Why do iTunes and the App Store Exist?

The answer to this question may seem obvious, to help Apple sell music and apps and therefore for them to make money from those sales right? No, not right in fact. At a recent session Catchy had with Vision Mobile they talked about the eco systems some of the big internet players are creating and why they do so, the answers may be a little surprising.

Let’s start with a different one, Amazon. A couple of years ago Amazon released the Kindle, a fantastic e-book reading device, the second generation of this device is promoted front and centre of Amazon.com . They clearly sell in their thousands and given the relatively simple technology they contain (black and white non touch screens for example) they almost certainly make a very healthy margin on the units themselves.

So why then, is there a Kindle App, available for free, on iPhone, iPad, Android etc etc? Bringing you exactly the same capabilities, sometimes even slightly enhanced features (eg swipe to turn the page) on ‘competitor’ devices. This cannot help sales of the Kindle. The answer is that the Kindle exists not to make money in its own right but rather to help Amazon in its core business – Sell books.

The same is true of iTunes and the App store, Apple net revenues from these channels are very small when compared to Apple revenue from hardware. They exist purely to develop the eco system, an effort to create a one source world for all my communication, entertainment and information needs. The recent iCloud product announcement makes this point even clearer. iCloud is free (except the matches music service) its purpose is to further entangle us in the Apple web.

So, Apple is all about hardware, Google is search, Amazon is products. The one we are struggling with is Facebook, is it all about advertising?  We don’t think so, there doesn’t appear to be much appetite for big media spend on Facebook ads, most seem to agree this model is flawed in some way.  Is it virtual currency? Pay real money for Facebook credits in order to get a bigger tractor on Farmville, maybe.  It’s a tough question  – What’s the commercial point of Facebook?

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