Apple prepares to reset the bar in the mobile app market

Apple's plan to allow developers to add in-app payments to applications sold through its iPhone App Store could be the next game-changing step the company takes as it charges ahead in the mobile market.

Apple announced the new feature at the iPhone OS 3.0 preview event in March. And next week at theWorldwide Developers Conference in San Francisco the company is expected to announce the release dates for the software upgrade.

While in-app commerce is only one of several new enhancements to Apple's iPhone operating system, it may be the most significant. The reason is very simple. By allowing transactions to be completed within applications, Apple is changing the economics of the mobile application market and providing developers more opportunity to make money from their applications.

And if executed well, Apple could leave its smartphone competitors in the dust.

"My sense is that this will lead to Apple increasing their lead in the market even more," said Bart Decrem, CEO of Tapulous, a small developer that creates applications exclusively for the iPhone. "It will be a tremendous challenge for Apple's competitors that are trying to build their own application stores to get traction with developers, because we're in no rush to work on other platforms."

There's no question that the App Store has been a huge success. Apple announced its billionth application download only nine months after the store launched. But for developers the financial rewards have been mixed. There have been some paid applications that have sold well and generated hundreds of thousands of dollars in revenue, but most developers have barely broken even.

Today most of the applications downloaded from the App Store are free. And of the ones that are actually sold, the majority sell for 99 cents a pop.

"The challenge is that it's hard to sell stuff for more than a dollar," Decrem said. "And it's really hard to make a lot of money that way, especially when the majority of the downloads from the App Store are offered for free."

The ability to add in-app purchasing should provide a greater opportunity for developers to generate some cash. As a result, developers may be likely to spend more time, money, and effort developing applications for the iPhone rather than other smartphones, such as the Android devices or Windows Mobile devices.

Electronic Arts, one of the biggest game publishers in the world, also sees big opportunities as result of the in-app commerce function. EA sells many of its games for the iPhone at premium prices around $9.99 and higher. And Adam Sussman, vice president of worldwide publishing for the game developer, said the company is already making plenty of money from the App Store. But the new in-app commerce capability could allow the company to lower the entry price of a game to expand its audience by allowing it to monetize more elements of the game.

For example, in the game Command & Conquer, EA could sell additional maps to play the game for 99 cents. Or it could offer character enhancements in role-playing games or a more sophisticated weapon to help players advance more quickly to the next level of the game. Another possibility is offering digital goods. For example, within the Sims game, players could pay 99 cents or more for clothing or other items to decorate their virtual home.

"Our belief is that the paid apps in the App Store will move away from a single download model," said Adam Sussman, vice president of worldwide publishing for EA. "The new model will involve these micro-transactions that can broaden the installed base of users and can extend the life of a particular game or application."

Software sells
One lesson that has been very clear as a result of the runaway success of the App Store is that software and applications matter just as much as sleek design and cool hardware.

Apple's smartphone competitors appear to have caught onto this lesson as evidenced by the copycat application storefronts from companies, such as Research In Motion, Nokia, Google, and Microsoft.

"Our belief is that the paid apps in the App Store will move away from a single download model. The new model will involve these micro-transactions that can broaden the installed base of users and can extend the life of a particular game or application."

-- Adam Sussman, vice president, Electronic Arts

Apple was not the first company to offer downloadable applications for cell phones. But it was the first company to make discovering, downloading, and paying for applications easy for consumers. These were things that previous "storefronts" from mobile carriers or other third-party sources of applications were lacking.

As a result, the market for mobile applications never fully lived up to developers' expectations.

"Discoverability has always been really tough on traditional cell phones," Sussman said. "It hasn't been consumer friendly."

Apple has changed this. The App Store uses a well-established ecommerce platform, iTunes, to bill customers, which has helped make downloading and paying for applications as easy as purchasing and downloading a song. By contrast, Apple's competitors have had to build their own mechanism for discovering and paying for new applications from scratch. And as a result, virtual storefronts, such as Google's Android marketplace, have been slow to get off the ground.

"With the Android market, I think we are still waiting for the market to arrive," Sussman said. "While the platform has been released, there isn't a lot of momentum yet."

