How the Mac App store could blow up the software market

December 9, 2010: 1:02 PM ET

Every application developer from Microsoft to the shareware maker in the basement is watching to see how Apple's forthcoming OSX application store will change the dynamics of the software industry.

By John Patrick Pullen, contributor

This time of year, the vision of elves working away in Santa's workshop is on the minds of many — especially Mac application programmers. That's because for them, with the rumored impending launch of the Mac App Store, the concept of tinkering against a midnight deadline is all too real. This new year could launch a new era in desktop software, one which could bring the success of handheld app stores to personal computers. But until the store goes live, there will be a lot of questions about Apple's (AAPL) foray into digital distribution—the biggest being how it will affect the price of software.

"I'll be very curious to see if these desktop marketplaces bring some sort of pricing unity, but at this point it doesn't really exist," says Seth Rosenblatt, an editor for CNet's Download.com, which currently serves as the de facto hub of internet software downloads. According to Rosenblatt, software prices tend to unify by genre but vary widely by function. For example, most anti-virus suites gravitate around the same price point, but differ from the typical cost of photo editing programs.

Of course, a race to the bottom could change the landscape of desktop software dramatically. But due to the complexity of desktop application development, large price drops appear unlikely, says Paul Kafasis, CEO of Rogue Amoeba, which has developed audio-based applications for the Mac since 2002. "Mobile software — a lot of it is 99 cents or a couple bucks. Users have, it seems, almost no expectation of support for this software," he says. Desktop developers need to consider the cost of support when pricing their products, he says, which is one reason why Rogue Amoeba's programs are priced between $25 and $40.

Wil Shipley, developer of Delicious Library, has sold software through his own website since 2004, but plans to be in the Mac App Store when it opens. "The first people who were on the iPhone App Store did incredibly well — they basically made a fortune," he says. "In the short term, just being there on day one is like possibly winning the trifecta, and in the long term, it's fun to have that extra boost of money."

Despite the probable low cost of software in the iOS App Store, Shipley plans to maintain the $40 price for Delicious Library, which is a personal inventory cataloguer, when it sells in the Mac App Store. Similar to the iOS marketplace, developers will receive a 70% cut of Mac application sales, with the other 30% going to Apple. Shipley doesn't plan on reducing his price, because his Mac App Store sales will already deliver a smaller per-unit profit than those he sells on his own. However, Shipley's goal — and the hope of many independent programmers — is to make up the difference in volume, with the Mac App Store likely to provide much more exposure. Starting with Mac OS 10.7, which is due to be released in Summer 2011, the Mac App Store will be installed on every Apple computer.

Large developers like Microsoft (MSFT) and Adobe (ADBE) may be better able to lower their costs to attract new customers on the Mac App Store, but it remains to be seen if they will use the new channel at all. For example, through its own website, Adobe currently sells Photoshop for $699 and its full Creative Suite for $1299, and they surely have no interest in giving Apple 30% of that revenue.

In addition, most existing Mac OS programs will need to be rewritten to comply with Apple's App Store Review Guidelines, which stipulate several terms that many developers find problematic. For example, no Mac App Store programs can utilize private APIs, request root user privileges, or imitate the look of Apple programs, something many successful third-party applications currently do. According to Kafasis, this is a major reason Rogue Amoeba will be watching the Mac App Store launch from the sidelines — their software, which has been around for years, uses private APIs. "Private APIs aren't anything nefarious; it's just code in the operating system that enables anyone who knows about it to do various things," he says. "The responsibility is on the developer to use them responsibly."

Developers have used private APIs for years. Shipley points to programs like Microsoft Word, which would need a major overhaul to be accepted by Apple. "So they're expected to go through 10 million lines of code and rewrite it just to lose 30%?" he asks.

Meanwhile, Apple itself is of course not subject to the same standards with its own Mac App Store software, as they not only define what code is public or private, but they run the approval process. And an even larger concern for third-party developers is how Apple will price their products, setting the bar for the rest of the industry. Zoomed and enhanced images of mockups from Apple's website indicate that iLife apps could sell individually for $14.99, and iWork applications could go for $19.99 each. The iLife '11 suite currently retails for $49, and the iWork suite sells for $79, representing a cost reduction of $5 and $10, respectively. If the prices are real and not just graphics department mockups, the reductions seem modest. But on the other hand, the breaking apart of the suite effectively turns a mid-priced product into a low-priced one. Third-party developers may have to reduce their prices to catch up.

"I can certainly see somebody saying, 'How come Delicious Library is $40 and I can buy Keynote for $15?'" says Shipley. "That's because Apple is projecting to sell 20 million units of Keynote and I'm projecting to sell a fraction of that. The day that I sell 20 million units, I'll change my price to $15 as well. It's hard to compare to that kind of volume."

And should the volume the Apple store generates compel developers to lower the overall price of software, Apple wins again, collecting 30% of the third-party sales. "If Apple is able to get its developers to provide that kind of single entry price point, then I think that could bring something very revolutionary to software distribution," says Rosenblatt.
Still, for Shipley and many independent programmers like him, the potential of millions more users far outweighs the risk of losing 30% of his profits. "This could just be the biggest thing to happen to us independent guys. We get to be equally exposed to Microsoft Word, in essence," he says. "We're going to be on the same shelves, in the same search box and in the same ratings system. It could be the biggest thing to happen in my career."

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