The App Store after the gold rush

I wrote earlier about the issue of distribution advantage on the iPhone. As the gold rush drives thousands of apps onto the platform, it's getting harder and harder for new entrants to get oxygen. Take a look at The App Store after the gold rush - FierceDeveloper:

According to a recent BusinessWeek feature, the flood of new games, productivity tools and related iPhone software is making it difficult for the vast majority of apps to crack the consumer consciousness. A number of developers are slashing their prices to remain competitive, but it appears that the gold rush that followed on the heels of the App Store's July 10 grand opening is already over, and the get-rich-quick stories of developers like Steve Demeter--who reportedly raked in $250,000 in just two months for his iPhone game Trism--have already passed into coder lore.

The App Store is a channel for customer acquisition. As the channel gets more and more crowded, just launching an app in the store is getting worse and worse as a strategy for each new entrant. This is completely analogous to the situation elsewhere on the internet, where launching a new website, product, or service with PR is getting harder and harder. Customers and prospects are overwhelmed by the number of media and companies clamoring for their attention. If your launch is not immediately successful, you quickly fall into oblivion. On the App Store, the same dynamic is in play. If your app doesn't immediately make it into the Top 25 page, it's pretty hard to have any kind of durable growth.

So what can you do? I think it's helpful to think about two kinds of competition for distribution: acquisition competition and retention competition.

Acqusition competition is how new apps get new customers. On the web, we have many of these channels: SEM, SEO, world of mouth, PR and viral. On the iPhone, it seems that two are driving most of the installs: the "newest apps" RSS feed (which may be combined with PR) and a primitive form of SEO, when people search the App Store for a specific kind of app. Over time, we should get more channels that service the long tail of apps for which the current channels are not working. For example, if any of the mobile ad networks gets major traction, they may become a dominant way that people discover new apps.

Retention competition is how you get people to come back to your app. The primary place this competition is visible is on the home screen of the iPhone itself. But the real battle is in the mind of the people who have installed your application. What causes them to come back to your app, instead of spending their time doing something else? Are they turning on their phone specifically to get your app? Do they browse around looking for an app to pass time? Does your app solve a specific problem that they have? Do you have a way to notify them by SMS or email when something notable happens?

The reason I think it's important to think about retention competition when you are thinking about acquisition is that it strongly influences your acquisition options. If your app has incredibly strong retention, you will probably do very well with the current PR/new app system of acquisition. Why? Because you'll be able to leverage your strong retention to stay in the Top 25 list, which will lead to strong acquisition, in a nice positive feedback loop. If your app has strong word-of-mouth or viral components, your retention drives new acquisition, and it's not so important to have good placement in the store. If and when a good SEM solution shows up for iPhone, you may be able to use it to artificially drive your app into the Top 25, as a one-time event. Then, if your retention is good enough, you can stay there. Or if your lifetime value is high enough, you can just keep spending on SEM.

So if you have a new app that you are thinking of launching, what should you do? My advice: don't launch big. Don't do PR upfront, don't put out a press release. Figure out how to launch quietly, so you can find out what your retention and referral rates are going to be. If necessary, consider doing this under a different brand name than the one you are wedded to using. Having that data will let you pick an acquisition strategy that is appropriate for your app. It's like knowing the future.