If you casually follow tech industry headlines, you might be convinced that the app store model is the bright future of software distribution. After all, Apple continues to break records with growth numbers.
Meanwhile, Google Play Store has grown into such an unwieldy success that search and discovery are now the biggest pain point for Android users. So when I say, “I have clear evidence that the app store model is dying,” you may look at me as skeptically as you’d view any wild-eyed street-corner prophet.
I’m more interested in data-driven analysis than in wild-eyed prophecy, though. Over the years, I’ve discovered that metrics and highly efficient ratios that are common knowledge in one industry may be completely unknown in others. By applying those metrics and ratios to new industries, valuable insights emerge.
Those insights guided my career in gaming, helping me deliver more than $1 billion in revenue and manage thousands of employees. (I don’t say that because I’m impressed with myself, but rather in the hope that it’ll persuade you to read further before writing me off as a wild-eyed prophet.)
A core metric borrowed from the gaming industry tells me loud and clear that the app store model is already well into decline, going the way of PlayStation 2 (PS2). That metric is the times interest earned (TIE) ratio.
The Tie Ratio, And Why You Should Care About It
Analysts and executives in the gaming industry obsess over the TIE ratio as a measure of a platform’s health. It’s a simple calculation: number of games sold per year divided by the total number of game systems/consoles.
When a new gaming device is released, excited customers run to the store to buy the new console and several games. Over time, they get bored with the system and start looking at the next console they are going to buy. They also quit buying games.
It was hard to gauge when interest had peaked just from raw sales numbers, however. That’s where the TIE ratio comes in. By measuring how many titles were sold per console, you can estimate the precise point when a game platform stops collecting users and starts collecting dust.
Your PS2 served a purpose once too, but you probably dropped it off at Goodwill long ago.
A real-world example: The PS2 launched in North America in late October 2000. By the end of that year, Sony sold just over 1.1 million PS2s in North America. Sell-side stock analysts were watching the PS2’s numbers closely, as the original PlayStation had set a high bar by maintaining a TIE ratio greater than one for eight years, with a peak of 3.8. Those numbers were unprecedented at the time.
How Did The PS2 Compare To The Original PlayStation?
Once Sony worked through launch issues, consumers started buying like crazy, and the PS2’s TIE ratio shot to 4.1 in 2001. By 2003, however, gamers were starting to get bored with the PS2 and its TIE ratio declined to 3.6.
By 2004, analysts were predicting a new console would come out soon (the Xbox 360 shipped in November 2005 in North America), and the TIE ratio declined to 3.3. By 2006, the PS2 TIE ratio slid to 2, and we all knew the platform was going to be dead soon.
The App Store’s TIE Ratio Is Falling Rapidly
Later on, I had the good fortune to advise George Lucas and the talented people at Lucasfilm. I found another industry that closely watched the retail sales of DVD movies divided by the number of DVD players. They called it the attach rate.
It turns out lots of industries track the unit shipments divided by the installed base. Think razors and razor blades, Bluetooth headsets and phones, mice and computers. There is even a nice Wiki article about it. Which brings me to the app store model.
Apple does a great job of promoting their App Store by announcing all the billions of dollars they have paid developers. They also regularly promote how many iPhones and iPads they have shipped.
If a brand piques your interest and you want to use their app, it should happen instantly, without friction.
However, they have been less forthcoming in recent years with how many apps have been downloaded. They used to announce this frequently, but over the past two years they have not been announcing that number very often.
Could it be that someone inside Apple did the same analysis I just did, and found that the TIE ratio for the App Store peaked at 81 in December 2010, and has been steadily declining since?
In fact, the App Store TIE ratio has fallen from a peak of 81 to 48 in June 2015, a 59 percent decline in only four and a half years! The PS2 TIE ratio fell about the same amount over five years. Three years later, it was essentially dead in North America.
Welcome To The Era Of On-Demand Apps
Many people don’t remember when the iPhone first shipped there was no App Store. The phone came with the apps Apple made; for everything else, you used the Safari browser.
In fact, just eighteen days before the launch of the iPhone, Steve Jobs hastily called a developer summit and begged them to make web apps. Unfortunately, few good web apps were built, because building elegant web apps for the first mobile Safari browser was challenging.
The only reason the App Store has evolved the way it has over the last seven years is because, until very recently, the mobile browsers on all phones were so bad you needed a native app to deliver a decent experience.
If a brand piques your interest and you want to use their app, it should happen instantly, without friction. No search problems in the app store. No quickly deleting pictures, in hopes of getting that “Not Enough Storage” message to disappear. No downloads that waste time or require you to update your device’s operating system. Just the experience you want, when you want it, on the device of your choice.
The app store model served a purpose in the early days. It’s an improvement over the days when I had to edit my config.sys and registry settings to get a game to run on my PC, but I haven’t found anyone that actually enjoys the app-cycle (discovery, install, daily updates, deleting photos or apps to make space, etc.). Your PS2 served a purpose once too, but you probably dropped it off at Goodwill long ago.