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Aping the iPhone App Store

Rivals including Sprint and Research In Motion want to fend off the Apple threat by enticing developers to create tools for their devices, too

Consumers are rushing Apple stores and mobile-phone outlets from Seattle to Sydney on July 11 in hopes of being among the first to get hold of the iPhone 3G. The long-awaited iPhone upgrade boasts touchscreen tech, navigation tools, and faster Internet downloads than its first iteration.

But one of its biggest selling points became available a day earlier, when Apple (AAPL) flung open the doors of the Apple App Store, an online grab bag of games, books, friend-finder tools, and hundreds of other software applications designed to make the iPhone more fun and useful.

Developers Target Many Devices

The appeal of amassing a community of software developers who will create scores of unique applications around a single mobile phone hasn't been lost on competing handset makers and cell-phone service providers. They're eager to keep customers from switching to the iPhone and the carriers such as AT&T (T) on whose networks the device runs. Owners of advanced cell phones are more likely to download applications than watch videos or access social networking sites, according to consulting firm M:Metrics. And the App Store may emerge as the No. 1 reason why people switch to the iPhone 3G this year, says Richard Doherty, director at consultancy Envisioneering Group.

In hopes of staving off a stampede, Sprint Nextel (S) this year will spend more than $100 million on marketing a single device, the Samsung Instinct. Sprint on July 8 announced an Instinct developer contest, its first competition focused on a specific device, offering the winner $25,000 in prizes. In May, Sprint relaunched its developer program, which enables programmers to certify applications for use with Sprint's devices and network for only $5,000, much less than it used to cost. Developers are also now free to bring applications to market without paying Sprint any fees. "It shaves off months of application development and reduces developers' costs," says John Schuler, director of platform management at Sprint. "It's like postage stamps vs. Federal Express (FDX)."

As popular as the iPhone is—as of the end of March, it had sold 5.3 million units globally—developers are hedging their bets and not confining themselves to a single device. "Anybody that's serious about the mobile market needs to develop for many [devices] out there," says Dan Gilmartin, vice-president for marketing at uLocate, a Boston-based maker of software that lets users find friends nearby. "We see the success that Sprint is having with the Instinct and we want to be part of that success." So uLocate has tailored its application for both the iPhone and the Instinct, which according to Sprint has been the company's best-selling handset of its peer group. Avian Securities analyst Matt Thornton estimates that Sprint has sold 150,000 units since its June 19 debut.

Apple Rivals Enter the Apps Game

Iconfactory has developed an iPhone application called Twitterific that lets users access microblogging tool Twitter from their handset. But the company may also tailor Twitterific for other devices, such as HTC's new Dream phone, which will run on the T-Mobile USA network and feature the Android operating system backed by the Google-led (GOOG) Open Handset Alliance. "I am always open to new platforms and new ways of doing things," says Iconfactory CEO Craig Hockenberry. "As a small developer, you look where the market share is."

Meantime, the world's largest handset maker, Nokia (NOK), is spending millions of dollars to ramp up its own mobile store, Mosh, where users can rate, comment on, and download free games, videos, and other cell-phone apps. Consumers have downloaded more than 40 million applications through the store since its mid-June launch. And while Nokia does not focus on developing applications for specific phone models, Tom Libretto, vice-president of Nokia's developer effort, Forum Nokia, says the strategy might make sense for carriers.

BlackBerry maker Research In Motion (RIMM) will hold its first BlackBerry-specific developers' conference this October. On the same day Apple opened its application store, handset maker Sony Ericsson harnessed its devices to a different applications store through an agreement with mobile-content distributor Handango.

Not All Apps Stores Created Equal

Sony Ericsson will load Handango's InHand store, which offers more than 150,000 applications, onto its touchscreen Xperia X1 phone, due later this year. "In any retail environment we have different shopping malls," explains Handango CEO Bill Stone. "Sony Ericsson wants to have some influence over the customer experience."

But just like real-world shopping malls, not all application outlets—whether online or on the phone itself—are created equal. "There's still a gap in terms of capabilities," says NPD analyst Ross Rubin. Some phones still offer a limited number of games and calendaring options. Few applications are adapted specifically for phones that feature touchscreen controls.

Then there's the matter of the economic incentive to develop for the iPhone. Venture capital firm Kleiner Perkins Caufield & Byers plans to invest more than $100 million in startups that build iPhone and iPod Touch applications and gear. "The iPhone is still going to be the best platform for a significant amount of time for developers to launch new applications," says Kleiner Perkins partner Matt Murphy.

But even Murphy concedes that developers won't focus exclusively on the iPhone forever. "Then, of course, they'll branch out to other platforms."

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