[New report from Frost & Sullivan looks into rapid uptake of smartphones and the growing number of app stores.]

Mountain View, CA -- Smartphone penetration in the U.S. mobile markets is increasing rapidly. For some time, mobile operators have been offering a branded 'catalog' of mobile content and services that could be purchased from the handset itself. However, all that is changing for smartphones, in which newer types of targeted app stores are being introduced to enable the device owner to purchase content from outside the operator environment. The availability of a large number of inexpensive or free mobile applications that leverage the next-generation technical capabilities of the target device will help drive adoption. However, in the end, service differentiation and generating suitable return on investment from the app store business could be challenging.

New analysis from Frost & Sullivan (http://www.wireless.frost.com), An Insight into the U.S. Smartphone Application Storefront Market, finds that smartphone downloads from all app stores will reach 6.67 billion in 2014. The market segments covered in this research include prepaid and postpaid mobile, SMS and MMS, mobile Internet, iPhone, Android, Windows Mobile, Palm, and Symbian.

"Next-generation devices are being introduced at a rapid pace, and stakeholders are offering app stores to facilitate downloads of compelling applications from multiple categories, serving a wide range of communication, entertainment, information, and personalization requirements of the mobile user," says Frost & Sullivan Industry Analyst Vikrant Gandhi. "For example, Apple, Google, Nokia, Palm, and Microsoft have either already introduced app stores or are in various stages of app store rollouts and are working to ensure that the entire service experience is compelling for the end user or device owner."

A vast majority of applications are available 'free of cost' to the end user, significantly driving adoption in the U.S. smartphone app store market. These applications leverage advanced device capabilities such as touch screen, accelerometers, full Web browsing, and location-based services, among others, to deliver a truly compelling proposition.

The most significant challenge is to ensure service differentiation and optimal management of the scale of the app store business. App store providers should always be open to support new business models to drive the introduction of innovative services and content types. Having a clear value proposition is also important for mobile operators.

"Unless the app store providers establish exclusivity agreements with application developers - something that is not feasible for a large majority of applications - it will be difficult to provide enough differentiation through the app stores," notes Gandhi. "The best example of how this could be done is Apple's app store, in which the entire experience of service purchase and consumption - including device characteristics, form factor and the operating environment - was a radical shift at the time of its introduction."

This does not mean that services could not be differentiated at all. The moot point then is the extent to which providers are willing to invest in their infrastructure to offer new service to their customers, which then ties back into something that is still being examined - identifying the main purpose of launching the app stores and if app stores alone are strong enough reasons to purchase a particular type of device.

A single participant cannot provide all the services in the mobile content industry. App store providers need to work with multiple application providers and offer them sufficient incentives for their app store initiatives. Services of independent, third-party app store providers such as Handango, Handmark, and PocketGear can also be used to run an app store business profitably with adequate service differentiation.

"For instance, outsourcing or white-labeling of the app store business might become a good idea in the long run since a device vendor or an operating system provider may not want to commit large resources to manage the smartphone app store business," concludes Gandhi.

An Insight into the U.S. Smartphone Application Storefront Market is part of the Mobile & Wireless Growth Partnership Services program, which also includes research in the following markets: U.S. Premium Mobile Downloadable Content and Applications Markets; U.S. Mobile Advertising and Mobile Search Markets; U.S. Mobile Financial Services Markets - Mobile Banking and Mobile Payments; U.S. Mobile Social Networking Markets; Advancements and Trends in Mobile Video Services; U.S. Off-Deck Mobile Content Markets; U.S. Mobile Messaging Markets; U.S. Mobile Video Services Markets; and U.S. Mobile Connection Aggregation Markets. All research services included in subscriptions provide detailed market opportunities and industry trends that have been evaluated following extensive interviews with market participants.

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