Gold rush! Big money seen for iPhone, smartphone app developers

Smartphone-apps revenue expected to jump to $US4.2 billion by 2013

A gold rush for iPhone and other smartphone application developers is in the works, with U.S. revenues from smartphone apps expected to increase more than 10 times through 2013, to $US4.2 billion.

That estimate of growth, made by research firm Yankee Group in Boston, is based on the projected growth in the number of smartphones sold, which will quadruple between now and 2013, an increase in the number of smartphone applications, and a projected jump in the average selling price of a paid app to $US2.37, up from $US1.95 today. During the same 2009 to 2013 period, the number fo smartphones sold is expected to quadruple from 40 million in 2009 to 160 million in 2013, Yankee said.

For developers to cash in on the potential gold mine, Yankee Group recommended writing applications that most other developers are not. That means, for example, focusing less on games for the iPhone App Store, which has plenty of games, and more on software for professionals, which are available in smaller numbers.

For BlackBerry smartphones, game developers should try to write apps, since there are plenty of office and business apps for that platform. "BlackBerry already has so much software for business, so there's a real opportunity for consumer apps," said Carl Howe, an analyst at Yankee Group, in an interview.

Likewise, Apple lists 75,000 applications in its App Store, and most are consumer-focused, Howe noted. "If you are trying to hit the top 25 paid apps on App Store with the next cool game, there are probably 1,000 developers out there that want to also. So, I'd say to go where everybody else isn't. App Store has a bunch of business apps, buy not nearly as much as consumer."

Yankee Group based its analysis of purchased applications on a survey of 1,200 consumer smartphone owners. Howe said he was most surprised by one finding that the average user has downloaded 20 applications. Games overwhelmingly led the list of downloaded appls, comprising 73 per cent of the total. Apps for search came second, and social networking apps were third. After that, users said they picked applications to help with specific interests, such as bird watching, followed by banking apps, which were fifth.

"I'm surprised by the sheer number of apps now being downloaded," Howe said.

Only 18 per cent of the applications across all of the various apps stores were paid for, but Howe said there is still a healthy revenue stream from that paid group. In all of 2009, Yankee estimates there will be $US343 million in U.S. revenues for applications for smartphones from application stores, a number expected to exceed $US1 billion in 2011 and to reach more than $US4.2 billion in 2013.

About $US2.9 billion of that $US4.2 billion will go into the hands of developers, while $US1.3 billion will go to the companies running the app stores, such as Apple Inc., Research in Motion Ltd. for its BlackBerry App World, Android's App Market and Nokia's Ovi Store.

Yankee didn't count revenues for applications sold to iPod Touch users, because the media player is not considered a smartphone.

Free applications dominate the number of downloads from application stores, but those free apps often entice buyers to move up to a deluxe version for a fee. In that sense, application marketers are using the free apps to help generate revenue. The majority of paid apps cost 99 cents to $US2.99, with fewer in the higher-priced range of $US4.99 to $US9.99. The most that consumers, in general, are willing to spend on an application is below $US3, Howe said.

While it might be advantageous for a game developer to find platforms other than the iPhone to build a gaming app, it won't be easy. All the smartphone application stores and platforms are "very different environments to work for, including everything from how they split revenue, the development language used, what marketing support you get and even how much investor support will be offered," Howe said.

In addition, Howe said, it's not easy for a small developer shop that has spent years building applications in the Java programming language to suddenly convert to building iPhone apps, which often requires developing in Objective-C. "You pretty much have to start afresh," he said.

Android and BlackBerry often rely on Java developers, while Palm Inc. offers its WebOS mobile operating system, which is Web centric, a factor that could help Palm gain more smartphone applications because there are so many Web developers, Howe said.

"Since the WebOS is Webcentric, that will help Palm with its app supply," Howe added. "The number of C++ developers is probably half a million, while there are millions of Web developers, some of whom could build smartphone apps. It's hard to walk down the hall of a high school without knocking over a few Web developers who have used html."

In the U.S., Howe estimated there are 1 million to 3 million software developers who could potentially write smartphone apps in coming years.

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