Verizon IPhone Deal May Add $1 Billion to Apple's App Sales

A Verizon Wireless version of the iPhone will create a boom in sales of downloadable tools and games for the device, strengthening Apple Inc.’s already close ties to mobile software developers.

Verizon Wireless customers may buy $1 billion in applications, adding to an expected $6 billion in apps through Apple’s App Store in 2011, according to technology research firm IDC. Verizon Wireless will start selling the iPhone in January, two people familiar with the plans said this week.

As the largest U.S. mobile phone service provider, Verizon Wireless gives developers a bigger pool of customers than AT&T Inc., now the exclusive U.S. iPhone carrier. Its network ranks higher than AT&T’s in consumer-satisfaction surveys and may provide a showcase for a wider range of multi-media features.

“We don’t have to do anything -- it just increases the size of our audience,” said Andrew Stein, director of mobile business development at PopCap Games, the Seattle-based maker of “Bejeweled” and “Plants vs. Zombies,” two of the top- grossing games in Apple’s App Store. “Hopefully we start to see our sales increase drastically as Verizon customers start moving to the iPhone.”

New iPhone users from Verizon Wireless may account for about 14 percent of Apple’s app sales, expected to rise to $7 billion next year from $2.9 billion in 2010, according to Scott Ellison, an analyst at IDC in Framingham, Massachusetts.

Verizon Wireless spokesman Jeffrey Nelson declined to comment, as did Apple spokeswoman Natalie Harrison. An AT&T representative didn’t immediately respond to a request for comment.

Apple Versus Google

Association with Verizon Wireless may also help Apple extend its lead over Google Inc., when ranked by the number of applications. Apple’s App Store boasts 225,000 free and paid apps, while Google-backed mobile operating system Android has about 65,000 apps on its Android Market.

“Carrier distribution still matters for handset sales, so the primary benefit for Apple and iPhone developers is another 100 million people who currently go through Verizon’s doors” and may choose to buy an iPhone, said Matt Murphy, a partner at Menlo Park venture capital firm Kleiner Perkins Caufield & Byers, who manages the $200 million iFund for app developers.

Apple shares 70 percent of app sales with the programmers who create the software. Verizon Wireless, owned by Verizon Communications Inc. and Vodafone Group Plc, may sell about 12 million iPhones in first year, said UBS AG analyst John Hodulik.

Network Reliability

A bigger audience on the iPhone means some developers will train more resources on apps for the device even as they write for competing platforms, said Julian Farrior, founder and CEO of Backflip Studios, maker of “Paper Toss” and other games.

“We won’t plan to develop any less for Android, but we will likely accelerate iPhone” development towards the end of this year, Farrior, whose company is based in Boulder, Colorado, said in an e-mail.

The Verizon Wireless data network may also prove a more reliable platform for multi-media applications, said Jeff Smith, CEO of Smule, a Palo Alto, California-based maker of music applications that incorporate music and video downloads.

“The thing that was holding a lot of this back was reliability of connection and the reliability of data,” Smith said. In recent months, Smule has heard from users of its “I Am T-Pain” app who became frustrated by data connections being dropped before a song download had completed, he said.

Added competition from Verizon Wireless for iPhone users may prompt AT&T to step up the pace of network improvements, Smith said. “From a developers’ perspective that gives us little more confidence to continue to create applications that are multimedia-intensive,” he said.

AT&T, Google

AT&T has said it’s spending an additional $2 billion to ease the strain on its network posed by smartphones.

“I don’t know what the big deal with AT&T is because I’ve never had any problem with them,” said Brian Greenstone, CEO of Pangea Software, based in Austin, Texas. “As for development, it really makes no difference. The iPhone is already the number one spot to be for mobile app development - by a long shot.”

While forging tighter links to Apple may boost sales, it also makes developers beholden to the company’s restrictions on how applications are built. Apple bars the use of such tools as Adobe Systems Inc.’s Flash, used to make video run more smoothly on mobile devices. Some programmers also say Apple’s app approval process is opaque.

Google, meantime, is considering ways to give programmers more incentive to create apps for Android, Andy Rubin, vice president of engineering at Google, said last month in an interview with Bloomberg Businessweek.com. Google may offer tools that help them sell subscriptions, virtual goods and other items from within applications on mobile phones, he said.

In 2012, Android will eclipse Apple’s iOS as the world’s second-most-popular mobile operating software after Symbian, researcher Gartner Inc. has said.

Sam Altman, chief executive and co-founder of mobile location service Loopt, has no plans to abandon Android. “I don’t think it means people stop developing for other platforms,” he said, citing the danger of building a company around “a single platform.”

Editors: Tom Giles, Peter Elstrom.

To contact the reporter on this story: Douglas MacMillan in New York at dmacmillan3@bloomberg.net; Adam Satariano in San Francisco at asatariano1@bloomberg.net.

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