Amazon.com’s (AMZN) new Android app store could be a welcome development for app writers. But this development will likely increase the competitive challenge for the Android Market. While Google Inc (GOOG) has done very well on the search front and google.com has been almost synonymous with search, the company is relatively new to the app market where Apple Inc (AAPL) reigns supreme.
While Google’s Android operating system has become ubiquitous in the mobile phone market, the Android ecosystem continues to suffer from poor navigation and inadequate marketing. Therefore, we may expect to see significant uptick in Android app sales when Amazon opens the app store.
Unconfirmed reports indicate that Amazon’s app store has already been populated, with a few apparently leaked screen shots going the rounds on the web. It appears that there are 48 items already available and a number of real bargains. Additionally, Amazon will also be selling some apps/games that are currently not available elsewhere.
The main advantage for developers will be greater exposure for their apps. If Google knows the search business, Amazon knows the online retail business. Therefore, Amazon will be able to offer the apps at the right times and in the right places throughout its website on the basis of its behavior-oriented time-tested algorithms. This would maximize sales for Amazon and thereby, returns to the developer community. The company also intends to have a screening system that could reject apps.
Amazon will be displaying best-selling apps, separately mentioning the paid and free versions, which would bring better exposure to best-selling paid apps. The flip side is, it would also be offering some apps for free. But developers need not worry because Amazon’s payment system would take care of the situation. The company intends to give out the higher of 70% of purchase price or 20% of list price to developers. We consider this a good deal for developers because it would be a way to monetize the apps that may not sell very well.
Of course, like all good things, Amazon’s app store comes at a price. Developers will be required to dish out $99 a year by way of annual subscription fees, much more than the lifetime $25 fee that Google charges right now.
We are overall positive about the app store and believe that it’s a good thing for both Amazon and the Android marketplace. Particularly, this could be a way for Amazon to buy into the Android eco system, somewhat offsetting share losses in the book business (likely to increase as more tablets and e-readers get on the market).
While our long-term recommendation remains Neutral on Amazon shares, we have a short-term sell rating (Zacks #4 Rank), due to concerns regarding its ebook business and the company’s prolonged investment plans. Additionally, we think that recent pressure from regulators regarding sales tax collection is also a headwind to the shares right now.
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