Over the long run, Apple may not want small developers playing a prominent role in the App store.
There's more risk to the brand compared to Electronic Arts, and Apple could probably charge for Fortune 500 companies to place their apps in the store.
Stripping out the small developers would remove a lot of scams and address discovery issues.
700,000 apps isn't consistent with the way Apple's other stores operate. Nor is it consistent with their brand strategy of high quality via curation.
Without small developers, there would never have been Angry Birds, Tiny Wings, Temple Run, and countless other (when released) indie games. Ditto for apps.
I think what you mean to suggest is that Apple should raise the bar for app approva. Given the accumulation of thousands of crufty, poorly-designed apps, I would totally agree with this.
My point is now that they have Angry Birds, etc. they may not really need small developers. Back in the late 1980's and through the mid 1990's there were lots of independent computer shops building PC's in the U.S. The industry changed and those shops are largely gone.
What the report indicates is that the gold rush is ending. Yes there's still mining, but it's increasingly being done by Rio Tinto with giant trucks, not someone squatting in a stream with a pan.
Apple needs to allow for off-Appstore installs (off by default is fine). Then they need to have a program like Steam's Greenlight where the community chooses what should be considered.
I know the point you're making because we struggle with something similar in a different industry. I think we've already seen the "phase out" of small developers in the App Store; rarely if ever does an indie company make it into the top 25 charts or, more importantly, the Spotlight app section. I don't really anticipate it becoming much worse than this because the submission process is mostly effective at weeding out the fart apps and broken software that often makes it into something like the Android store, and apps at the bottom are naturally hidden from the end user anyway.
I think the reason Apple can continue to allow mediocrity into the store is because those apps don't actually reach many end users and they pad those 700k apps and 25 mil songs vanity metrics. This is opposite someone like Groupon or a high end designer brand, where exclusivity is a major factor and driver. The only parts of the App store where exclusivity is a factor are the top lists and the spotlight section, which as I mentioned above have largely excluded small developers for a long time.
I think they like to tout the big numbers, but you're right. They want you to get something they know is good and already popular. That's why we have the recent changes to the app store. It's meant to limit search to things that are already popular, and also put a heavier importance to things like their curated favorites.
It's interesting, even in their favorites recently I seem to be seeing more of the big companies and more of the same apps that have already been featured popping up.
I was considering this as I posted. The difference, I believe, is that apps have users and music tracks do not.
The best song I've ever downloaded has exactly the same functional requirements as the worst song. The interface is consistent. There are not versioning issues. The purchase, delivery, and use experience is consistent. Variation is purely due to content.
Furthermore, I can accurately make predictions about the quality of music based on previous experience. If I like Rock-a-billy, my expectations when downloading a new artist within the genre are likely to be met. This isn't true if I like first person shooters.
To put it another way, a music store contains a much lower percentage of poor value propositions. A song may suck, but it won't be useless, not as advertised, or a scam.
[edit] Pandora illustrates the phenomenological difference between songs and apps. The idea of an app which streams apps to users is incoherent.
As an Apple fan I stand by it not mattering if there are fewer apps. If the iOS App Store only had crappy apps in it, having 700,000 would be no consolation.
Remember that, at least according what they said at the time, Apple didn't want apps. They wanted websites that were designed for iOS and mobile devices using HTML5 to perform all the tasks.
Now, this could have been a smokescreen to cover the fact that they didn't have their native app infrastructure finished yet, but going at face value, Apple didn't want native apps.
There's more risk to the brand compared to Electronic Arts, and Apple could probably charge for Fortune 500 companies to place their apps in the store.
Stripping out the small developers would remove a lot of scams and address discovery issues.
700,000 apps isn't consistent with the way Apple's other stores operate. Nor is it consistent with their brand strategy of high quality via curation.