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Amazon wants to sell anything physical or digital. Almost four months ago, the company opened its Amazon Appstore for Android to provide some competition in the Android mobile apps market. That venture has been a success, but so far it likely generated only a small part of the $1 billion in digital revenues that Amazon had in the last quarter — mostly due to the sales of electronic books for the Kindle.
Still, the company has some very big ambitions in the app market. We caught up with Aaron Rubenson, director of the Amazon Appstore for Android, at the recent Casual Connect game conference in Seattle for a Q&A session:
VentureBeat: How is the Appstore doing?
Aaron Rubenson: It’s going well, very well. To recap, we launched the store on the 22nd of March so it’s been live a little over three months now and the reaction from our customers has been very strong. In the first quarter earnings release, which was just a couple of weeks after we launched, we announced that we already sold millions of apps at that point and it has continued to grow from there. When we launched we had just under 4,000 apps and we’re now up to north of 14,000. So we have good traction in terms of growing the selection.
VB: What does the mix of apps look like?
AR: Games is our biggest category both from a selection standpoint and from a sales standpoint. I think our sales are more or less tracking with what the industry sees. Games are a very important part of it. We do the “free app of day” promotion, where we give away a paid app for free. You can find it in our mobile client. There are lot’s of positive comments from customers. So it’s a very active segment of our customer base. Plants vs Zombies is the best-performing game.
VB: Does the promotion of an app as a free app really help the app later on when the promotion ends and then you start selling it for money again?
AR: Exactly. When developers are trying to get their product discovered, the promotion as a free app of the day is a very powerful marketing vehicle. Then once that core base of customers has a product installed, they tell their friends about it. That spurs more downloads. It rises in popularity in our store. That makes it more popular as people are scrolling through the bestseller list and notice it there. So it starts the virtuous cycle from a marketing perspective. And then increasingly as developers are using various forms of monetization post-purchase, such as advertising or in-app purchasing technology, there are all sorts of downstream monetization opportunities as well once you have that initial base.
VB: Is there a lot of cross promotion across Amazon?
AR: There is. I’d say one of the reasons we were so interested in this market segment in general is that we sell a lot of stuff beyond apps. We sell 85 categories of physical and digital goods. And so we know a lot about our customers. And so if, for example, we have a great cookbook app, we might put a placement in our kitchen store. That directs customers who we know might be interested in that kind of app to our Appstore. We do cross promotional site placements as you mentioned. We also have good ability to send targeted email to customers. If you shop at Amazon you have probably received our targeted email as follow-ups to purchases. We could send an email to everybody who’s purchased pots and pans in the last six months. We can say we have these fantastic recipe apps we think you might be interested in. And those types of proactive marketing activities are proving to be very successful.
VB: The International Game Developers Association was pretty concerned about what was going with app pricing. They felt the developers were losing control of app pricing under the contracts they signed with Amazon. What is your explanation? (Check out this story for a negative view of this issue).
AR: When we looked at how we thought we could add value in this market segment, what we realized is that we are equal parts technology company and retailer. And the fact that we are a retailer at our core makes us a little bit different because we know about marketing and merchandising and proactive promotion activities like we were just discussing.
And so when we launched the store we did it in a way that’s a bit different, where we are actually the seller of the apps. And as part of that, that means that we are ultimately setting the sales price that the customers will pay for that app. And the reason we made that decision was that it gives us the broadest amount of flexibility in terms of marketing and merchandising and proactive promotional activities we were talking about, which we think is a real value for the customers. So it is different. There is no question about that. But we think that it is also proving to be a good decision because it’s working, it’s resonating with our customers.
VB: So you are having sales success as a result of this?
AR: That’s right. The customers are reacting positively to the store. The developers have been happy with the sales they get through stores. So the model seems to be working.
VB: It seemed like it was turning into a developer rights issue. The developers want to be able to weigh in on whatever the prices are. What do you think about that?
AR: We certainly recognize that it’s a different model. But we decided that it was the one that made the most sense for us so that we could do the best job of marketing developers’ products effectively. And I think if you look at the site today, what you find is that the vast majority of the products are simply priced at list price. And then you’ll also find some really exciting promotional offers for our customers. And in most cases we’re working very carefully with the developers to have marketing going on both sides. We market the apps and they do too, so that we can have as effective an awareness campaign as we can together.
VB: How is that similar or different from the other app stores out there like Getjar?
AR: We are different in a number of ways. Most of the other app stores just sell apps. And so their ability to do some of this cross-marketing and targeted promotional activities that we talked about is nonexistent. And then from a business model standpoint, they took the other path where the developers are the sellers of the products.
VB: Do you think you have the fastest growing app store?
AR: Hard to say. I wouldn’t speculate. We’re happy with the growth. I will say that Android in general is on a phenomenal trajectory, and so I think it seems like everybody is growing well, which is great for the ecosystem.
VB: Android has lagged behind the iPhone in monetization. Has that changed in some way?
AR: I think the new monetization models that are emerging are really interesting. And we hear from our developers that early experimentation with those is proving effective. In-app advertising has been around for a while, but I think that technology has evolved to the point where that seems to be effective. And then with in-app purchase technology that’s now available on Android, it seems like there is strong interest in that from a developer’s perspective. That’s a positive sign.
