Amazon.com: The Wal-Mart of Android Apps?

Last week I talked about the forthcoming Amazon Appstore for Android and how I thought developers could benefit from increased competition in the software distribution market. I still think that's true, but in using the Amazon Appstore as my example, I may have spoken too soon. The more I look at the fine print, the more skeptical I become that Amazon.com's move will be a real boon to Android developers.

To start, let's look at one of the Appstore's most contentious points: the fact that Amazon.com, and not individual developers, gets to set the prices for app downloads. Amazon.com says it will pay developers a royalty on each sale equivalent to 20 percent of the list price of the app (what the developer is asking for it) or 70 percent of the purchase price (what the customer actually paid), whichever is greater.

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So let's do some math. If you list your app for $5 and Amazon.com sells it for $5, Amazon.com owes you 70 percent, which is $3.50. Amazon.com pockets $1.50 -- so far, so good.

Where it gets tricky is if Amazon.com decides to discount your app. If you list your app for $5 and Amazon.com sells it for $4.99, now Amazon.com only owes you $3.49, because that's 70 percent of the new purchase price. And Amazon.com can keep discounting your app until your take drops down to $1 -- the equivalent of 20 percent of your original list price -- because that's the minimum you've agreed to accept. In other words, Amazon.com can choose to sell your app for as little as $1.43 -- a 71.4 percent discount to the customer.

How low does Amazon.com plan to go?
Mind you, Amazon.com has plenty of incentive not to discount apps that deeply. If it sells your app for $5, it earns $1.50; if it sells it for $1.43, it only walks away with 43 cents. But this equation skews just slightly in Amazon.com's favor. The $1 you earn from the discounted sale is about 28.6 percent of what you would have earned if the app had sold at list price. Amazon.com's 43 cents is 28.7 percent of the $1.50 it would have earned.

That's the worst-case scenario, though, and it stands to reason that Amazon.com will want to maximize its own profits by selling apps for as much as it can. What's troubling, however, is that it sounds as though "as much as it can" is almost never going to be full list price, because there's too much incentive for Amazon.com to undercut competing app stores as a way to drive business to its own, especially at this early stage.

That might even be OK if developers had more control of their pricing models under Amazon.com's scheme and expected to make only a certain number of sales at Amazon.com's discounted rate. But the Amazon Appstore developer agreement specifies that the list price you supply to Amazon.com must be "an amount that does not exceed, at any time, the lowest list price or suggested retail price." In other words, if you list your app for $5 on the Android Market, you cannot supply Amazon.com a higher price in anticipation of the Amazon Appstore's discount policies. You can't even sell your app for less than $5 through your own website without updating Amazon.com's list price at the same time -- and Amazon.com is free to discount it even further.

The net effect is that when you offer your apps on the Amazon Appstore, you agree to grant Amazon.com, in perpetuity, the right to offer a lower price for your apps than is available anywhere else. And because customers aren't dummies, that means you're essentially making Amazon.com your de facto retail channel. Why would anyone shop elsewhere, when downloading from Amazon.com is just as easy as downloading from another site?

We can't give these apps away
Note that none of this applies to apps with a list price of $0.00. If you want to list your apps for free in the Amazon Appstore, you can, but you won't get any royalties. If you're an open source enthusiast or you simply want to give your apps away, Amazon.com's reliable, 24/7 online infrastructure sounds like an efficient way to do so.

Ah, but even that's not so simple. After the first year, Amazon.com will charge developers a $99 annual fee to list their apps, so developers who only plan to offer apps for free will operate at a loss. Apple charges the same amount for access to the iTunes App Store, but Google charges only a one-time $25 fee to register for the Android Market, so this kind of pricing is new to Android developers.

They may find it untenable. Although some studies show that Android's market share has eclipsed that of iOS in the United States, app sales have been disappointing. Even the popular game Angry Birds, consistently a top seller on iOS throughout 2010, was released for Android only in a free, ad-supported version. Its developer, Helsinki-based Rovio, says it plans to release a paid version soon -- but it may find Android users are generally more reluctant to pay for apps than Apple's more affluent demographic.

Even if you want to give away your apps as open source, however, there's another problem with the Amazon Appstore, and it's the same problem open source developers have with Apple's App Store. Because Amazon.com's licensing agreement places conditions on distribution of software hosted on the Appstore, it is inherently incompatible with the Gnu General Public License (GPL), which specifically prohibits such conditions. Apple recently pulled the popular open source media player VLC from the App Store when a contributor to that project complained about the license conflict.

This is progress?
That, in a nutshell, is the real problem and why developers may be right to be wary of the Amazon Appstore. Amazon.com is creating a market for selling Android apps that competes more favorably with the iTunes App Store than the Android Market currently does. But in so doing, it is also bringing all of the negatives of iOS development to the Android ecosystem.

If Android developers want to sell through Amazon.com, they will have to endure the same vetting process iOS developers suffer, they'll have the same licensing issues, and Amazon.com's pricing advantage all but ensures they'll be locked into the Amazon Appstore as their primary distribution channel. The fact that they won't even be able to set their own prices is just the final indignity.

Last week I said app stores need to become more like real stores if they want to do a better job of selling software. I compared the iTunes App Store to Apple's retail stores and the Android Market to Wal-Mart. I now think I was wrong; I think Amazon.com wants to be the real Wal-Mart of apps, and I'm not sure that's what Android developers really need.

This article, "Amazon.com: The Wal-Mart of Android apps?," was originally published at InfoWorld.com. Track the latest developments in programming at InfoWorld.com, and for the latest business technology news, follow InfoWorld.com on Twitter.

For comprehensive coverage of the Android ecosystem, visit Greenbot.com.

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