IPhone Developers Regroup After ‘Anything Goes’ Era (Update2)

IPhone Developers Regroup After ‘Anything Goes’ Era (Update2)
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By Connie Guglielmo

May 1 (Bloomberg) -- IPhone developers, who flocked to Apple Inc.’s App Store in search of a quick profit, are finding it’s getting more difficult to come up with breakout hits.

With more than 35,000 applications now available for the iPhone, consumers are more discerning about what apps they download. A new version of the iPhone operating system due for release in the next few months will have users clamoring for even more sophisticated programs, said Chris James, who runs SnapDat Networks Inc., an iPhone app company in New York.

“The early apps that came out had a distinct advantage because there weren’t a lot of them to compete for attention,” said James, a former Wall Street trader. Now, “you better have a high-quality app or don’t even try.”

Sales of mobile programs industrywide may exceed $25 billion by 2014, with games being the largest category, according to a report this week from Juniper Research in Basingstoke, England. Apple has sold more than 37 million units of the iPhone and iPod Touch, which also runs iPhone apps. The company doesn’t break out sales from the App Store.

For developers, Apple serves as a gatekeeper, reviewing every program before including it on the App Store and deciding which ones to promote. Developers get a 70 percent cut of each program sold, with Apple retaining 30 percent. Free programs are distributed at no cost.

‘Anything Goes’

“Anything goes right now,” said Sean Lyons, whose Los Angeles-based startup, HK Apps, created a $2.99 program that delivers jokes that start with the words “Yo Mama.” Creating a future hit may not be so easy as users demand more features, he said. “Apple is trying to put the better programs out there.”

For apps that aren’t free, prices start at 99 cents. The costliest program, as of yesterday, is a $900 mobile video surveillance app called iRa Pro. It lets people view live video from hundreds of security cameras.

Apple, based in Cupertino, California, rose $1.41 to $127.24 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have climbed 49 percent this year.

Apple’s vetting process for apps fueled debate last week after the store began selling “Baby Shaker,” a 99-cent program that let users vent their frustration by shaking on-screen infants.

The company removed the program after a child-welfare group, the Sarah Jane Brain Foundation, called it “horrific.” Apple apologized, saying the application was “deeply offensive” and should never have been offered.

‘Yo Mama’

More than 800,000 developers have downloaded the kit needed to write programs for the iPhone, and users have downloaded more than 1 billion programs.

Apple doesn’t provide many details about the vetting process. In March, when it unveiled a software upgrade for the iPhone, the company said 96 percent of programs get approved. Of those, 98 percent are accepted in seven days or less.

Lyons, 23, spent a week recording 320 jokes for his “Yo Mama Extreme: Voice Edition.” The program reads jokes aloud when people shake the iPhone. Among the offerings: “Yo Mama has so much hair on her upper lip, she braids it!”

Users have downloaded thousands of copies of “Yo Mama Extreme” since its release in March -- even though six other developers began selling similar programs at the same time, Lyons said. Sales have been brisk enough to convince Lyons and his partner that creating iPhone apps could be a full-time job.

Complex Applications

Still, he knows that creating a future hit may not be so easy. “We’re working on more complicated applications,” Lyons said.

The updated iPhone operating system, called OS 3.0, will add more than 100 features, likely spurring a flood of new apps. One feature will let the iPhone connect to accessories, ranging from blood-pressure monitors to FM radio tuners. The phones will also be able to link up over a wireless connection, so users can play games or beam data to each other.

“The new iPhone OS 3.0 will enable developers to create even more compelling apps,” said Natalie Kerris, an Apple spokeswoman.

The trick is keeping customers engaged. IPhone owners use each of their apps about 20 times on average before it loses their attention, according to Greystripe Inc., which culled the data from its software that sells ads on mobile phones.

“The competition on the App Store now is rather fierce -- if you get a bad review, you’re headed for obscurity,” said Mike Westby, founder of TimeStream Software in Portland, Oregon, which has sold thousands of travel-planning guides for Disney theme parks. “If someone believes they can develop a shallow, yet flashy app, post it to the App Store and then sit back and wait for revenue to roll in, they’re in for a surprise.”

Competing Stores

Apple’s competitors in the mobile-phone market are now mimicking the App Store. Research In Motion Ltd., maker of the BlackBerry, opened a store last month. Microsoft Corp. is planning one for later this year, aiming to sell software for the mobile version of Windows.

The size of the iPhone and iPod Touch audience is now “quite compelling,” said Matt Murphy, who oversees a $100 million investment fund called the iFund. Venture capital firm Kleiner Perkins Caufield & Byers started the fund last year to back iPhone startups.

Even though the iFund has received more than 4,000 business plans, it has invested in just five companies. Those investments total about $30 million.

The growth of iPhone downloads has been a surprise. “There was an assumption that there would be a download frenzy and that it would tail off,” said Murphy, who has 83 apps on his iPhone. “It seems things are accelerating.”

To contact the reporter on this story: Connie Guglielmo in San Francisco at cguglielmo1@bloomberg.net

Last Updated: May 1, 2009 16:12 EDT

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