Newer application market places, such as the one Palm is developing for the Pre, haven't even made it out of beta yet. The Pre, which goes on sale on Sprint Nextel's network on Saturday, will launch with only about a dozen applications. Sprint CEO Dan Hesse said this is to be expected considering that the phone is just now launching. And he said he expects developers to ramp up work on new applications after the launch.

But given the established customer base of the iPhone, the fact that Apple will likely introduce new products into the iPhone family, and the added opportunities to make more money through the in-app commerce capability, it may be difficult to convince developers to spend resources on the platforms such as the Pre.

"We've told our investors that we are open to developing applications for other smartphones," Tapulous CEO Decrem said. "But right now I don't see any reason to move beyond developing for the App Store. In fact, I see us increasingly putting all their eggs in the App Store basket."

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Week in review: Gaming's front in motion

The battle between video game console makers is in motion--literally. The three big console makers announced separate efforts this week at the E3 conference that focus on how gamers control their games.

For those of you who have been waiting for some really big news to come out of the video game industry, Microsoft answered your call with its innovative "Project Natal," a hands-free motion-sensitive controller system. Announced during Microsoft'sannual E3 press conference, Project Natal seems almost certainly to be the culmination of several years of work by an Israeli start-up called 3DV Systems, which Microsoftrecently acquired.

The technology, as demonstrated, appears geared toward allowing users to control games, movies, and anything else on their Xbox system with their hands alone, and without touching any hardware.

Nintendo had a chance for a rebuttal, during which it chose to focus on Wii Motion Plus. The idea behind the new version of the controller is that it offers enhanced feedback, what they called "physical reality." The idea is that the controller allows for much more precise, feedback-oriented motion.

Meanwhile, Sony's new system is a set of wands with glowing orbs on top, that allow one-to-one motion like Nintendo's original Wii-mote, and which also give tangible physical feedback like the new Nintendo system. Configured with an analog trigger and some number of buttons, the wand has one-to-one mapping just like the WiiMotion Plus. The glowing orb, which changed color during the demo, was integral to the positioning technology,

It's abundantly clear that what's really going on here is an aggressive play by each of the three companies to make their offerings more palatable to mainstream audiences, people who have traditionally not considered themselves gamers.

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Monitor home security with Alarm.com iPhone app

Alarm.com's iPhone app lets you see what's going on at home--even when you're not there.

Ever wish you could disarm your alarm system while sitting in your driveway? Or check in on, say, the cat while you're out of town? Alarm.com's new iPhone app lets you do all that and more. It's a freebie for Alarm.com customers.

Designed for homes and businesses alike, Alarm.com's systems (which are sold and installed by various third-party dealers) rely on wireless sensors and GSM/GPRS networks. In other words, they're highly connected.

The eponymous app gives you full control over your system, allowing you to arm or disarm it from just about anywhere. That could come in mighty handy when you're halfway to the airport and realize you forgot to arm the sucker (or just can't remember if you did).

It also provides a wealth of monitoring tools. You can get real-time updates on doors and windows, watch live and recorded video feeds (assuming your system has cameras, natch), and review "event histories." (When did the kids get home from school? When did the maid leave? That kind of thing.).

Talk about a no-brainer. If you're an Alarm.com customer (or thinking about installing an alarm system), this is without a doubt a must-have app. The bigger question: Which is cooler for homeowners, this or the recently announced Benjamin Moore paint color-matching app?

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A brief history of downloadable console games

At this year's E3 Expo in Los Angeles, both Sony and Microsoft pushed upcoming services and devices that allow users to download full games to their hardware. For Microsoft, it's a new arm of its online marketplace that willlet gamers download full retail games to their system's hard drives. For Sony, it's the new PSP Go, a slimmed-down version of its flagship portable gaming hardware that does away with its game slot in place of pushing Wi-Fi game downloads to its 16GB of built-in memory.

Both companies are pushing direct downloads as the premiere way to buy new games, and many are expecting the direct-downloading technology to be one of the main selling points in the next generation of gaming hardware. As a side effect, the new revenue model largely cuts out used game retailers, since there's less physical media to resell or swap with friends.

