Amazon’s Underground app program replaces Amazon’s previous “Free app a day” offer which provided one free paid app each day. Launched in September 2015, the new Android app integrates Amazon’s app store, retail, and video services.
Amazon Underground’s “Actually free” program provides a dedicated catalogue of apps that are free to download and also have free in-app purchases. Instead of monetising through paid in-app transactions, Amazon pays developers a set fee based on the amount of time a user spends in each app.
It’s available outside the Google Play Store, which means users have to alter the standard Android security settings to install the app from untrusted sources which hinders its uptake unless Amazon secures pre-installations on devices.
User acquisition is still the biggest challenge
Amazon’s revamped plans offer app publishers an innovative new model for monetising certain apps but it may not be enough to address its major challenge: how to persuade Android users to download an alternative store to Google Play.
Amazon had to alter its model from a “free app download per day” because almost all apps are now free. Pay to download is not longer the main way to charge for apps, instead well over 90% of Android app revenues are via in-app purchase. In other words, download for free, pay later. Amazon Underground is a bold effort to transition the free app model to the in-app purchase business model.
Underground’s economics will not fit all apps
Amazon has published guidelines regarding which apps best suit the new Underground service, focusing on apps which had either previously been paid apps and those which monetise via non-subscription in-app purchases. Amazon can also insert advertising within each Underground app, which will help it monetise the audience rather than simply using Underground to attract a new audience.
Amazon promises to pay $0.0020 to developers for each minute spent within app, meaning a user would have to spend 8.3 hours using an app to generate a $1 pay-out to the developer.
Unlike the traditional freemium model, in which a good conversion rate would mean 2%-5% of the audience pays for any content, developers using Amazon Underground will get some form of monetisation from each app user.
Developers at the top of the app store chart, whose apps generate hundreds of millions of dollars revenue per quarter, are unlikely to adopt Amazon Underground. But for developers with apps lower down the charts and those looking to extend the life of older catalogue titles, Amazon Underground is worth consideration as a way to drive incremental revenues.
Strong app store competition
The app store competition is extremely strong. The Google Play Store offers a catalogue of than more one million apps (far greater than Amazon) and comes preinstalled on almost all Android smartphones outside China. The Google Play store is more than sufficient for most users’ needs and Google reported more than 1.4bn active devices in September 2015.
Beyond Amazon’s own Fire branded smartphone (now discontinued) and tablets, Amazon’s store does not come preinstalled on any devices and so app publishers correctly focus first on providing content for Google’s store rather than Amazon’s.
To download the Amazon Underground app, as with its previous Appstore for Android, users have to change their Android permissions to enable non-Google Play downloads which is a step too far for most customers. Amazon needs to have its store pre-installed on Android smartphones if it is to drive increased adoption. Smartphone brands that wish to reduce their dependency on Google should be open to such a relationship.
Amazon’s existing Prime Video and retail apps continue to be available through the Google Play Store and also for iOS devices via Apple’s App Store. As a result, the main incentive for users to download the Amazon store Underground alternative is the new free app offer.
Free app programme underscores shift in mobile market business models
Amazon launched the first version of its Appstore for Android in 2011 with its “Free app a day” offering a free paid app as the main promotion, alongside some other price cuts and discounts. Amazon Underground’s new free app program shows how the mobile market has shifted away from the paid download model which dominated back in 2011. Now that freemuim apps monetised by in-app purchases account for the vast majority of revenues, offering free in-app transactions is the only way for Amazon to continue with its strategy of using discounts and promotions to attract users.
Amazon’s new program will face some challenges. The dominance of the in-app purchase business model means that many games have been designed with the clear aim of driving users to make more and higher value purchases, often with the reward of advanced progress or better standing within a game. Offering all in-app purchases for free does not just change the business model of a game; it can impact the actual gameplay as well.
Other stores are unlikely to follow suit, for now
Amazon’s Underground app program is a response challenging market position. As a challenger store with limited market share, Amazon has to innovate to attract users. It also needs to give developers a reason to provide content for its store. Amazon can offset the costs of running the Underground program by tying its users more closely into its ecosystem and driving retail transactions and other content revenues; Amazon Prime Video and its retail store are available alongside mobile apps in Underground. Market leaders Apple and Google do not struggle to attract users or app publishers and the share they take from app transactions have become significant revenue streams, so there is no incentive for them to adopt a similar program.
Underground is also important for Amazon’s tablet businessAmazon released a number of new Kindle Fire tablets following the launch of Underground. Amazon’s app store is the only one available for Fire tablets which do not support Google Play. Being able to provide a compelling app catalogue is essential for Amazon’s tablet business. Amazon will hope that the free app program can help it differentiate its devices, add value for users, and ensure that developers continue to provide content for its store.