Summary

Since the mobile phone was introduced some three decades ago, there has been a remarkable, steady stream of innovations across the entire mobile value chain, from chipsets and standards to wireless networks, devices and applications. Until very recently, however, mobile apps were used and enjoyed only by the small segment of individuals technically proficient and tenacious enough to install and use.

With the iPhone and App Store, Apple has unleashed mobile apps to the general population, and adoption and use have exploded. Now open in nearly 80 countries, the App Store has attracted more than 35,000 applications, and in less than a year more than 1 billion mobile apps have been downloaded — a milestone that took iTunes more than 3 years to achieve. Apple’s iPhone success has also attracted developers in droves — both existing and new — who are devoting more of their efforts to creating innovative new mobile apps. Competitors are rushing to emulate Apple’s success and strengthen their own mobile app stores.

Shazam, the music recognition app, illustrates the impact that Apple has had on mobile apps. First introduced in 2002, Shazam, like many other mobile apps, languished for years, with few consumers aware of and even fewer accessing, installing, and using the service. Within six weeks of the iPhone 3G’s launch, 1.5 million new users had downloaded Shazam from Apple’s App Store. The fact that Apple featured Shazam in its advertising didn’t hurt either. In the six months since, Shazam has been downloaded more than 35 million times. Small wonder that Chee Wong, Shazam’s COO, calls the iPhone 3G launch the “moment of truth” for Shazam.

In a sense, then, Apple can be credited with unleashing the first wave of mobile app innovation. While few consumers were even familiar with the term a year ago, “mobile app” is now part of the vernacular of individuals young and old. Enter the words into Google, and results (below) show that the phrase has been indexed by Google in various forms nearly 400 million times. And this doesn’t include the huge volume of search results for related terms such as app store (200 million), apstore (21 million) and others.

Figure 1: Google searches for app store-related terms

Source: IMMR Research

As more evidence that Apple has unleashed Mobile Apps, the search volume for the phrase Mobile App – according to Google Trends (visited on April 30, 2009) – has increased nearly six-fold in the last 12 months, and nearly doubled in just the last four months.

Apple has succeeded in part by reducing — if not entirely eliminating — the most egregious “frictions” that historically slowed mobile app innovation and adoption: cumbersome UIs (user interfaces) that made it difficult for consumers to install and use apps, closed operating systems that made it difficult for developers to produce scalable apps, and walled gardens that restricted consumers’ choices.

With competitors rushing to close the gap with iPhone look-alikes and their own App Stores, it might appear as though Apple has found the key to unleashing mobile app innovation. Without a doubt, Apple has demonstrated the importance of four key prerequisites: findability, accessibility, usability, and cost. With competitors “raising their game” on these four dimensions, the rate of mobile app innovation will continue to advance.

What could lead to the next wave of Innovation in mobile apps, and who is likely to lead the charge? While there are many companies pursuing various paths, Google’s strategy, investments and initiatives are fundamental and will likely stimulate the next wave of mobile app innovation. We also believe the next wave of mobile apps will swamp the first and reshape mobile, much in the same way that Wal-Mart fundamentally reshaped the retail landscape in the ’80s.

This research note outlines Google’s strategy to unleash the next wave of mobile innovation, particularly with respect to mobile apps. These efforts will create extraordinary new opportunities, not just for Google, but also for developers, OEMs, end-users and other mobile players. The changes that result also pose significant risks to legacy companies, who could be relegated to a supporting or niche role, or like the retailers who failed to adapt in the face of change brought by Wal-Mart, disappear altogether. Of course, there is no guarantee that Google will succeed, but the logic of its strategy is sound, compelling and likely to unfold in some form.

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Will Google Lead the Way in Mobile App Innovation? v1.0