But let's get real for a moment, this is nothing new. In fact, game companies have been trying to get direct-download games working on consoles since the early 1980s. Let's take a brief look at previous efforts to sell console games without any physical media:

Intellivision's PlayCable (1981-83):
Intellivision was the first home console to let users download games via a coaxial cable line. Subscribers rented a special cartridge that hooked up to local cable and would be able to download single games that could be played until users decided to download new titles.

The service's downfall was a result of innovations to Mattel's Intellivision game system, which began using cartridges with ever-increasing amounts of memory. The PlayCable service could no longer keep up, since the special cartridge could hold only a fourth of the total space that newer games required.

(Credit: The Arctic Computer and Console Museum)

The GameLine (1983)
Game consoles of the '80s pioneered the use of cartridges. Early on, many were simply ports of arcade titles and thus retained the coin-sucking gameplay mechanics that kept users playing again and again to get high scores. The only problem was that once the consumer bought the game, that was the end of the revenue stream for the publisher.

Then GameLine came along. This third-party game download service from Control Video (which later became America Online) worked with multiple game consoles and would let users download new games through a telephone line connected directly to a special cartridge. It would then limit gameplay to a certain number of plays that users would have to prebuy.

Despite GameLine's innovative approach to game distribution, it had two big problems. The first is that it never got big game publishers on board, meaning that users were paying big money for smaller titles that weren't available at retail. It also came out the same year as the video game crash of 1983, when most of the hardware vendors and software-publishing houses were going bankrupt.

The Sega Channel (1994-98):
The Sega Channel was a monthly subscription service for Sega's 16-bit Genesis system. Similar to Intellivision's offerings, users paid $15 a month to get access to an ever-changing library of games that could be downloaded directly to a cartridge that plugged into coax cable. Not all of Sega's games were available on the service, but it had several big titles that could be downloaded without leaving the house. It was also the first service to give users special games that were never released as retail offerings.

While the Sega Channel's special cartridge kept the same amount of internal memory throughout its life span, newer Genesis games were growing in cartridge size. To work around that limitation, some Sega Channel games were split up into parts that could be downloaded and played on their own. This kept it from running into some of the size problems that led to the demise of Intellivision's PlayCable.

The Sega Channel was discontinued at the end of the Genesis life cycle, and it was not brought back to work with the company's follow-up console, the Saturn.

With the Satellaview, Super Famicom users could only access game downloads during certain parts of the day.

(Credit: Wikipedia)

The Nintendo Satellaview (1995-2001)
The Satellaview was an ambitious project by Nintendo of Japan to offer games, music, and news over satellite. Users could tune in at certain times of the day to get at the content, which would be downloaded into a special add-on accessory that strapped onto the bottom of the Super Famicom system.

Nintendo offered a wide range of games to the Satellaview. It also featured an innovative menu system that played like a video game. Users would have to navigate around a virtual house in order to download certain titles or access news feeds.

Satellaview operated by subscription and was never released outside of Japan. Its service ended when Nintendo released the Super Famicom's successor, the Nintendo 64.

Nintendo's RandNet (1999-2001):
Nintendo's RandNet service was specific to the 64DD add-on to the Nintendo 64. Released only in Japan, this peripheral added a magnetic disk drive to the bottom of the console and allowed for games that took up more space than Nintendo 64 cartridges could hold.

The 64DD was never released outside of Japan. It latched on to the bottom of the Nintendo 64 and added a disk drive.

(Credit: Wikipedia)

For about $30 a month, users got a special cable modem cartridge that plugged into the top of the N64 and hooked up to coax. It fed information into the 64DD, with which games up to 64MB in size could be downloaded from an online service. Users could also play certain games with one another, surf the Web with a built-in browser and, most importantly, download early levels from unreleased games. There was no game purchase store for full titles, but with a little more onboard storage, it could have led to that.

Xbox Live Arcade/Marketplace (2004-present):

Live Arcade
Xbox Live Arcade (XBLA) is a downloadable game service from Microsoft that's stretched from the original Xbox into Microsoft's current game hardware, the Xbox 360. When it was released for the original Xbox, gamers were required to have a special Xbox Live Arcade DVD in their systems to access any of the games they had purchased and downloaded to their hard drives. Once the Xbox 360 was released, Microsoft simply built it into the system's software to let users download games directly.

