Custom app stores, a gatekeeper or business enabler?

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March 22, 2016 - Leveraging the development community to create new value added services

The market demand for new innovative products is rapidly evolving. The overall rate of technical process is growing exponentially. To remain relevant organizations need to adapt fast and significant changes in technical and business processes are required. Unfortunately, many organizations don’t have the capabilities and are not lean enough to be able to keep up with these demands.


Whenever technology approaches barriers, new technology will be invented to allow us to cross [ref1]


Silicon Valley startups have disrupted markets by creating innovative applications that change the way consumers interact with traditional services in new innovative ways. Good examples can be found in Uber and AirBnB. These services caused disruption, regulation changes and even protests as the traditional market lost their relevance.
To stay relevant for current and future customers, companies should be able to quickly adopt and launch new services. Customized app stores could be the enabler for the next generation of innovation. This could be considered as the World of App Stores.

Evolution of app stores

Google and other mobile OS vendors were likely aware of the fact that they could not keep up with lean startups when they launched their mobile phone frameworks. They enabled third party developers to develop their own applications on their platform by using a concept that existed for almost 20 years called ‘App Stores’. Although app stores were unknown to the mass until 2008 the concept already exists since 1991 when the Electronic AppWrapper (EAW) was released as the first commercial electronic software distribution catalog.
By leveraging the effort and knowledge of third party vendors to satisfy the market need, Mobile OS vendors were very successful in launching new services into the market. Companies like Twitter, Instagram, Snapchat, WhatsApp and RunKeeper would likely not have the same visibility without the concept of “App Stores” on mobile platforms. Mobile OS vendors profit from this as well. They take up to 30% of all app sales and in-app purchases.
App stores are only successful if they are adopted by third party developers. As an example, consumers choose mobile platforms depending on available services (apps). This is one of the main causes of the decline in users for the BlackBerry Platform. In an effort to stop this trend, BlackBerry initiated the 10K Developers Commitment program. In this program developers were offered $10k as an incentive for creating unique apps for BlackBerry 10. The program ended in 2014 without much success.

Benefits for consumers and connected services

Consumers use the convenience of the internet to have goods and services delivered at home. Online purchases have gone through a rapid growth over the last years and multiple chains of brick stores have been the victim of this change. As an example; 69.4% of all Dominos pizzas in the U.K. during Q1 2014 were ordered online [ref2].  Expected is that the new in-app payment solutions will grow this number even further.
In the past, users would go to a computer store to buy computer games and applications. Present-day, app stores enable customers to order games and applications online to use directly on their device.
Perceived security and convenience are important factors in the success of app stores. App stores provide new services with a secure purchase, download and installation in an easy and controlled way. Consumers choose for downloading using app stores compared to downloading applications directly from the internet. App stores provide a higher level of trust that an application is not a virus or malware. Next to this it provides the direct convenience of browsing using all kinds of different filters.
In the connected services domain, companies have seen the potential and are increasing the amount of services and assets that can be connected using APIs. Open APIs cause companies to benefit from the value added services that are created by third party developers. Third party developers do not have to deal with budget or requirements that are set by the company. This creates an innovative environment and increases user traffic that can potentially be translated into revenue for both parties. The increase in the amount of customer data used to provide third party services cause in privacy and security concerns. The app store concept can be used by institutions to control what services can use their open APIs and for what purposes.

Markets adopting App Stores

Television manufacturers have been implementing app stores over the last couple of years. At first, consumers were only able to choose from a select list of applications that were created by the manufacturer or direct suppliers. This evolved to open systems in which third party developers were invited to create apps. Nowadays there is a wide selection of Smart TV OS systems that provide third party applications.
In the payment domain, point-of-sale vendors are working on the next level smart POS devices beyond mobile POS. Smart POS devices like Poynt and Ingenico Telium TETRA run on Android or other OS types and third party app developers are encouraged to create apps that can improve the merchant and customer experience. Examples could be an app that can be used to choose a drawing that is printed on the receipt for a child, a YELP app that could be used to give stars directly during check-out or a merchant business analytics app that shows the most profitable hours of the day and what is in stock.
In the automotive industry, we observe that vendors are also creating opportunities for third parties to launch their apps using an app store. In the past in-vehicle “infotainment” (IVI) systems were close-loop systems controlled by the vendor. Apps were preinstalled by default. Vendors acknowledge the need for third party app integration and are implementing their own app stores or relying on market standards like the Google Android Play Store to support apps that are already available.

Custom App stores

App stores exist in several domains and platforms. These app stores have their own guidelines and requirements and acceptance criteria for publishing apps.
Some domains can rely on app stores that are already available and managed by third parties. As an example, systems running android can use the Google Android Play store. In general, Mobile OS vendors validate apps for their app stores based on their own limited requirements.
Android is an open system. This gives vendors the opportunity to introduce their own app stores that limit or grand access to apps that are validated according their needs. For example, a Smart POS device running Android could have a custom app store that will deny access to applications that want to access the NFC interface or Smartcard reader. Similar implementations are possible for non-android based architectures.
To ensure apps are implemented according the needs, vendors might want to validate apps before they can be made available in an app store. This will limit the threat of security vulnerabilities and will ensures functional requirements and brand protection. In the case of Open APIs there might be a requirement to limit third party services to misuse privacy.
Before apps are launched in the app stores they could be validated by a third party that checks if the app meet the requirements that have been setup by the vendor.
Every ecosystem and vendor will have different requirements. Also the platform where apps will be developed for is different. However, we observe that many of these vendors choose for Android based systems as it is easy for the development community to port applications rapidly. As the market penetration of systems rise, so will the amount of third party applications that will be developed. This requires a streamlined and automated app validation process.

Payment industry adopting App Stores

Traditional banking services change and innovative new products are released to meet the ever growing customer demand. Examples include the rise of crypto currencies, mobile banking and proximity payments. Some of these are direct threats to the traditional players in the industry, others are additions to their portfolio and perceived as an added value service. When your institution is not keeping up with the trends, you might lose your relevance.
App stores in the payment industry increases the relevance of traditional parties and opens the market for new players to develop value added services. The concept of app stores enable third party vendors to access market segments that were previously inaccessible due to contractual agreements and closed ecosystems. Third parties are allowed to create new revenue streams by releasing innovative services on platforms that were otherwise unavailable.
For Consumers and Merchants, app stores create a centralized convenient, trusted and secure platform where they can find a large collection of low priced new innovative apps.
Acquirers or Banks control the app store. They define the acceptance criteria around functionality, interoperability and security for apps that can be published in the app store. To ensure apps follow these criteria, a customized validation process needs to be implemented. A transparent, fast and secure app validation process will attract third party developers to start developing apps that will ultimately ensure long term relevance.

Conclusion

Without app stores, platforms risk to become obsolete for the customer base because they just do not fulfill their demands anymore. On top of that, arriving late in this market or taking proprietary approaches instead of going towards open platforms may result in lack of interest from both developers and users, which may cause a decline in the relevance of your product or brand in this industry.
The rise of platform and open systems create a direct need for app stores as organizations want to stay in control, and provide a wider range of functionalities from a single device or platform. We expect more industries and products to go for custom app stores, opening platforms that were otherwise only available to trusted and/or internal developers.
As devices and platforms are becoming more robust and connected, users’ demand for new and innovative services bundled in a single device or platform is rapidly increasing. App stores create an enormous opportunity to add more value and relevance to devices and platforms as it enables the developers’ community to reach consumers’ demands with specific purpose applications.

Disclaimer

These are the personal opinions of UL’s employees and its guests and should not be misunderstood as representing the opinion of UL's clients, suppliers or other relations.