After the App Goldrush: App Annie Acquires Distimo

App Annie’s May 28th Distimo acquisition announcement has important implications for the app economy.  To understand what this means to the industry let’s take a quick look back at the early days of the app stores and who has historically controlled app distribution.

In 2008, Steve Jobs forever disrupted the way people find and download mobile apps.  He leveraged the same music distribution mechanism made famous by the iTunes Store to create the iTunes App Store, forever changing how we consume mobile content.  Prior to the iTunes App Store, carriers held all the power of what apps would be installed on consumers’ phones by demanding that manufacturers deliver devices with the apps they wanted installed.  If an app developer wanted to distribute an app, they previously had to go to great lengths to get a carrier to specify to the mobile handset manufacturer to include their app on the mobile device. Working with Apple and Google (who quickly followed Apple’s lead with the launch of their Android Market–now Google Play) was a noticeable improvement for app developers in the ease of gaining distribution of their apps than working with carriers, but nothing like the gains made by Apple and Google in controlling how apps were distributed.

In early 2009 I started hearing the first rumblings of  “overnight app success stories” or “app millionaires”,  savvy programmers who’d quit their day jobs, published an app on the iTunes app store, and started to rake it in as iPhone users hungry for apps to show off or play on their new iPhones, downloaded the few available apps en masse.  There were tens of thousands of apps available in the iTunes App Store at that time and these early success stories caused tens of thousands of additional developers to start making and publishing apps of their own in search of similar instant fortune.  Of course only the few, absolute best apps ever earned six figures in revenue, let alone millions, and app consumers quickly shied away from paying to download apps in favor of free ad-supported apps or the so-called freemium model, where an app is free to try, but additional features must be unlocked through in app payment.

By modeling the first App Store after the iTunes Music store, apps quickly became a hits driven business where apps like songs needed to climb to the “top of the charts” to generate more downloads.  But unlike music that has so many methods of promotion including the radio, satellite radio, movie soundtracks, music videos, Rolling Stone magazine, etc., the category charts of top apps were both the means of distribution as well as the top promotional method for apps.  What’s more other than the few developers who were successful in achieving top spots on the charts and Apple and Google, very few people understood the value of a hit app in every category of the app stores.  Here was a booming very imperfect market with little information flow and those with the best information, Apple and Google, guarding that information very tightly.

Furthermore, the tools that Google and Apple offered to developers to make sense of the developers’ app installs and revenue were greatly lacking for anyone running an app business where small movements up and down the various charts in the matrix of multiple international app stores and categories within each app store, meant real changes to the amount of revenue a developer could expect to receive.  Enter App Annie and Distimo who offered better dashboards to developers to track their business and in exchange got an inside view of enough companies’ data to start to unlock the secrets of the dollars and cents behind the app stores that Apple and Google held so close to the chest.  While they might not know how much every productivity app was making, like Google and Apple did, if Distimo or App Annie had enough points on the curve of #1 to #50 app they could start to plot the whole curve and the more points they had the more accurately they could understand the value of each position on each category chart.  App Annie built a business around selling this market intelligence to the serious larger development shops as well as VCs and mobile ad networks.

With AppAnnie acquiring Distimo, the combined entity now has many more points to plot more accurate curves of the value of the chart positions within each category in every app store.  Their data still pales in comparison to what Apple and Google (and Microsoft) know about their respective app stores, but it is the best data available to anyone willing to pay for an inside look into the market in order to make important decisions about what app to build or fund next or whether they should reposition an existing app in a different category.  These were really the only two players of any scale within this space and while their combination yields better data and should yield better products, I would imagine it would also lead to higher pricing since there is no longer any competition.

I’m also left somewhat perplexed as to why Nielsen or Comscore, or one of the other larger audience measurement companies, didn’t step up and buy Distimo, instead of allowing the company to sell to their leading competitor AppAnnie.  With consumers spending more time on mobile, the app store data that AppAnnie controls is only going to go up over time and by the time one of the consumer audience measurement companies buys them they may wish they bought Distimo at a fraction of the future price when they had the chance.