Games on XBLA are typically casual titles. Early on, they were limited to 50MB in size to be able to work for Xbox 360 owners who had purchased the lower-end versions of the machines that did not come with hard drives. Microsoft later lifted that cap to 150MB, then to 350MB, though several games have managed to get by that limit, including a movie tie-in game for "The Watchmen" that was 1.2GB in size.

Xbox Live Arcade games can be downloaded directly to the Xbox 360. They were were a precursor to full titles, which are coming to the system this fall.

(Credit: Microsoft)

Marketplace
Full-game downloads on Xbox Live's Marketplace didn't come until the launch of a service in late 2007. Called "Xbox Originals," the service let users download select original Xbox titles that could be played on their Xbox 360. Unlike the system's backwards compatibility with most older Xbox titles, Xbox Originals provided full digital copies that would be downloaded directly to the 360's hard drive.

At this year's E3, Microsoft announced plans to offer a similar service to Xbox Originals, except for Xbox 360 games. Called "Games on Demand," Microsoft is going to offer a selection of older titles, along with releasing new games as direct downloads. Each title falls somewhere between 4GB and 6GB in size, and can be redownloaded an unlimited number of times, if deleted.

(Credit: Nintendo / CNET)

Nintendo Wii Shop (2006-present)
The Wii Shop came as built-in software on Nintendo's Wii. It lets users purchase Wii applications and games using virtual currency tied to real-world dollars. The shop houses classic games from older consoles (including some of Nintendo's past competitors), along with new downloadable games that have been specifically developed for the Wii.

Due to size restrictions on the console, these games are not as large or full-featured as standard Wii titles. They're also similar to what's found on Microsoft and Sony's download stores.

PlayStation 3 / PSP Store (2006-present)
The PlayStation Store, which comes preinstalled on the PlayStation 3, lets users download movies, music, and video games. Like the Wii and Xbox 360, it has a selection of low-cost casual games that can be purchased online only. It also has some original PlayStation games that can be downloaded straight to the hard drive and run using a software emulator.

(Credit: Sony)

In late 2007, Sony began releasing select PlayStation 3 titles as direct downloads. It was the first current-generation console to do so. These games cost about the same as their Blu-ray Disc retail counterparts, but only eight have been released as direct downloads out of the hundreds of titles that have hit retail.

Along with games that run on the PlayStation 3, users can also purchase some games for Sony's portable system, the PSP, which can be transferred via USB cable to the device.

PSP users can download some games directly to their device instead of purchasing them on Sony's proprietary UMD physical format. Sony has not made all the games it's released at retail available for digital download, but it is expected to do so later this year to coincide with the release of the PSP Go, which features no UMD slot and uses internal solid-state memory instead.

The DSiWare shop can be accessed on Nintendo's handheld gaming device.

(Credit: Nintendo / CNET)

DSi Shop (2008-present)
Nintendo's DSi portable system includes DSi Shop software, which enables users to buy DSiWare games over a Wi-Fi connection, and store them on the system's internal or external memory. Unlike what's available on the PSP, however, these games typically have fewer features.

The future (2010 and beyond)
Going forward, direct downloads are sure to be a staple in all next-generation console hardware, for both the home and on the go. There are serious benefits to distributing game code digitally, especially for publishers. With built-in digital rights management, they get tighter control over leaks, and with the removal of a used market, their sales potential increases.

What's changed over the years has been less about delivery and more about storage. Storage, naturally, is an area in which some of the biggest problems crop up for hardware manufacturers.

Back in the '80s, GameLine and PlayCable were working with mere kilobytes of storage, whereas Microsoft's new Games on Demand service will have titles pushing 6GB. Some PlayStation 3 titles are nearly four times that size, maxing out single-layer Blu-ray Discs, which can handle up to 25GB.

Sizes like that aren't going to work for downloads, unless you've got some serious hard-drive space. The PlayStation 3 tops out at 160GB, though it can be expanded, if users install third-party drives. That has to be one of the factors that has kept Sony from making more of its titles available as direct downloads.

