Last summer Armin Heinrich wrote a program that didn't really do much. Within a few minutes, he had built a digital gemstone out of a few lines and colors. Then Heinrich, an engineer in Salzgitter in the German state of Lower Saxony, added a few sentences of descriptive text, complete with spelling errors, and offered his glittering piece of nothing much at all for sale on computer company Apple's online accessories page—as a program, or application, for the company's iPhone—for the grand sum of $999 (about €675).
Eight people bought the program, called "I Am Rich." Seven of them allegedly bought it by mistake. And a day later, Apple (AAPL) removed the program from its site. Heinrich, 46, says that he just wanted to see how far he could go, to try and see "what people are willing to buy." The answer to his question: Almost anything, apparently.
There is almost nothing you cannot get on your iPhone. With a little help from their mobile phone, the truly determined can find almost anything on their phone—from marijuana dealers to free taxis to the title of a song being played on the radio at any given time. Thanks to these small programs, mobile phones can become your spirit level or your compass. They can even serve as a moral compass, pointing the Muslim faithful the way to Mecca at prayer time.
An iPhone user can now download more than 100,000 of these applications, colloquially known as "apps," through Apple's proprietary iTunes Store. Some are free, some cost very little and some are expensive. Many are useful, some are complete nonsense. Games, navigation systems, and office applications are among the most popular.
About a half year ago, Apple decided to let anyone write programs for their iPhone. At first, only a few hundred amateurs responded to the call. But now more than 125,000 developers are registered with Apple. A handful has made a lot of money with their small programs but most have earned little more than pocket money.
But for the California-based computer company, with its cult following and dedicated fan base, the whole thing has become a massive moneymaker. The developers of apps receive 70 percent of revenues while Apple collects the remaining 30 percent. Programmers pay $99 (€66) per annum to register as a developer with Apple. In return, they receive assistance in processing payments, as well as an internal review of the quality of the programs they submit. Apple's reviewers did not find fault with Heinrich's digital gem.
iPhone Applications Business Worth $6 Billion In Three Years
iPhone owners have downloaded over two billion apps since the store opened in July 2008 and US mobile advertising company AdMob, which specializes in partnering advertisers with such things as iPhone apps, estimates total sales at about $200 million (€135 million) for the month of August alone. But this is only the beginning. International digital technologies consulting firm Strategy Analytics predicts that more than $6 billion worth of apps will be sold in 2013.
According to AdMob, the average iPhone user downloads 10 applications a month and they're willing to pay more than $9 a month for around one in every three of those.
All of this indicates a new market developing in an industry that, after years of rapid growth, has been stagnant for some time. Only India and China are still growth markets for mobile telephony while sales are shrinking in places like Germany.
Meanwhile at Apple, business is booming. The iPhone has become a cult accessory—but only partly because of the trend for apps. Thanks to the apps boom though, Apple has managed to do something many other telephone manufacturers can only dream of: It continues to make money with iPhones long after they have been sold to customers.
The Perfect Egg Timer
Author Mirko Müller, who has written several reference books for computer uses, wants his own slice of the action. His app, "The Perfect Egg Timer," sold about 1,000 times within a month. However, the research that went into the programming did require some effort and money. Müller, 39, did a lot of egg boiling. He used the gas stove in his kitchen, the electric stove at his parent's and at friends' homes. He placed refrigerated eggs into water at room temperature and vice-versa. "We boiled—and ate—hundreds of eggs," he says.
The resulting program can calculate, based on several variables, how long it takes to boil the ideal egg. According to Müller's calculation, it takes one minute and 59 seconds to boil a soft-boiled egg with an internal temperature of 72 degrees Celsius (162 degrees Fahrenheit). That's assuming the egg has a diameter of 26 millimeters (1 inch), an initial temperature of 8 degrees Celsius, and is being boiled at 1,592 meters above sea level. Müller had his egg timer application translated into several languages, and he now sells it for €1.59.
To even stand a chance at widespread success, an app has to appear on the lists of the top applications and to receive positive user comments.
It May Seem That Way Now But Apple Was Not First
Sometimes it also takes a little luck. Sophia Teutschler, 26, wrote her tip-calculating program, "Tipulator," mainly for herself. She wanted to know how much the right amount to tip service personnel was. When Apple used her program as part of a television ad in the United States, sales skyrocketed almost overnight. Teutschler, who spent about €2,000 on developing her app, has already made about €80,000.
These sorts of success stories abound—and just like the story of the iPhone itself, they are all the more astonishing because Apple did not invent either the multimedia mobile phone (or smartphone) nor the applications. Nokia (NOK) was the first company to develop a smartphone. And supplementary programs for mobile phones have been around for a long time too. Google (GOOG) had the idea relatively early in the game. But in the time that Google took to get its Android applications—these work on smart phones other than the Apple iPhone and currently there are only around 10,000 of these sorts of Android apps available—onto the market, Apple had already started its apps program and this had quickly achieved cult status.
Programs now exist for other mobile telephones, as well. Palm (PALM), Nokia and Microsoft (MSFT) also sell platforms for apps—some of which are useful, some not so—as well as a wide range of smartphones. This spring, Research in Motion (RIMM), which makes the Blackberry phones, launched App World, an official store offering about 2,500 applications for their devices. While Blackberry apps are targeted mainly at the business world, Apple dominates the much larger general consumer market.
