This cartoon from The Oatmeal blog really summarizes people’s behavior about buying expensive mobile devices but balking at paying $0.99 for an application. Human beings involved in a marketplace are both unpredictably predictable and predictably irrational, which leaves plenty of room for intelligent optimization efforts. Yet much of the research about applications shows people love adding applications to their devices and following the common trend in software they are gravitating toward free.

Another evolving trend is that the nature of what apps are downloaded changes as the available devices change. Also, what people feel comfortable doing on these devices will change. You can already see a big difference between iPhone/iPod touch users and iPad users.

There are great opportunities ahead for app developers and many have already started to figure out what it takes to be successful. Last week, I was presenting at Benchmark Capital’s offices in Tel Aviv, Israel, when one of its portfolio company’s new apps, Lyric Legend, got approval from the Apple App Store that morning. I watched as it climbed the charts from new application to number two free music game in the iTunes App Store over just two and a half days! I love this app both for what it does as a game and what its potential is as a business model. The game is rather simple – tap on the correct words from the lyrics as they are sung. Get really good at a song, and you become a lyric legend and then go buy more songs. What a great way to get people to buy more music! I love that as a mashup concept to music discovery. But seeing all this underscores several limitations that all app stores have and the challenges for developers seeking to sell more effectively through them.

5 Challenges Facing Application Developers Today

Application Discovery

Finding apps that meet users’ needs is still an overwhelming issue with most app stores including Android and iTunes marketplaces. The experience still sucks! That’s a reason why applications like Appstream from Appsfire have had huge success helping people find new apps and why posts like top 10 iPad apps for travelers keep hitting the top of websites like Digg. Unless you know exactly the name of the app you want, or can find it based on the top apps list or top of a category list, finding one of the over 250,000 apps in the iTunes marketplace is a horror. Of course, sharing with friends, and social discovery (like Ping will hopefully provide) is one helpful feature, but allowing people to tag applications or allowing people to find apps by the tasks they help you accomplish can be another way to help people discover new apps.

Persuasive Descriptions, Analytics, and Testing

A limiting factor is the way the app stores allow developers to present their applications. A text description and a few screenshots. Certainly, video demos would be helpful for a lot of the applications; providing developers with an easy way to measure, test, and update their descriptions would be another. Right now, developers have very little insight into an application’s page views, conversion rate, or even accurate downloads, or more specifically what marketing efforts are helping to get those visitors to download apps.

The company behind Appstream has developed a service for application analytics that works really simply for the developer without any requirement of adding code. They created a service that tracks conversion to purchase in the app store and provides real-time analytics on referrals, geography, clicks, and purchases. But the application stores need to work closer with developers to make their marketing efforts more effective and not tied up in their app store black box; the stores must provide access to advanced download and usage metrics. I can almost understand Apple not offering this capacity today, but in Google’s Android store, there is no excuse for not finding a way to tie in Google Analytics.

Try Before You Buy

Why not offer the ability to have seven or 30-day trials of an application, so that people can really see its ability before they commit to purchasing it? Limited trials are just that, limited, and don’t always show off the key benefit a user is looking for from an app. This is common for other software applications and needs to be common for mobile applications as well.

App User Targeting

Application stores must provide developers with efforts to target users from within applications (free apps with ads to support it) and from within the store experience. Just like Amazon offers publishers the ability to target readers of similar books or books by the same author, the app stores should provide this functionality. They should also offer an advanced advertising targeting system that would allow developers to target people by geography, by current application use profiles, etc. That would allow me to target all New York iPad users who use their iPad for presentations, for example. They could also allow the ability to purchase placement of ads on the app store home page or other pages as well.

Integration and Evolution of Business Models

Just like Lyric Legend is a great music discovery tool, imagine it as a business model that sits on top of this digital content marketplace, where as you master new songs, based on your preferences and current iTunes music collection it offers you new songs to add to your iTunes collection and the ability to challenge friends who play Lyric Legend at who can do best with the new song. What will this do as the nature of online videos, movies, e-books, and apps evolve? What business models will exist in the future based on the integration? What advertising possibilities will be created?