Kindle Fire Brings First Real Test For Amazon Appstore

Six months after Amazon quietly launched its Android appstore in March comes the company’s first real test as a meaningful source of revenue for mobile developers.

The launch of the Kindle Fire yesterday — marketed as a functional, affordable device at the middle to low-end of the market — may help Amazon do what no other Android device maker has been able to do. It could be the first successful Android-based tablet in a market that has been thus far dominated by Apple’s iPad.

If that’s the case, the Amazon appstore may become more than just a nice-to-have option for Android developers. It could mean a split market where Google’s official Android Market is the main avenue to Android phone owners, while Amazon’s appstore becomes the gateway to Android-based tablet owners. And that’s not to mention Amazon’s other opportunities in building phones or smart TVs if it continues to be successful at retailing its own hardware.

While Kindle Fire has attracted some positive initial press, it has one major downside for mobile developers. It doesn’t have 3G and mid-size developers like Andreessen Horowitz-backed TinyCo tell us that they see a significant portion of usage over that. In other stores like Google’s Android Market, it’s a pretty well-known practice to squeeze the application size to under 20-megabytes just so a developer doesn’t have a force a user to download their work over wi-fi and risk losing potential new customers. For server-side games like many of the casual free-to-play titles from Storm8 and Pocket Gems, these games are not accessible without an Internet connection. So these companies may have to redesign their apps to make them work without an Internet connection or wait for Amazon to add 3G to future models of the Kindle.

Reviews have also been decidedly mixed on Amazon appstore’s performance (although this judgment isn’t really fair since the store has had distribution issues because it’s complicated to install on Android phones and it hasn’t had any dedicated devices until now).

Some developers of paid apps have complained that Amazon’s policy, which gives it the power to put their work on sale or give it away for free, robbed them of revenue they would have otherwise earned from selling at full price. Unlike Google Market, which takes a 30 percent cut of transactions, Amazon delivers either 70 percent of the price the consumer actually paid for the app if it’s discounted or 20 percent of the price the developer would like to charge — whichever is higher. Australian developer Shifty Jelly posted a lengthy diatribe detailing how Amazon was able to drive just over 100,000 free downloads of its game in a single day, yet was unable to produce any significant boost to paid app downloads (and their revenues) afterward.

Developers of free apps told us that Amazon’s promotional deals were ultimately beneficial, giving them users that they might have otherwise had to spend marketing dollars on. Considering that marketing costs are rising as both Apple’s app store and Android Market get more competitive, these free installs may be worth tens of thousands of dollars.

Plus, Amazon still doesn’t currently have restrictions around in-app payment systems so developers are free to choose whatever they like, whether that’s Paypal or other options. If a developer is successful at monetizing those users and picks a payment system that takes a transaction tax that’s less than 30 percent, that could help their margins on Amazon’s Android appstore.

However, history tells us that once the market becomes large enough, Amazon will probably figure out a way to enable an in-app payment system. It certainly has the e-commerce legacy to do so.