Selling software in the post-retail era

Call me old-fashioned, but I still love bookstores. What a bummer to visit Stacey’s Books in downtown San Francisco for its “going out of business” sale earlier this month. Back in the dot-com days, Stacey’s was the go-to spot for language references and technical manuals of all kinds. Seeing its shelves empty really drove home how times have changed.

Today’s customers have few sources for their O’Reilly books besides big chain retailers and ordering online. The former generally does a poor job of serving the software development community beyond carrying a few books on PHP and MySQL. And while the latter offers a broad selection, I miss the opportunity to browse the books at my leisure, verify their quality firsthand, and even ask the occasional question of the store staff.

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But if technical book publishers are struggling in today’s market, software developers have it even worse. Independent software retailers have all but vanished. Big-box stores won’t waste time on software when they can hawk car stereos. And let’s face it, neither option was all that great to begin with. As the Web increasingly becomes the sole distribution channel for software, how will software developers reach new customers in the post-retail era?

What if you build it and they don’t come? I’ve said before that the iTunes App Store may be the best model we have today of the future of software distribution, so let’s start there. Building the App Store was a brilliant way for Apple to kick-start the iPhone developer community.

With the App Store model, becoming an iPhone software vendor has virtually no startup costs — even the smallest mom-and-pop developer can sell its apps using Apple’s e-commerce infrastructure (provided the apps meet Apple’s quality standards). And unlike the days when software came in boxes, there’s no need to manage inventory, re-orders, or returns. When you sell, you earn money — it’s as simple as that.

But there’s just one problem: Not every iPhone app sells. By some accounts, the Gold Rush days of the App Store are already behind us. Developers are coming to realize that, for all its convenience, the App Store alone is no guarantee of success.

Take Owen Goss, for example. In a frank blog post last week, Goss describes his experience developing Dapple, a well-reviewed iPhone game in the “addictive puzzle” genre. He estimates that the cost of his time and expenses comes to roughly $32,000. Based on that figure, he needs to sell around 9,000 units of his game to break even. Bad news — in Dapple’s first 24 days on the App Store, Goss moved just 131 copies.

That’s the problem with the App Store’s online distribution model. It sounds attractive because it’s so democratic — virtually anyone can publish software through the app store, and by virtue of the “wisdom of crowds,” the best apps inevitably rise to the top. But products traditionally aren’t sold that way, and there’s a reason. As Goss is finding out, sometimes a product needs a little nudge. We call that marketing, and it’s an area where the App Store is curiously deficient when compared to traditional sales channels.

Vanity programming Brick-and-mortar retail stores, when they work well, aren’t just big buildings full of products that sit on shelves until the customer walks in the door. Retailers rely on countless marketing opportunities to bring in sales, from window displays to end-of-aisle placement to up-selling at the cash register. They advertise in newspapers and on television, and those ads often mention specific products. Apple offers some of these opportunities, but not nearly enough.

Even worse, the “trade dress” of every application on the iTunes App Store is virtually identical. Every application is given the same amount of space online — the same-sized icon, the same-sized preview images, the same box in which to display a description of the app. Where are the branding opportunities? How can one vendor differentiate itself from all of the others?

To understand what I’m talking about, imagine two clear glass bottles. One contains vodka, and the other contains “premium,” “top shelf” vodka. The products are nearly identical, the manufacturing costs are essentially the same, but the second bottle costs twice as much as the first. That’s branding. And by the way, if you think this doesn’t work in the world of IT, just remember: Nobody ever got fired for buying IBM. On the iTunes App Store, Apple is the premium brand; software developers are virtually invisible.

Software vendors need to be aware of these distinctions before they fully invest in an App Store-style sales model.

To my mind, this model of software distribution so far resembles less the late, lamented local bookstore than it does the age-old business of vanity publishing. Unlike proper publishers, vanity presses handle printing and distribution for a fee, then you set a retail price for your product, you handle all the marketing, and you get to pocket the profits — what profits there are. Note how few authors ever got rich publishing through a vanity press.

If the satisfaction of bringing a product to market is enough for you, fine. I suspect most developers want more than that.

Will this situation change? Will online distribution mature? Only if it’s in the distributors’ interests for it to do so. Good thing online distribution isn’t our only option — yet.