"I think we sucked at getting consumer visits," admitted Peter Biddle, general manager for Intel's AppUp with typical frankness.

Biddle was explaining to developers that only 350,000 users had signed up for the app store and they'd only downloaded 810,000 apps between them.

By this time next year, he aims to have "six million engaged users – and if not, maybe Intel should just fire me."

That sounds like a fairly tall order, especially with Microsoft announcing the Windows Store for Metro apps in Windows 8.

"That gives us a year to build a viable and thriving app store economy," he says diplomatically, but also points out "right now it's still blog posts and great presentations."

Profits: the valley of death

For both Intel and Microsoft, getting into services like app stores – and in Intel's case, the services like billing and location to let other people build their own niche app stores using AppUp – are crucial because the way technology companies make money is changing.

"We've been looking at trends. We compared the profit sources in 2010 on the PC ecosystem - from standalone devices to silicon to application software to operating system software to services - and the profit pool in 2010 on PCs for those was basically level.

"It was a few billion here or there but it was somewhere between 10 and 20 billion profit for every one of those. Fast forward to the projected profit on the same things on devices in 2015 and the middle of that graph is scorched earth.

"The profit pool on operating systems on devices in 2015 is one billion, the profit pool in apps is about a billion dollars, the profit pool in silicon is good - but it isn't anything compared to how high devices on one end and services on the other are."

Those figures don't just explain why Intel wants its own iTunes equivalent (although Biddle calls going "head to head with Apple at their own game" suicide, he suggests that having "ITunes 500 times bigger than it is today" isn't the best way for users to find good apps or for developers to make a living).

He believes they also explain some otherwise puzzling behaviour by Apple and Google. "Why would Apple drive the profit revenue down on the apps business in their own marketplace? A simple answer is they didn't want there to be room for another Microsoft on devices. You start off in the beginning and say 'we're going to make the average sales price $1.47; try to build an office business there. You can't."

"When you look at Google and you say why did they make the operating system free on devices? There's a bunch of other perfectly good reasons for it, but Google's average revenue per unit is about $12-13 per year per user on devices.

"Not only did you take away the every-three-years refresh cycle, approximately $45 OEM licence fee you get in the PC business on operating systems and made that zero… You took all that money and put it in your own pocket. It's a beautiful example of look at your business, double down on your business and destroy other people's - and if you can do it with the same magic trick, then of course you do that.

Looking to services

"Beyond patents, why would Google buy Motorola? Because they are sitting on top of a massively good position on services looking across the valley of death at devices which is the only other business that looks like it's as tall, viable, healthy and thriving with the same kind of returns as they've got.

They're looking over there and going 'Apple has a huge chunk of that devices profit pool, how do we keep them over there?'. Then you go back and stand on the Apple ivory tower and look across the valley of death at the services business, and you go 'iCloud!' How do you try to make Google stay the hell over there? Well you try to make them defensive on their core value."

Where does that leave Microsoft? According to Biddle (who used to work on the Windows team), "the only two options, based on that trend, are to become a services player, a vertically integrated devices player or both. If you look at Windows 8, it is both; it's the services operating system and it's the integrated devices operating system bundled up together."

The question is whether Microsoft can pull off the Apple-esque level of integration required to succeed.

"Microsoft historically has been its own worst enemy in creating great buttoned up Apple-class solutions because there's always somebody who manages to make you compromise and as soon as you compromise you're not Jobsing it - you're back in PC land. I have absolutely no doubt there is the talent inside Microsoft to build truly kickass top to bottom experiences. It's just will they be allowed to?"

Getting to six million

AppUp was initially designed to showcase apps that were good for low-performance netbooks, and it will support Tizen (the HMTL5-focussed replacement for MeeGo), but as netbook sales slump in favour of tablets Intel is focussing on PCs – which still sell a million a day, compared to the 17 million tablets predicted to sell in the whole of 2011. Why isn't that a million new AppUp users a day?

"One of the frustrating things about the fact that we've been so focused this past year on tablets which if you look around haven't shipped,is that it means that we missed being on the first small wave of ultrabooks as a preinstall option.

"Our first PC-centric release is coming in Q4. Less than 30% of our users are on netbooks today, so everybody is running it on PC. But – the UI isn't right for PC, we didn't really source the apps with PCs in mind, there's a whole set of features - people expect a more full-fledged PC experience with social media integration that isn't there… all those things need to get added."

AppUp is going to be ubiquitous on ultrabooks, he predicts. "We're going to make it hard to even get an ultrabook without AppUp on.There's a lot of ultrabooks shipping next year.

"And we think - just like the Mac App Store on MacBooks and MacBook Airs in particular, delivering real value on that form factor- we think AppUp has a great opportunity on that form factor, [if we have] great apps that take advantage of the hardware."

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Liked this? Then check out Intel: We will be number one for smartphone performance

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