesn’t have to use the App store to get new software on their machine. On Apple’s mobile devices, unless you jailbreak, the only way to put applications on is through the App store or a closed corporate environment. Mobile developers need to be in the App Store; Mac OS X developers currently don’t.

The reason the Mac App Store changes everything is simple – it’s the best way for developers to monetize their software. Right now, a small developer makes an app, creates a website about it, maybe puts out a press release and hopes for the best. Many of these developers are making little-to-no money off of their apps, causing them to treat it more as a hobby than a job. Too often, great apps fall by the wayside on Mac when developers don’t have time to update or improve them causing a no-win situation for themselves or the user. Having one centralized place to sell their app, push out updates and make money is going to lead to more quality apps and better prices for users. As the App Store on Mac matures and grows, it’s not outside the realm of possibility to see it being the only approved way to put new software on one’s machine in the future. Many people are very weary of installing software they find on random websites out of fear of spyware or viruses, so the comfort in knowing that these applications from the Mac App Store are safe will be one of the primary drivers in its success.

The mobile App Store has shown that people will pay for software when they feel it’s priced right. The immense competition has made it pretty much de facto that apps that charge use a 99¢ price point. (Obviously this isn’t the case for all apps, but for the vast majority.) One of my favorite authors, Dan Ariely, writes in his book Predictably Irrational that people’s purchasing habits are conditioned. Kids who grew up in the 90’s and stole all their music off Napster and LimeWire don’t feel like they were committing a crime – they just view music as something that should be free. Breaking this conditioned habit is such a hard task which is why it’s a lot tougher to get people in their teens and early 20’s to buy music than it is for the older population that paid for music their entire life. This younger demographic tends to think that anything over 99¢ is too much for a song, yet spending $4.00 on a coffee is perfectly acceptable. The exact opposite is true for those that grew up never paying more than 75¢ for their coffee. This same philosophy is occuring with the App Store; people are conditioned to pay for quality software, but only at very low prices.

Currently, some of the software prices in the Mac store are very high. Pixelmator, a very worthy Photoshop competitor, is priced at $29.99. I’ve used this program and can say that it’s wonderful. When I saw it priced at around that point on it’s website last year, it seemed like a great deal, but in the App Store setting, it sticks out like a sore thumb. I could be wrong, but I expect Pixelmator to be $9.99 in the App Store by the end of the year. If history is going to repeat itself, these high price points are going to have to come down for the desktop App Store if people are going to buy them en masse. $9.99 seems like a fair price point to me.

There’s no doubt there will be a lot of growing pains from developers who don’t want to be a part of Apple’s walled garden App Store, but at the end of the day, they will have to go where the money is, even if it means they have to lower prices and give up some control.

Three Companies that Apple Could and Should Buy

By: Tim Baker
It’s amazing how a company that went from the brink of bankruptcy 13 years ago now has $51B in cash reserves,  market cap of $275 Billion and a share price of over $300. Last week, CEO Steve Jobs said that Apple plans to hold on to it’s $51B in cash to pursue “strategic opportunities.” As their war with Google continues to grow as does threats from music startups that could potentially dethrone iTunes as the de-facto digital music destination, here’s a list of companies that could be huge acquisitions for the Cupertino giant to buy that could potentially change the shape of the tech industry for decades to come.

Facebook
Facebook is currently valued at a little over $30B. While it would be an enormous investment for Apple to make, the rewards from purchasing the world’s number one social network could have seismic effects across all of Apple’s verticals. It’s pretty safe to say that Apple will be launching a music subscription service in the future and as physical music formats continue on their death march, streaming music startups such as Spotify, MOG and Rdio are winning people over left and right. As smartphone and home broadband penetration continues to expand, it’s only a matter of time until most music fans are enjoying their music in the cloud. Apple realizes this and it’s most likely why they purchased Lala.com last year. Should Apple buy Facebook, every user could have access to a streaming iTunes service instantly. Apple’s new music social network Ping would also have a much better home than living in the iTunes desktop & mobile software and Facebook credits could be used to purchase video rentals.

Putting aside the benefits that an embedded iTunes store from within Facebook could have, the most appealing thing that comes with the purchase of Facebook is their data. Apple’s foray into the mobile advertising business with iAd has put them toe-to-toe with Google and owning Facebook would give them ownership of the very lucrative Facebook ad platform to compete on the desktop as well. Facebook ads allow marketers to deliver very hyper-targeted messages based on the data found in a user’s profile and Apple’s merging of that information with the data they receive from their iAds could very well shift the power in online advertising for years to come.

Netflix
Netflix currently has a market cap of $9B and a subscriber base of over 15 million. While Apple dominates the digital music space, the same can be said for Netflix with regards to digital video. While Netflix started out as a DVD by mail service, their business model has shifted towards streaming video and as they continue to roll out streaming-only plans, their subscriber base is expected to explode. Analysts expect Netflix to have over 19 million subscribers by the end of 2010, which totals about 6% of the US population or 17% of the estimated 116 million US TV households.

An acquisition of Netflix would allow Apple the flexibility to focus on streaming video rather than the pay-per-view rental or pay-to-own model that they’re stuck in now. Streaming video is the way of the future and it’s only a matter of time when Blu-Ray users will see they can get the exact same audio and video experience via the cloud than on an overpriced physical disc that takes up space and is prone to scratching.

Additionally, a purchase of Netflix by Apple would give them enormous market penetration within streaming devices already in-use, such as video game consoles, TiVos, Roku Boxes and Netflix-enabled televisions. While the newest incarnation of the AppleTV is a huge leap forward compared to its predecessor, future success in streaming video will not come from being one of many players in the hardware game – one must control the content.

Last.FM
Last.FM is a popular music social network that founded in the UK and was acquired by CBS Interactive for £140 Million in 2009. While it may not have the cache or price tag as Facebook or Netflix, Last.fm would give Apple something that it’s failed to crack thus far – success in social media.

It’s pretty safe to say that most diehard music fans are finding Apple’s Ping social network to be a joke. Aside from the very lackluster initial offering of artists involved, it’s pretty much the most anti-social social network of them all. Artists that are on Ping are not interacting with fans like often found on Facebook or Twitter. Ping is basically a glorified RSS feed of artists news and events and feels as warm and welcoming as a hospital waiting room.

I don’t see Ping taking off ever in its current form. There’s no way for artists to create their own accounts; an Apple staff member must create the account on their end. There’s also a ridiculous list of rules for entertainers participating on Ping that is nothing if not laughable.

Music loves have embraced Last.fm for multiple reasons, but the three that are most popular are 1. scrobbling, 2. streaming radio and 3. social networking. Scrobbling is basically Last.fm’s way of indexing all the music you listen to on your computer or iPod and keeping a running record of it. It uses that data to show which artists and songs are most popular on the site as well as allows users to meet other music fans based on their compatible music tastes. Last.fm also leverages their API so other music services can import their data into a user’s Last.fm account for even more ways to scrobble music. Two great examples of the API use are Spotify and Blip.fm. Ping currently only automatically tracks your iTunes purchases. The streaming radio on Last.fm also allows users to listen to Pandora-like stations built for them based on their actual listening habits.

While a purchase of Last.fm would be a drop in the bucket for Apple, it would allow them to buy into an established and trusted network of music lovers. They could also leverage all the data they obtain from users on their listening habits to offer a better targeted buying experience within the iTunes music store.

I believe all three of these aforementioned services provide excellent growth opportunities for Apple as they continue into the next decade. I’d love to know what other companies you think Apple could and should realistically buy. Leave your thoughts in the comments.