In many ways, it turns a disadvantage into a positive thing. Many customers are predisposed to download free apps. That means the installed base of an app can become very large. Then you can offer this large base of users some things that they can directly purchase from inside the game. Or you can monetize the users through ads. The other thing I’d add is that part of the reason we think our store is valuable is that we do a good job of putting the right apps in front of the right customers. We know what the customers are interested in. And what we found across Amazon in general is that when you do that, customers are in fact going to pay for products once they see the right ones and know that they are good products.
Another thing that we haven’t talked about is a feature we have in our online store called Test Drive. I don’t know if you’ve seen that. Test Drive lets customers actually try the apps in the browser before they buy them. It’s a pretty cool piece of technology. When a customer clicks on the Test Drive button we launch an actual instance of the app on a server that’s running on Amazon Web Services and the customer can then interact with the app in real-time in the browser and use their keyboard or their mouse just like you would use a finger on the phone to interact with the app. It’s kind of a time trial if you will. And the reason we did that was to help customers understand what’s so great about a particular app such that they would be hopefully interested to buy it if it’s right for them and tell their friends about it. So just again the overall message is we believe that if you help customers find the right products, they will be willing to purchase a paid product in addition to a free one.
VB: And does the Amazon Web Services business help you in some way?
AR: Yeah. Amazon Web Services has been around for a while serving developers. Recently they launched SDKs (software development kits) for both iOS and for Android that make it very easy for mobile app developers in particular to tie their apps directly into the web services. And so we have web services SDKs that help developers develop. The Appstore provides distribution, so we’re working together to make their lives better.
VB: We hear these rumors of you guys doing different things like making your own games.
AR: So here is where my answers have to be very boring unfortunately. We haven’t announced anything and I can’t speculate before we have, unfortunately. There is another advantage we can talk about. If you take a look at some of the product pages for Plants vs Zombies, you’ll find that we have a staff of people who are creating really rich HTML content for these apps. We create text, use multiple images, and create visually appealing layouts. It’s much more robust than you typically find in some other stores. That’s part of the core value that Amazon provides for all its products. But I think particularly in apps, where again we’re trying to explain to customers why it might be worthwhile to actually spend money for an app, then that information is valuable. Because the more they understand what it does and how fun it can be, the more likely they are to take the plunge and spend a few dollars.
VB: What is leading to app discovery? How do you find high-quality games that you wouldn’t otherwise know about?
AR: The way we like to operate is we build a whole account management team whose sole mission in life is to work with developers to get their products in front of the right customers. And so what’s proving to be most effective is when we work with developers, even in advance of the launch. We can understand who their target customers are and come up with a great cooperative marketing campaign so that on day one when the product launches, we have great product pages, we have placements across Amazon.com and we can send targeted emails. We can use our social media channel — Facebook and Twitter — not only for the Appstore but potentially for Amazon’s other mobile properties, if the targeting is right. If we have a nice coordinated message and developers are reinforcing that message by directing customers into our Appstore from their other apps or from their website or using their email lists — then it is that type of activity that is most successful in making customers aware of an app.
And then again, once that virtuous cycle is started, it tends to feed on itself. In addition, we have a lot of automated technologies that do a good job of making products get discovered. And if you’ve shopped on Amazon, you may have seen the suggestions, “customers who bought this item also bought that item.” We have those technologies live at our Appstore, both on the mobile version and online store. And the technology algorithms extend beyond apps. If you are buying baseball jerseys on Amazon, you might see baseball apps show up in your personalized recommendations because we’re aware of your interests. And customers with similar interests buy those baseball apps and they get recommended to you. So that’s another way we can help discovery.
VB: Discovery still seems to be the biggest problem of the age of hundreds of thousands of apps. You can get lost very easily. I wonder if there is more helping coming down the road. Maybe better artificial intelligence will help?
AR: You’re right. It’s definitely a challenge for the industry overall. There are lots of apps out there. Now our selection is slightly more curated. I think we talked before about how we’re testing all the apps before we publish them in the store. We want to have as broad of a selection as possible but we also want to ensure that customers have a good experience with whatever they buy through us. So we pass the apps to testers to make sure they work well. We are on the lookout for malware and we make sure they conform with our content guidelines. We want the customers to have a good experience. And that’s one of the reasons why we have 14,000 apps instead of 200,000 apps. It’s growing quickly, but we do have more of a curated selection. Our DNA is as a retailer. We have a huge number of products in our store. All our systems are designed to help you as an individual customer find the products that are right for you. Apps are a similar challenge to our other product categories and that’s why we were interested in launching in this space.
VB: You have a lot of people dedicated to this. What are most of them doing?
AR: We have a number of teams. We have various technical teams that have actually built the online store and mobile client. From a business perspective, we have teams that are dedicated to working with developers to help them get launched in the store, help them make sure their products look great in the store and also work with them collaboratively from our marketing perspective as we were talking about. We have a marketing team that’s using all of the tools Amazon has to drive customers into the store online and the mobile channel. We have a content team that is responsible for the testing of the products. So we have standard retail organization that is tuned for apps.
VB: We had our recent GamesBeat 2011 conference and a number of speakers brought up concerns about the amount of piracy that happens on Android phones, particularly in some of the emerging territories. Any observations about that?
AR: We serve customers in the U.S. and so we haven’t seen the challenges with the other countries that you mentioned. Our goal is obviously to sell as many products legitimately as we can. We give developers the option to apply digital rights management technology at their discretion to apps that move through our store as a safety mechanism. And we have not frankly heard that it’s a significant problem from our developers.
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