The World Of Phone Apps

Despite the weak economy and consumers’ desire to spend less frivolously, the popularity of smartphones is paving the way for a new source of revenue: phone applications.
And developers are clamoring to take a piece of the growing market that many are modeling after the success of Apple’s App Store. For example, the number of downloads through Apple’s (News - Alert) App Store has surpassed 1 billion. That combined with the fact that more than 40 million iPhones and iPod Touches have sold since 2007 are contributing to an increase in companies that are tapping the mobile industry as a source of revenue, the New York Times reports.

It’s no surprise that iPhone (News - Alert) apps command most of the attention iPhone apps. Apple has reached a milestone of offering 50,000 applications. But competition is heating up. Thanks to the popularity of Apple and the onslaught of apps, the market for apps is growing. For example, Palm, Research in Motion, Nokia and Microsoft (News - Alert) are building app stores to work with phones to use with their operating systems, the New York Times reported. And it’s only going to increase.

By 2013, researcher In-Stat (News - Alert) projects nearly 30 percent of smartphones representing over 100 million unit shipments will be based on an operating system that supports app stores, according to a TMCnet report.

The increased interest in app developers is largely being driven by companies that seek to build cellphone apps for their products or services, according to the New York Times. While many apps are free, people are willing to pay 99 cents or more for them. That willingness gives companies hope that apps may be a more reliable source of revenue over Web sites, the report said.

“Companies are asking themselves, ‘How can we get on the iPhone?’ ” Matt Murphy, a partner at venture capital firm Kleiner Perkins Caufield & Byers, which maintains a $100 million fund devoted solely to investing in start-ups creating apps for the iPhone, told the New York Times. “Instead of trying to organically create their own property, they’re looking at applications with traction and cherry-picking the ones that seem like a good fit.”

Beyond smartphones, other companies have discovered ways to use phone applications. Amazon use phone apps to broaden the market for e-books it sells with its Kindle device. Under a new program announced earlier this year, iPod Touch and iPhone users can access the same content as the latest Kindle electronic book reader, TMCnet reported.

While the market appears to be booming, the proliferation of application stores prompts the question: When will developers reach the saturation point? Not anytime soon, some experts say. For example, developers who offer more applications will help drive carrier loyalty, IT world reports.

"The more the merrier because it increases demand," Steve Glagow, vice president of Orange Partner,
a European wireless carrier, told IT World. "It also builds an affinity to the handset so they keep them for a longer period of time."

Some vendors will be more successful than others, but one thing is clear. There’s lot of room for growth in the application market.
"We don't know what kinds of apps people will want because demand keeps changing," Jeet Kaul, senior vice president of Java engineering at Sun Microsystems (News - Alert), told IT World. "We're not at that [saturation] point yet."
Consumers will spend more than $4.2 billion on apps in 2013, up from $343 million this year, research firm Yankee group says, as smartphones become ubiquitous and app prices rise. The average smartphone owner "downloads about 20 apps per year," says Carl Howe, director of consumer research. "It's a bigger market than a lot of people have been thinking." Half of newspaper and magazine publishers say that smartphones will become a vital distribution channel in three years, the Audit Bureau of Circulations reports. Only 42% are as upbeat about e-book readers. Gamemakers also like sales trends for iPhones, BlackBerrys and phones based on Google's Android operating system.
Advertising on mobile phones should really take off within two to three years, driven by new applications on smartphones and the growing popularity of social networks such as Facebook.
Executives, who attended last week's Cannes Lions 2009 ad festival, told Reuters that emerging economies were also promising though the lack of a global mobile phone standard could be a brake to speedy development.
As more consumers embrace new technologies and devices such as smartphones, personified by Apple's (NASDAQ: AAPL) iPhone, mobile advertising is seen growing at an annual average of 45 percent to reach $28.8 billion within 5 years from a current $3.1 billion, according to Ineum Consulting.
"We have launched many mobile campaigns for the first time in the last three months. New people are coming in every week," said David Kenny, Managing Partner at VivaKi, the digital arm of French advertising group Publicis.
Social networks such as Facebook, which were becoming "increasingly mobile," and applications for the iPhone would be key drivers, he said.
David Jones, global chief executive of Havas Worldwide and Euro RSCG Worldwide, said that advertisers needed to be more creative to fully benefit from opportunities offered by mobiles
"If you are interrupted every two minutes by advertising, not many people want that. The industry needs to work out smart and clever ways to engage people on mobiles," he said.
Scott Howe, corporate vice president of the advertiser and publisher solutions group at Microsoft, predicted that mobile phone advertising will account for 5-10 percent of global media ad spending within five years.
Mobile advertising was likely to attract interest from a niche of advertisers, such as small "mom and pop" local retailers which did not routinely embrace the mainstream online advertising, he said.
These advertisers could shift their ad budgets away from local newspapers to mobiles for local highly-targeted campaigns.