Is the iTunes Store Outdated?

Look out, Apple (Nasdaq: AAPL  ) . Facebook is coming for you. The social network's soon-to-be-launched App Center features a fresh take on app discovery that looks like a swipe at iTunes.

How so? Whereas the iTunes Store promotes the most popular apps, App Center is to be tailored to taste and preferences. Thus, if you generally use Facebook to play games, App Center will recommend new options based on what you play, how long you spend on each game, and what your friends like.

Developers must be thrilled. Facebook, in effect, is creating a targeting mechanism for allowing small-scale but highly regarded apps to find an audience. Only those with the highest scores for engagement and session length -- apps that actually add value or entertain, in other words -- can expect to get App Center promotion.

Who loses in this? Apple, primarily. The so-called iTunes "Genius" has never really proved itself as good at surfacing undiscovered apps. More often, users refer to the service's top lists for app ideas as the outsiders linger. Home run or strikeout; there's rarely an in-between on iTunes.

Facebook has played a similar zero-sum game for most of its history, none benefiting more than Zynga (Nasdaq: ZNGA  ) . The company has traded on being the most popular Facebook gaming platform, edging out even Electronic Arts (NYSE: EA  ) and The Sims Social. EA's virtual world had been a popular alternative at one time, yet today ranks outside the top 15 Facebook apps tracked by AppData.com.

Lost scale means lost revenue in EA's case, just as it would on iTunes. App Center promises to change the equation, blunting the edge that comes with scale by personalizing app recommendations. Or at least that's the theory; we won't know till the service launches.

Either way, it's a smart move. Rule Breaking businesses such as Facebook take uncommon measures to disrupt rivals and traditional industries, delivering multibagger returns to investors in the process.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Apple at the time of publication. Check out Tim's Web home, portfolio holdings, and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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