iPhone apps — love ‘em and leave ‘em

Apple has created a new software marketplace with its iTunes App Store. Thousands of developers, some corporate, some independent, have found a huge opportunity writing software for the iPhone and the iPod touch. There are more than 20,000 applications in the store. About 20% of the applications are free, and nearly all of the rest are priced really low, often at around US$1.99.

Impressed by the success of the iTunes App Store, other players like Palm, Microsoft, Nokia, RIM (which makes the BlackBerry), and Symbian are setting up similar captive marketplaces for mobile applications. Even Google is there, with a store that supports only free applications (for now) for Android-based devices.

Is this success story as incredible as it may seem? From Apple’s perspective, yes, because it captures one-time revenue each time an application is sold. However, usage patterns suggest that this may not be so much of a win from the customer’s point of view, and therein lies a cautionary tale.

According to a statistical study of more than 30 million iTunes App Store downloads, analytics firm Pinch Media reported that customers stop using newly acquired iPhone or iPod touch applications fairly quickly.

For example, fewer than 20% of people who download a free application continue using it the next day. The usage time of a downloaded application drops, on average, by about 1/3 in the first month after use. After a month or so, the typical application, if retained, is used for about five minutes per day – whether it’s free or paid makes little difference.

However, it’s worth thinking about how sustainable this marketplace will be over the long run, as there are more and more applications to choose from, and customers get over their initial “I want to download everything!” euphoria.