Amateur Developers Earning Good Money
A small industry has developed around Apple's app business, that includes a lot of amateur developers but also incorporates software companies like Zynga and Pangea in the United States and the Stuttgart-based German company, Cultured Code. Zynga, established only two years ago, is already profitable, currently generating about $100 million in revenues with its gaming applications. And just in case the Zynga developers decide to hang around in restaurants eating for a little too long, the company delivers two meals a day directly to employees' desks.
The US-based company Pangea has already earned $2.5 million with a simple game involving water droplets. And on a good day, Cultured Code sells more than 1,500 copies of "Things," its project management program, at €8 apiece.
Dimitri Völk's app has also already been sold several thousand times. Völk, 27, knows nothing about birds, and yet his app makes it possible to distinguish among 175 birdcalls. Using terms like "begging call" and "song," a drop-down menu and an image database, one can quickly identify birds. "We wrote a database that can be filled quickly—in days—with the existing content from reference books" says Völk. Amateur ornithologists like the program so much that they are willing to shell out up to €10 for the app. Völk's latest hit is a mushroom guide. People picking mushrooms can identify their finds and store the coordinates of particularly productive mushroom fields for the following season. "All you need is a good idea and one eye on the advantages of a smartphone. Otherwise people will just take a book when they go into the forest," Völk explains.
Traditional News Media Want Slice of Apps Action
The success of apps has now caught the attention of publishers and television networks, who reason that if people are willing to pay money for a mushroom identification app, why not for the news? This has prompted some in the media industry to speculate that applications could encourage the reader to pay for journalistic content on the Internet.
The idea of charging money for well-researched journalism delivered via the iPhone, the Blackberry, and similar smartphones, is not nearly as curious as it sounds, given that mobile telephone users are already used to paying for services this way. According to a McKinsey analysis, however, the interests of German mobile phone users are ranked like this: general Internet searches, checking e-mails, map and navigation tools, music—and then news.
That's why there are so few applications based around the classic print media in the German-language App Store. An app for the online platform, stern.de, has been available since February of this year and according to the publisher the free program has been downloaded about 360,000 times since then. But the application doesn't really offer a lot more than what is already available on the website of the Hamburg-based magazine.
Some regional papers, like the Bavarian Augsburger Allgemeine, are looking into the idea of offering a kiosk-like app for the iPhone, under the working name "News Push." The Süddeutsche Zeitung, based in Munich, also plans to offer an app from the middle of November.
Newspapers Plan Paid Content On iPhone Too
In a highly publicized move, the Axel Springer publishing house announced the launch of "Mein Klub" (My Club), a football program that allows the user to obtain news about his or her favorite club or read stories about German football stars. This type of information, however, can be found just as easily on the Internet.
The German version of women's magazine Elle, published by the Burda group, offers apps with advice on shopping and beauty in various German cities. Instead of using the information that's provided by one's iPhone, the Elle app refers the user to articles that have appeared in issues of the magazine instead. The app, available for €2.99, has only just sold enough to recoup its development costs.
Experts are skeptical about whether paid programs for journalistic apps will be successful. A user can easily use their smartphone to access the Internet where they'll find many free-of-charge Web sites already optimized for browsing on mobile phones. "As long as there is browser button on the iPhone that allows you to get free information from the Internet, it will be very difficult to establish paid products in the App Store," says Alexander Dahlke, a mobile communications expert at McKinsey.
For this reason, the Springer publishing house plans to introduce apps for two of its publications, the tabloid Bild and its flagship newspaper Die Welt. Customers will be enticed to the paid-for Web sites with additional content, like the full transcripts of interviews. Once the apps are introduced, access to the Bild and Die Welt Web sites via the iPhone will be blocked, so that those wishing to continue using the sites will only be able to do so by buying the program.
'The World Isn't Exactly Waiting For Apps Containing Banner Ads'
So far advertising revenues generated by smartphone applications have been sluggish. "The world isn't exactly waiting for apps containing banner ads," says Florian Gmeinwieser, a member of management at Plan.Net mobile, a German agency specializing in mobile advertising.
Not even the popular iPhone program "Meine Stadt" (My City)—which helps users find the nearest ATMs, bars or gas stations—pays for itself with advertising revenues.
In fact, profitability is not the aim of a lot of the new apps, with many intended mainly for marketing. Many companies have fallen victim to the hype around apps, Gmeinwieser notes. Low development costs for an app—usually only a few thousand euros—have tempted many companies to develop their own apps. "Today every management board wants an app of its own. But only those with added value will make it," Gmeinwieser says.
For some software developers, the added value is more personal. When his wife became pregnant for the first time, Lars Bergelt, an orthopedic shoemaker from Mittweida in Germany's eastern state of Saxony, wrote a program that allowed him to monitor the development of the fetus. A graphic shows the outline of the body, and information about weight and functioning organs can be superimposed. Now Bergelt's wife is in her second pregnancy and his program has calculated her due date as Nov. 16. Only 4 percent of babies arrive on their due date but, as Bergelt says, "it would be just terrific, if she actually gave birth on that day."
Translated from the German by Christopher Sultan