How Apple’s App Store can win or lose the next ten years (Part 2)

by Nathan Slavik on Jul 19, 2018

In part one of our two-part series about the future of the App Store, we examined its fight with Google Play. Although Apple currently leads in revenue, it’s losing to Google Play in the number of downloads and prevalence in emerging markets like Brazil and India.

In part two, we’ll be exploring Apple’s challenges in China, what it’s doing to combat app discovery on its platform, and what’s next for the App Store.

The challenge in China

As smartphone penetration hits 70% in more mature markets like the U.S., the spotlight will increasingly be on emerging markets, and there’s no market like China. Simply put, the country’s app market towers over the rest of the world, and its politics and culture are exceptionally complex. In fact, China is so complex that businesses and often treat its cities as distinct, individual markets, ranging from those with highly mature markets like Beijing and Shanghai to those that effectively function like classic emerging markets in their own right.

It’s almost impossible to overstate how lucrative China’s app market currently is, and it will only get more lucrative in the future. China’s app stores are strong on both consumer spend and downloads, whereas there’s a disparity between downloads and consumer spend in the App Store and Google Play in the U.S., which we covered in Part 1. China ranks second all-time (after the U.S.) in both downloads and consumer spend in the App Store, generating nearly 40 billion downloads and $28 billion since 2010. And with third-party Android stores factored in, the total app store market for China in 2017 totaled approximately 80 billion downloads and $30 billion in consumer spend.

App Annie iOS App Store consumer send and downloads 2018

Source: App Annie

By any measure, it’s clear that a successful future for the App Store involves success in China, but achieving that success is uniquely complicated. Unlike most other world markets, Apple isn’t competing with Google Play in China. Instead, Apple is facing off with Chinese behemoths Tencent and Baidu, both of which have their own app stores, and both of which have enormous home field advantages. Many Chinese users are not just mobile-first but mobile-only, and Tencent and Baidu have reach into nearly every aspect of their lives, from bank payments to appointment bookings to communication.

Beyond the App Store, nearly a quarter of Apple’s total revenues last year came from China, and its continued success there will depend heavily on Tim Cook’s abilities not just as a tech leader but also as an international diplomat.

Surfacing quality apps

Over 4.5 million apps have already launched through the App Store, with tens of thousands more added every day. Growth is good, but Silicon Valley is increasingly being confronted by the fact that growth comes with a price tag, and for the App Store, all of those apps mean iOS has a serious quality-over-quantity problem on its hands. After all, the continued success of the App Store depends on its ability to allow users to easily find quality apps, which means an increased emphasis on curation, and that’s playing out in two ways:

First, while Apple has so far largely avoided the headlines that have rocked Facebook, Twitter, and others over the past few months, it’s not categorically immune. Apple’s continued emphasis on privacy and data protection look like an increasingly wise investment, even as that commitment continues to anger law enforcement—along with the President himself—and could imperil some of the company’s government lobby efforts around taxation and other issues.

Apple has also recently banned apps that generate databases from users’ contact lists—the same kind of third-party apps that became infamous in the Cambridge Analytica scandal—and has banned cryptocurrency apps that use devices to coin mine. Ultimately, Apple’s directive is clear: They’re dedicated to keeping the App Store from being overrun by apps that tarnish user trust, but doing so while navigating the constantly shifting political and legislative landscape will be no small task.

applovin ios 11 app store changes

Second, even if Apple is able keep the iOS App Store free of malicious apps and steer clear of both public and governmental backlash, the redesigned App Store in the iOS 11 update was an acknowledgement that Apple has a discovery problem on its hands. The majority of downloads come through in-store search, and if users can’t easily find apps they value, they’ll turn off. In addition, search’s power also allows for a small handful of well-resourced publishers to dominate many spaces, locking out smaller and newer publishers with potentially great apps from finding an audience.

Early results indicate this curation focus is working. App discovery via browsing, as opposed to search, has been consistently higher in the last few months, and apps featured in the “App of the Day” or “Game of the Day” section have experienced download boosts of up to 800%.

So the good news is that progress is being made. Apple has shown commitment to solving the problem of low app discoverability, and it will continue to ensure that high quality apps are surfaced and easily discoverable.

The next 10 years

When Apple launched the App Store ten years ago, it was an unproven idea, and plenty of detractors were doubtful that people would pay for these “app” things on their phones. A decade later and it’s clear that the App Store was one of Apple’s smartest investments, which has turned into an ever-growing platform that has brought in more than $130 billion so far.

But as Apple looks to the horizon, it should be both wildly optimistic and justifiably concerned. Winning its ongoing war against Google Play, building a presence in emerging markets, and avoiding a ban in the highly lucrative China will all take savvy maneuvering, especially if they’re to do so with their principles even partly intact.

Considering that the App Store is a now near omni-present force that didn’t exist at all a decade ago, it feels foolish to assume it will still be around in its same form by 2028. Times change, and they change fast—just look at the iPod. So even though all signs currently point to a bright future for the App Store, perhaps the only guarantee is that the next ten years will be just as gripping as the last ten.

Nathan Slavik is a Bay Area-based writer who has been covering new and emerging technologies for over a decade.