With advances in storage size and broadband speeds, optical media's days are definitely numbered, but we may be seeing the same hybrid approach we're seeing in this generation for the next one too. Where game companies like Microsoft, Sony, and Nintendo face the biggest roadblock is in trying to balance the ease of distribution with the burdening necessity of pricey and underperforming storage mediums.

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Mozilla: 7 years old and as idealistic as ever

On March 31, 1999, Jamie Zawinski penned the obituary for Mozilla, developer of the Firefox Web browser. It was actually Zawinski's resignation letter from Mozilla.org and Netscape (then America Online), but in parting he admitted that Mozilla "had finally lost the so-called 'browser war.'"

If only he had kept the faith, as Mozilla Chairperson Mitchell Baker has, Zawinski might be penning a different post for Mozilla, what with its 22.51-percent global market share which rises, almost like clockwork, five percent each year.

Firefox, ne "Mozilla 1.0," was launched seven years ago today. Intriguingly, as Glyn Moody captures in an excellent retrospective, its mission and fire have remained constant since Baker first announced Mozilla 1.0:

As the browser has become the main interface between users and the Web over the past several years, the goal of the Mozilla project is to innovate and enable the creation of standards-compliant technology to keep content on the Web open. As more and more programmers and companies are embracing Mozilla as a strategic technology, Mozilla 1.0 signals the advent of even further dissemination and adoption of open source and standards-based software across the Web.

This could have been written yesterday, such is the enduring commitment of Mozilla to an open Web.

However, as Mozilla has learned over the years and as Wired details, good intentions do not a successful open-source project make. Mozilla has repeatedly failed in the past seven years in its efforts to create a vibrant, community-driven browser.

But it has also repeatedly learned from those failures, and after two rewrites can today claim that 40 percent of Firefox development comes from outside the Mozilla organization, an incredible feat and one that would make Zawinski proud. Those rewrites, along with Mozilla's unwavering commitment to open source (a commitment that is helped by its nonprofit status), have made it a strong contender to be the dominant Web platform.

Still, in a telling sign of just how influential Mozilla has been, browser competition is now coming from other open-source contenders like Google Chrome, which is broadening Chrome's appeal with cross-platform support. This is a good thing. It signals that Mozilla, with its ubiquitous, open-source Firefox browser, has reset the industry's expectations for what a browser should be.

Open source. Driven by a desire for an open Web. Thank you, Mozilla.

Update @ 12:05 PT: Steven J. Vaughan-Nichols provides an update on Zawinski that suggests yes, he really should have stayed with Mozilla. But hindsight is always 20/20.

Follow Matt Asay on Twitter @mjasay.

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Leaked Best Buy memo offers Windows 7 details

Engadget brightened up a slow news day on Friday with a leaked memo from Best Buy that offers a number of Windows 7 details.

Most notable is the fact that the memo puts a date on when people can start buying Vista-based machines and qualify for a free upgrade to Windows 7. According to the memo, June 26 is the magic date--and I'm hearing that date is correct.

Images: A peek at Windows 7 release candidate

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The memo also says that on June 26, Best Buy will start preselling upgrade versions of Windows 7 Home Premium for $49 and Windows 7 Professional for $99 via its Web site. It's not totally clear whether those are standard or promotional prices, although the memo says the pre-order program will run only for 16 days.

Microsoft Senior Vice President Bill Veghte did say in an interview this week that the software maker was considering requests from Vista owners to have a free or cheaper way to upgrade to Windows 7, so perhaps this pre-order option might be that program.

Best Buy also offers its marketing pitch for Windows 7 in the memo. "This new operating system isn't just a 'Vista that works' program - it's a new operating system with improved productivity, functionality and creativity that uses less computer resources."

A Best Buy representative was not immediately available to comment on the memo's authenticity.

When it announced October 22 as the official ship date for Windows 7 earlier this week, Microsoft also confirmed that it planned to have such a tech guarantee program, however the company did not say when it would start. A Microsoft representative said on Friday that the company had nothing more to add about the timing of the program.

Update 11:05 a.m. PT: No word back from Best Buy, but I did get independent confirmation of the memo, which was released on June 1. I've included a copy below.

(Credit: CNET)

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