Mobile Apps' Brush with Greatness

To the iPhone's extensive rÉsumÉ, add magazine cover illustration. Artist Jorge Colombo recently drew widespread attention for creating the image for The New Yorker's June 1 cover on an iPhone using Brushes, a $3.99 mobile application.

Brushes was designed by Steve Sprang, a 32-year-old programmer who lives in Mountain View, Calif. Brushes simulates the experience of painting on the iPhone screen. Users select from a set of brushes and paint colors using their fingers directly on the screen. It is an application that he wanted to use himself: "I like computer graphics and I like creative tools, so Brushes was definitely an app that I wanted to use myself," Sprang wrote in an e-mail. "I expected it to appeal to others as well. I think a painting app is a natural fit for the iPhone."

He was right about that. More than 50,000 iPhone owners have downloaded it from Apple's (AAPL) iTunes Store since Sprang released it in August 2008, and the pace quickened with publicity from The New Yorker cover. Under Apple's rules, Sprang gets $2.80, or 70%, of each purchase, meaning Brushes has earned him about $140,000 before taxes.

Apple Leads the Way

There is, as Sprang's experience proves, money to be made selling software applications for the iPhone and other wireless devices. Apple's iTunes Store has led the way, providing the official channel for software that runs not only on the 21.2 million iPhones it has sold, but also an additional 16 million iPod Touch devices. In less than a year of sales, Apple has reported more than a billion downloads overall. Some apps are free, while many cost 99¢ to $9.99—and higher. The most expensive iPhone app, IraPro, at $899.99, is a remote surveillance controller for businesses.

And while Apple has led the way by distributing applications it approves via iTunes, wireless rivals have followed Apple's model. Phones running Google's (GOOG) Android operating system get their applications from the Android Market. BlackBerry maker Research In Motion (RIMM) has since Apr. 1 operated its own application store known as App World, and Finland's Nokia (NOK), the company behind the Symbian smartphone platform, has gotten into the act with the May 26 launch of its Ovi application store. Sony Ericsson (SNE/ERIC) was the latest, announcing June 3 it will also market wireless apps.

Many applications are games. The wireless unit of game developer Electronic Arts (ERTS) reported $189 million in revenue in its 2009 fiscal year ended Mar. 31, up from $142 million in fiscal 2007 and $152 million in 2008. Another wireless gaming concern is Palo Alto (Calif.)-based Tapulous, which makes the Tap Tap Revenge game for the iPhone. Consumers have installed the game, which requires clicking on moving lights to the beat of a particular song, more than 10 million times. It's one of the apps that has been most consistently among the leaders in terms of downloads, along with Pandora and Facebook. Nearly a third of all iPhones and iPod Touches have the game installed. And while the vast majority of those were downloaded for free, some 300,000 or so customers paid $5 for a premium version that comes with preloaded music. Tapulous CEO Bart Decrem says the game is played more than a million times per day.

Tapulous is becoming a bit of a marketing force in the music industry. Tapulous' best-selling paid app, Tap Tap Dance, has sold more than 150,000 copies. "That would be pretty decent success for an album these days," Decrem says. And each week Tapulous gives away a song-of-the-week to work with the app. In a good week, more than 500,000 people download it. Next week, the company plans to announce a deal with Universal Music Group to collaborate on a new game. Universal also will open more of its music catalog for use with Tap Tap Revenge.

Productivity Tools à la Viigo

And while there's certainly money to be made on games, many more apps seek profits through productivity. Take Viigo, a news and information application sold for the BlackBerry and Windows Mobile (MSFT). Its presence on RIM's App World made a big difference, says Viigo CEO Mark Ruddock. "We had only penetrated a small subset of BlackBerry devices around the world. But in the first 45 days since the App World launch we've seen 450,000 downloads," he said. "We beat our 2009 target by the beginning of May."

Viigo is free, but Ruddock says the company plans to make money in three ways. First, it will sell advertising. Its media partners run the gamut from AccuWeather to Canada's major newspapers like The Globe and Mail and The National Post, and are growing. All those people reading articles and blogs on their BlackBerrys with Viigo creates useful information about those people, Ruddock says, which in turn creates an opportunity to sell highly targeted ads. Those ads could lead to transactions users carry out within the application itself, on which Viigo would share revenue. A third revenue source comes from a version of the application for large companies. Once they've installed some software on their services, companies could give employees access to custom feeds of information on their devices.

If it seems like Viigo is making multiple bets on where the money will come from, that's intentional, Ruddock says. "We really felt that the winning strategy has yet to be revealed and we weren't going to make a Hail Mary play against one particular approach."

A Mobile App Land Rush

That's what makes the mobile software business interesting: No one is quite sure exactly how much money can be made, but given the market, the potential is enormous. While sales of wireless handsets are down—market researcher IDC said unit sales were down by nearly 16% in the first quarter of 2009, to 245 million units—sales of smartphones like the iPhone, BlackBerry, and Symbian grew by about 4% year-on-year, accounting for 14.3% of the overall market. Researcher Frost & Sullivan forecasts that by 2014, wireless customers will download more than 6 billion apps to their phones.

Numbers like that have led many observers to describe the mania for mobile software as akin to a land rush. Ken Dulaney, a vice-president at research firm Gartner (IT), is one of them.

"Everyone is coming at this from every angle," Dulaney says. "The determining factors will be how well the applications are advertised and marketed, and secondly, how good they look on the device. Apple is setting the pace in both those categories right now but I think others will move up the ladder rather quickly." Moreover, what is now considered a smartphone will eventually migrate to lower-end devices, enlarging the market potential for mobile apps even more. "Today's smartphone won't necessarily be so high-end a phone in two years, but will be more mainstream," predicts Frank Dickson, an analyst with Arizona-based research firm In-Stat.

Gaming as a Service

The changes are happening fast and furious. One important step coming soon to Apple's iPhone—and presumably to other platforms not long after that—is the ability to do financial transactions within an application. There's an obvious appeal for games: After forking over $5 for the game, you might be enticed to spend another 99¢ for a new level or a feature to enhance the game's experience.

Such revenue is a big part of the growth strategy at Tapulous, CEO Decrem says. Rather than focus on landing a one-off software sale, it will seek to sell songs at 50¢ a pop to people who want to tap to more of their favorite tunes, or "greatest hits" selections from certain groups for use on Tap Tap Revenge, along with a customized game theme for specific bands. "The old model was to make a game and sell it. You sell it, and then you're done," Decrem says. "But we're heading into the era of gaming as a service."

While it's very early days, Tapulous thinks it can persuade phone fans to buy more than the four or five songs the average Guitar Hero user buys annually. So instead of $5 from 300,000 people who want the enhanced version of the music-tapping game, the company would net far more from millions of people buying the gaming app. "In (the) new world, we'll have millions of people who we can charge smaller increments," Decrem says. For many app companies, your smartphone may morph into a fine revenue provider.

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